Ramakrishna Nallathiga

Associate Professor
NICMAR Pune
Urban Infrastructure,
Townships and SEZs
Post-Graduate Programme in Real
Estate & Urban Infrastructure
Management
Investment Requirements
Investment Gaps
Resource raising principles
Resource mobilisation methods
Investment requirements for the development of
urban infrastructure in India are colossal. Estimates of
fund requirements for urban infrastructure are
available from several sources.
Rakesh Mohan Committee Report (1996) estimated
that the total investment requirements of urban
infrastructure were in the range of Rs.79,300 - 94,000
crores for the period 1996-2001.
Investments in Urban Water supply and Sanitation was
estimated at Rs.21,000 crores for 2001-2011 and Rs 22,800
crores for 2011-2021.
Total annual investment needs of water supply,
sanitation and road sectors in urban area at Rs.28,036
crores per year for the period 1996-2006.
The Central Public Health Engineering
Organisation (CPHEO) has estimated the
requirement of funds for 100 per cent coverage
of urban population under safe water supply and
sanitation services by the year 2021 at Rs
1,72,905 crores.
Estimates by Rail India Technical and Economic
Services (RITES) indicate that the amount
required for urban transport infrastructure
investment in cities with a population of
1,00,000 or more during the next 20 years would
be of the order of Rs 2,07,000 crores.

The Tenth Five Year Plan also emphasized upon the
provision of these important urban infrastructure facilities
with the norms of 100 per cent coverage of urban
population with water supply facilities, and 75 per cent of
urban population with sewerage and sanitation by the end
of Tenth Plan period i.e., March 31, 2007.

The funds required for water supply, sanitation and solid
waste management during Tenth Plan period (2002-2007)
were estimated at Rs 53,719 crores. As against this, the
likely availability of funds from different sources has been
estimated at Rs 35,800 crores, which will fall short of the
required funds by 33.4 per cent.

Estimates of Requirements of
Funds
Likely Availability from Different
Sources
Water Supply 28,240 Central
Government
2,500
Sanitation 23,157 State
Governments
20,000
Solid Waste
Management
2,322 HUDCO 6,800
Total:- 53,719 Other PFs &
External Funding
Agencies
4,000
LIC 2,500
Total 35,800
Raising resources for urban infrastructure services has
to be based on the golden rules of Bahl & Linn (1992):
Where benefits and beneficiaries are identifiable, levy user
charges
Where benefits are identifiable and beneficiaries are not
identifiable, levy benefit taxes
Where neither benefits nor beneficiaries are identifiable, levy
general taxes
Where administration and other expenses are involved, levy
fees & charges
Where long gestation capital works are undertaken, use
bonds/ debt
A. Inter-governmental Partnerships

The Central Government, having observed the large
resources requirements associated with providing civic
urban infrastructure, has worked out a partnership based
funding arrangement, with a majority coming from it.
This change in approach has come not only in the wake of
seriousness of urbanization pressures but also after having
understood the importance of urban areas in promoting
economic growth.
This was started with setting up National Urban Renewal
Mission (NURM) with a modest size of Rs 4,000 crores to
assist ULGs, which was later renamed as Jawaharlal Nehru
National Urban Renewal Mission (JNNURM) while
augmenting the size to Rs 50,000 crores
B. Public-Private Partnerships

Public-private partnerships (PPP) are potentially important
means of involving private sector in the provision of civic
infrastructure services.
The partnership model ensures leveraging public sector
strengths with those that of private sector.
PPP refers to a spectrum of possible relationships between
public and private sectors for a cooperative or joint provision
of infrastructure services.
Private sector participation in civic service delivery could
help to bring technical and managerial expertise, improving
operating efficiency, large scale injection of capital, greater
efficiency in using the capital, rationalization/ cost based
tariffs for services, better responsiveness to consumer needs
and satisfaction


C. Accessing Market Finance

Urban local bodies could resort to borrowing from financial
markets including banks to finance infrastructure projects.
It should be ensured that these borrowed funds are devoted
to projects which have adequate, explicit and identifiable
revenue stream to service these borrowings.
Few Municipalities issued Municipal Bonds to raise finances.
There can be an effective instrument of fiscal reforms and
will induce credit-rating.
Bangalore Municipal Corporation was the first local government
in India to access debt market through non-convertible bonds
(private placement) in 1997 with the State Government
guarantee
Ahmedabad Municipal Corporation (AMC) became the first ULG
in Asia to issue bonds without government guarantee in 1998.
D. Other Innovative Methods

Property Tax Reforms itself would give rise to significant revenue
inflows as they are not revised and updated from time to time
Transferable Development Rights are another set of instruments
that enable the urban local body to award development rights in
lieu of civic services development and maintenance. Mumbai is a
good example of utilising TDR for fiscal needs.
Development Charges/Betterment Levies are another important
means of recovering infrastructure costs across the world. These
instruments incorporate the principle of recouping land value gains
from such infrastructure development.
Pooled Fund Mechanism is another option utilised by the ULBs in
some part of the country to mobilise resources using the common
financial strength and sharing among them

P K Mohanty, 1999, Financing urban
infrastructure: Some innovative practices of
local resource mobilisation, Working Paper,
Centre for Good Governance, Hyderabad
Bahl R and J F Linn, 1992, Theory of Public
Finance in Developing Countries,
R Nallathiga, 2006, Resource Mobilisation for
Urban Infrastructure Development: Instruments
and their Potential, Paper for National Workshop
at CGG Hyderabad
C Vaidya and H Vaidya,2009, Municipal Bond
Markets in India,