Financing India’s infrastructure: India has to invest $55 billion p.a. in urban infra to meet needs of growing population: World Bank report

Source: The post is based on the article “India has to invest $55 billion p.a. in urban infra to meet needs of growing population: World Bank report” published in The Hindu on 15th November 2022.

What is the News?

Recently, the World Bank released a report titled “Financing India’s Infrastructure Needs: Constraints to Commercial Financing and Prospects for Policy Action.” The report underlines an urgent need to leverage more private and commercial investments to meet emerging financial gaps.

Why India needs to finance India’s Infrastructure?

According to the report, by 2036, 600 million people will be living in urban cities in India, representing 40% of the population. This will put additional pressure such as more demand for clean drinking water, reliable power supply, efficient and safe road transport amongst others.

What are the key findings about financing India’s Infrastructure projects?

Slow implementation of Centre’s schemes by states and ULBs: There is a slow implementation performance by States and Urban Local Bodies (ULBs) on several of the Centre’s flagship Urban Missions such as Smart Cities Mission and the Pradhan Mantri Awas Yojana (PMAY).

For example, ULBs across India have so far executed only about one-fifth of the cumulative cost or outlay of approved projects under SCM and AMRUT over the last six financial years.

Low private participation: Currently, the central and State governments finance over 75% of city infrastructure, while ULBs finance 15% through their own surplus revenues.

Only 5% of the infrastructure needs of Indian cities are currently being financed through private sources.

A decline in PPP transactions: Public Private Partnership (PPP) transactions for urban infrastructure have registered a marked decline in the last decade both in monetary value and transaction volume.

Low PPP project awards: PPP project awards have seen a substantial spike between the years 2007 and 2012 when most of these projects were awarded. Only one-third of all PPP investments awarded since 2000 came in the last decade— including 55 projects worth $17 billion, the report stated.

Low revenue of Indian infra projects: This is due to policy decisions to keep tariffs and service charges below levels required for cost recovery and financial sustainability.

What are the key suggestions of the report to improve financing India’s infrastructure?

Need additional urban funding: India will need to invest $840 billion over the next 15 years into urban infrastructure to effectively meet the needs of its fast-growing urban population. Cities in India need large amounts of financing to promote green, smart, inclusive, and sustainable urbanization.

Creating a conducive environment for ULBs: Currently, the 10 largest ULBs were able to spend only two-thirds of their total capital budget over three recent fiscal years. India needs to create a conducive environment such as creditworthiness for ULBs to enable them to borrow more from private sources.

Medium-term solutions: A series of structural reforms such as changes in taxation policy and fiscal transfer system can allow cities to leverage more private financing.