Urban infrastructure investment report

In News: The report released by World Bank, titled ‘Financing India’s Infrastructure Needs: Constraints to Commercial Financing and Prospects for Policy Action’, estimated that India would need $840 billion over the next 15 years to meet the needs of the growing urban population

• India needs to increase its annual investment in city infrastructure from an average of $10.6 billion a year in the past decade to an average of $55 billion a year for the next 15 years.

Findings of the report:

• By 2036, 600 million people will be living in urban cities in India, representing 40% of the population.
• Currently, the central and state governments finance over 75% of city infrastructure, while urban local bodies (ULB) finance 15% through their own surplus revenues.
• About half of the investment needed – $450 billion – in the next 15 years was in the basic municipal services sector, while most of the remaining amount was to address urban transport requirements.
• Private sector participation in urban infrastructure investments is only 5%.
• As per ULBs of Tamil Nadu and Gujarat

• Over 3/4^th of the total urban capital expenditure was from the Union and state governments.
• State governments share = 70% in Tamil Nadu and 55% in Gujarat
• Commercial financing share = only 1% in Gujarat, while 12% in Tamil Nadu

• Commercial financing means primarily loans from state-controlled financial institutions.
• Between 2011 and 2018, urban property tax stood at 0.15% of GDP compared to an average of 0.3-0.6% of GDP for low and middle-income countries.
• Low service charges for municipal services also undermines their financial viability and attractiveness to private investment.

• Recommendations of the World Bank

• Making the transfer of funds to cities formula-based and unconditional and increasing the mandates of city agencies gradually
• removing market frictions that cities face in accessing private financing.

Source Indian Express