A Long Way to Go: Urban infrastructure services need urgent attention

Urban infrastructure services need urgent attention

Increasing urbanisation in the country has put tremendous pressure on civic infrastructure. The rate of increase in the urban population over the past two decades is almost double that of the overall population. The provision of basic services, however, has not kept pace with urbanisation and cities are visibly deficient in the quality of services rendered to urban populations. The coverage of water supply and sanitation networks continues to remain low, with widespread regional disparities. Despite several initiatives, including developing metro rail systems, improving city bus services, and procuring modern buses, most cities in the country do not have an efficient and well-connected public transport system.

According to latest available estimates, since 1990, around 6,500 projects involving an investment of $2.4 billion have been implemented across various infrastructure sectors (including urban infrastructure) in the developing world. Of these, 289 projects involving an investment of $87 billion have failed to meet the desired results. The average failure rate of these projects stood at about 4 per cent. Sector-wise, the water and sewerage sector has accounted for less than 4 per cent of the total investment. The failure rate for water and sewerage projects stood at 20 per cent, which is significantly higher than the average failure rate for other infrastructure projects. Further, the cost recovery rate in the urban infrastructure sector has also been less than 20 per cent.

Reportedly, India ranks second among the developing countries both in terms of the number of public-private partnership (PPP) projects and the investment involved. About 980 PPP projects involving an investment of $257 billion have been implemented in the country since 1990. Of the total investment, only $1 billion (accounting for a share of less than 1 per cent) has been spent on water and sewerage projects. The key reasons behind the low levels of investment and subsequent low private participation have been low cost recovery, irrational tariffs, political unwillingness to hike user charges and the high failure rate of projects.

Current state of basic civic services in urban areas

Water utilities across the country have been facing difficulties in delivering basic services such as providing clean drinking water and treating sewage. At present, about 60 per cent of the total water demand for irrigation and 85 per cent of drinking water demand is sourced from groundwater. In fact, there are some cities that source almost 80 per cent of their water requirements from groundwater. Meeting the rising consumer demand becomes even more difficult as a large proportion of the water supplied is lost due to leakages, faulty pipelines and unauthorised connections. Currently, non-revenue water accounts for roughly 41 per cent of the total water supplied in the country. Further, the revenue collected from billed water volume is just about 15-20 per cent of the operations and maintenance (O&M) cost.

In the past one decade or so, the country has made remarkable progress in the urban rail segment. The operationalisation of the Delhi metro rail system in 2002 was the biggest development in the urban transport segment. The success story of the Delhi metro encouraged several other cities to set up metro systems. Today, metro rail systems are operational in Bengaluru, Chennai, Delhi, Gurugram, Hyderabad, Jaipur, Kochi, Kolkata, Lucknow and Mumbai. Further, about 285 km of bus rapid transit (BRT) networks have been operationalised in Ahmedabad, Amritsar, Bhopal, Delhi, Indore, Jaipur, Naya Raipur, Pimpri-Chinchwad, Pune, Rajkot, Surat and Vijayawada.

With respect to financing urban infrastructure projects, at present there is a complete disconnect between the public sector, private sector and capital markets. India suffers from the dual problem of inadequate fund allocation and inefficient utilisation. Typically, of the total amount of funds allocated for a programme, less than 10 per cent is utilised effectively.

Further, levy of low and irrational user charges to subsidise the poor has also affected the level of investments in the sector. In addition to the government’s unwillingness to charge, the problem of citizens’ unwillingness to pay also requires to be addressed. In this regard, there is a need to spread awareness among the masses about the necessity of having rational user charges.

Government initiatives

Over the years, the government has approved a number of programmes and schemes to step up investments in urban infrastructure. The Jawaharlal Nehru National Urban Renewal Mission (JNNURM), a massive city modernisation scheme implemented between 2005 and 2014, was the first programme that provided funds to urban local bodies (ULBs) for improving and modernising urban infrastructure. Until 2014, it was the single most important means for the overall transformation of the urban infrastructure sector. The programme involved transfer of grants to the larger cities for the development of urban infrastructure. This, in a way, also promoted a metropolitan bias in which greater policy attention and more financial resources are given to the bigger cities as compared to smaller ones. As a result, the smaller cities had to borrow funds to implement projects. Besides worsening the delivery of civic services in smaller cities, the JNNURM reduced the role of public finance in the urban infrastructure sector.

