25 November 2024 : The Hindu Editorial Analysis

1. India’s urban infrastructure financing, needs and reality

(Source – The Hindu, International Edition – Page No. – 6)

Topic: GS3 – Indian Economy – Infrastructure

Context

India’s urban population is set to double over the next three decades, requiring ₹70 lakh crore for infrastructure development by 2036. However, stagnant municipal finances, inefficient tax collection, underutilisation of funds, and declining PPP investments pose significant challenges. Addressing these demands structural reforms, better financial autonomy for municipalities, and innovative project management.

India’s Urban Infrastructure Challenge

• Projected Urban Population Growth
  • India’s urban population is expected to double from 400 million to 800 million over the next three decades.
  • Meeting urban infrastructure needs by 2036 requires ₹70 lakh crore, according to a recent World Bank report.
  • Current annual government investment in urban infrastructure is ₹1.3 lakh crore, far below the required ₹4.6 lakh crore.

Financial Gaps and Issues

• Municipal Finances
  • Municipal finances contribute 45% of urban investments but remain stagnant at 1% of GDP since 2002.
  • Despite an increase in central and State transfers (37% to 44%), municipalities’ own revenue sources have declined from 51% to 43%.
  • Inefficiencies exist in tax collection, with Bengaluru and Jaipur collecting only 5%-20% of potential property tax revenue.
  • Nationwide, property tax collection is only ₹25,000 crore (0.15% of GDP).
• Low Utilisation of Funds
  • Municipalities often fail to utilise their budgets, leaving 23% of municipal revenue unspent.
  • Major cities like Hyderabad and Chennai spent only 50% of their capital budgets in 2018-19.
  • Central scheme fund utilisation is suboptimal, with AMRUT at 80% and the Smart Cities Mission at 70%.
• Decline in Public-Private Partnerships (PPPs)
  • PPP investments in urban infrastructure fell sharply from ₹8,353 crore in 2012 to ₹467 crore in 2018.
  • The decline is attributed to weak revenue streams and lack of bankable projects.

Reform Measures

• Long-term Structural Reforms
  • Strengthen State finance commissions to enhance municipal autonomy and financial management.
  • Empower municipalities with greater financial and administrative autonomy to attract private capital through municipal bonds and debt borrowing.
• Medium-term Action Plan
  • Robust Project Pipeline: Develop 600-800 projects to meet the ₹70 lakh crore investment requirement, targeting 250-300 PPP projects annually.
  • Decouple Project Preparation from Financial Assistance: Focus on preparing sustainable and climate-resilient urban infrastructure projects.
  • Leverage Digital Public Infrastructure (DPI): Modernise urban services, especially in public transport, to improve efficiency.
  • Capture Land Value: Integrate urban transport projects like metro rail with urban development to monetise land value and enhance city design.

Collaboration for Sustainable Growth

• Addressing India’s urban challenges requires collaboration across government levels, private sector involvement, and innovative governance.
• A focus on long-term and immediate reforms will enable the development of sustainable, inclusive urban infrastructure, supporting the needs of a rapidly growing urban population.

PYQ: Investment in infrastructure is essential for a more rapid and inclusive economic growth. Discuss in the light of India’s experience. (250 words/15m) (UPSC CSE (M) GS-3 2021)

Practice Question:  Discuss the financial challenges faced by India in developing sustainable urban infrastructure and suggest measures to address the gaps in municipal finance and project execution. (250 Words /15 marks)