The share of the country’s urban population is expected to increase from 31 per cent in 2011 to 40 per cent by 2040 and 50 per cent by 2050. This rising population will require the necessary urban infrastructure. The government has launched a number of schemes such as the Swachh Bharat Mission (SBM), the Smart Cities Mission (SCM), the Atal Mission for Rejuvenation and Urban Transformation (AMRUT) and the Pradhan Mantri Awas Yojana (Housing For All) to drive this development agenda. These schemes will require investments of more than Rs 10 trillion over the next decade or so. To meet this requirement, the country needs to employ innovative ways of financing such as municipal bonds, land value capture and innovative models such as the hybrid annuity model, while increasingly engaging with the private sector. All the stakeholders need to come together to develop cities that are world class and sustainable. At a recent India Infrastructure conference, Durga Shanker Mishra, secretary, Ministry of Housing and Urban Affairs (MoHUA), shared his perspective on the progress of various centrally sponsored schemes, challenges in execution, key developments in urban infrastructure segments, and the next steps to ensure sound implementation. Excerpts…
India is urbanising steadily. During the past decade (2001-11), the urban population increased by about 32 per cent from 286 million in 2001 to 377 million in 2011. In the next few years, urban areas will witness substantial migration as a result of people moving away from rural areas in search of improved opportunities for higher education, increased employment prospects, better medical facilities, and enhanced commercial and economic activities. This migrating population will also bring with it a higher level of expectations with respect to the availability of quality supply of clean drinking water and electricity, availability of clean air, liveable housing facilities, well-connected transport services, etc. Therefore, it is critical to manage this rapid urbanisation efficiently, through increased investments, effective capacity-building programmes and strong institutional reforms.
Assessing the current situation and schemes launched for infrastructure development
In June 2017, the MoHUA conceived the Ease of Living Index for India. The index ranked liveability conditions in 111 Indian cities. The ministry studied the quality of life in each city based on several parameters, including institutional (governance), social (identity, education, health, security), economic (economy, employment) and physical (waste water and solid waste management, pollution, housing/inclusiveness, mixed land use, power and water supply, transport, public open spaces) factors. The top three cities were in Maharashtra. Pune was ranked the highest, followed by Navi Mumbai and Greater Mumbai. The cities which were ranked the lowest were Patna in Bihar, Kohima in Nagaland and Rampur in Uttar Pradesh.
The government approved a number of programmes and schemes to step up investments in the urban infrastructure sector. Under the SBM, the government is planning to collect and process the waste generated in the country using advanced scientific technologies. It also plans to make India open defecation free by October 2019. The government is taking several steps to drive behavioural change in the urban population through knowledge sharing and awareness campaigns.
The government is also planning to provide clean drinking water infrastructure for 500 cities with a population of over 100,000. For this it will provide 14 million piped/tap connections by March 2020. Moreover, the government is planning to provide Housing for All by constructing 10 million affordable houses by 2030. Of these, 3.4 million houses have already been constructed and more than 1.2 million have been sanctioned. Further, 6.3 million houses will be sanctioned by 2022.
In addition, 100 cities are being developed as model smart cities under the SCM. The smart systems and solutions deployed in these cities could later be replicated in other cities across the country. Another area which is being targeted for improvement is urban transportation. Nearly 530 km of metro rail systems are operational. This number is expected to cross 650 km by May 2019. Another 650 km of metro rail network is under construction and more than 1,000 km is at the planning stage.
Massive investment requirements
According to the High Powered Expert Committee Report on Urban Infrastructure, 2011, India will need $600 million-$700 million of funding to offer basic urban infrastructure services till 2031. At current prices (2018), the investment requirement to build basic urban infrastructure in Indian cities is around $1 trillion. The number of cities has also grown from 4,041 in 2011 to over 4,400 in 2018. This is expected to further increase the total investment requirement for building basic urban infrastructure. For example, the SCM alone requires an investment of nearly Rs 2.05 trillion. Further, AMRUT requires Rs 1 trillion and Housing for All requires Rs 6 trillion by 2030.
Encouraging private sector participation and developing innovative models
The government is exploring a number of traditional as well as innovative sources to raise financing for the infrastructure sector. For example, for the SCM, 45 per cent of the fund requirement is being provided by the central and state governments and 21 per cent will be sourced from other schemes such as AMRUT. Another 21 per cent will be mobilised through public-private partnership (PPP) projects. In addition to providing funds, the private sector can also help in devising strategies to judiciously utilise the funds and provide technical support in designing and implementing schemes.
Over the past five-seven years, private sector participation in the urban infrastructure sector has made significant headway. Under the SCM, investments of over Rs 100 billion are being mobilised through various PPP projects for improving solid waste management and transport infrastructure.
A new PPP format, the hybrid annuity model (HAM), which is a mix of the engineering, procurement and construction and build-operate-transfer models, is being experimented with in the sewerage sector. Under the Namami Gange Mission, two sewage treatment plants are being developed in Haridwar and Varanasi under HAM.
Further, the government has also been incentivising and encouraging municipal corporations to become self-sufficient and mobilise resources through instruments such as municipal bonds. A credit rating exercise is being carried out by 463 cities under AMRUT. Of these, 161 cities have been rated as creditworthy and 35 have been rated A- and above. Five cities – Pune, Hyderabad, Indore, Amravati and Bhopal – have together raised Rs 26.8 billion through the issue of municipal bonds. Several more cities are expected to raise finance through this route going forward. Other instruments such as real estate investment trusts, pooled municipal debt obligation, and the levy of user fees, etc. are also being used to raise funds. Another innovative model which is being adopted is the levy of land value capture fees where the government raises finance from the incremental value of land under its jurisdiction. More than 130 cities have already formulated an appropriate policy/regulation to capture land value.
SCM: A new approach to urban transformation
To bring in more efficiency and transparency in project development and funding, for the first time a challenge approach was adopted under the SCM. All the 100 smart cities selected have incorporated their special purpose vehicles for project execution. The mission has engaged several national and international companies as project management consultants to bring in innovative ideas for the development of projects. The process of disbursement of funds is also linked to reform implementation under the SCM which is making the process efficient.
Over the past couple of years, the urban infrastructure sector has witnessed a surge in activity in terms of policy and regulations, programmes and schemes, and project uptake. While a huge infrastructure backlog still exists, rising government expenditure and increasing private sector interest have provided the much- needed impetus to the sector.
Going ahead, all the stakeholders including project developers/contractors, consultants, technology and equipment suppliers and citizens need to work in a coordinated manner to build smart and liveable cities. The sector is likely to see increased and efficient governance; a sharper focus on capacity creation, be it institutional or skill development; and an increased focus on reforms aimed at providing financial autonomy to urban local bodies and encouraging private sector participation.