Between 2014 and 2015, the government launched several new schemes and programmes to expedite urban infrastructure development and service provision and thus replaced the JNNURM. Launched in June 2015, the Smart Cities Mission (SCM), which envisions the development of 100 smart cities, is one of the principal initiatives of the government. Under the mission, each city government will establish special purpose vehicles to implement smart city projects.

Also, for the first time, in August 2018, the government came out with the Ease of Living Index to assess the quality of life in cities. The index assesses the quality of life in 111 Indian cities (which include cities identified under the SCM) on the basis of four pillars and 15 categories using 78 indicators. However, some industry experts are of the opinion that instead of focusing on a number of indicators, the concept of ease of living should revolve around three factors – liveability, sustainability and employability of a city.

Key recommendations

To begin with, there is a need to implement capital market reforms to address the issue of financing urban infrastructure projects. These include creating permanent capital instruments, carrying out credit rating of ULBs and developing an efficient municipal bond market. The government could also look at issuing a mandate for city governments to offer 10-or 20-or 30-year bonds to enable them to raise significant amount of capital for urban infrastructure projects. A pooled finance mechanism could be a good alternative to bank financing.

Further, the government should incentivise and encourage ULBs to become self-sufficient and mobilise resources from the capital markets. Dedicated programmes and training sessions for improving the capacity of ULBs should be undertaken. Also, ULBs should create as well as maintain an accurate database at the city level. There is also a need to increase citizen participation in project implementation. For this purpose, there is a need to introduce the fourth P – people – in the concept of PPP.

There is a need to promote the concept of transit-oriented development to maximise the quantum of business, residential and leisure space within walking distance of public transport. Also, the government should categorise certain types of infrastructure needs as critical infrastructure and formulate mechanisms to expedite investments in the development of such infrastructure.

An independent regulatory authority should be set up at the national level with the responsibility of protecting the interest of private players and consumers and promoting the development and protection of public utilities. In order to ensure effective coordination between the three tiers of government, there is a need to strengthen policies and regulations and devise new dispute resolution mechanisms and risk allocation frameworks and create accurate city-level and national-level databases. These steps will help the government in developing well-connected and integrated urban infrastructure facilities across the country.

Conclusion

The growth trend of urban populations is expected to continue, and its share is set to increase to over 40 per cent of the total population by 2031 (600 million). These larger urban populations will require an increase in the availability and efficiency of water supply, sewerage and public transport systems. The government has stimulated the process of reviving the sector through various schemes and programmes. A number of new water supply and sanitation projects have been approved under these programmes. Also, metro rail construction activities are being undertaken in a big way across the country. That said, increasing private sector participation, improving capacity of ULBs, levying rational user charges, and providing continuous political support will give the much-needed impetus to the sector.

Based on a panel discussion among Kunal Kumar, Mission Director, Smart Cities, Ministry of Housing and Urban Affairs; Dr Rashmi Singh, Secretary, New Delhi Municipal Council; Rohit Modi, Chief Executive Officer, Essel Infra & Smart Utilities; Dr Amit Kapoor, Chair, Institute of Competitiveness; Shankar Iyer, Chief, Sales and Marketing, Indus Towers; Dakshita Das, Additional Secretary, Department of Financial Services, Ministry of Finance (MoF), and Chairman, National Housing Bank; Dr Kumar V. Pratap, Joint Secretary (Infrastructure, Policy and Finance), Department of Economic Affairs, MoF; Arun Lakhani, Chairman and Managing Director, Vishvaraj Infrastructure; Dr Rajivan Krishnaswamy, Senior Municipal Finance Expert; Pawan Sachdeva, Independent Expert; Abhaya Agarwal, Partner, PPP and Infrastructure, EY, at a recent NITI Aayog conference