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Financing Municipalities and
Sub-national Governments in India
M Rajamani
Joint Secretary to Government of India
Ministry of Urban Development
Regional Round Table on Asia
2nd Conference on FinancingMunicipalities and Sub-NationalGovernments, Washington, DC
30 September 2004
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Urbanisation in India
Indias urban population, as per its 2001
Census, was 285 million (27.8% of its total
population of 1.03 billion)
The number of towns and cities was 5,161
In the world context, the countrys current
urban population is almost equal to the
combined urban population of United States,UK and France
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Contribution to National
Economy
Urban areas are contributing about 60 per
cent to Indias Gross Domestic Product
(GDP) estimated at US $ 486 billion in
the fiscal year 2002-03
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Urban Infrastructure in India
The provision of urban infrastructure in Indian
cities is lagging far behind the pace of
urbanisation
Though about 90 percent of urban population
is covered by treated water supply, the water is
supplied only for a few hours per day
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Urban Infrastructure in India
52% of urban population does not haveaccess to sanitation facilities
30 to 50% of solid waste remainsuncollected
City roads are inadequate to meet the traffic
requirements (vehicle pop in India increased80-fold in last 40 years but road lengthincreased by only 5 per cent)
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Legal and Institutional
Impediments Legal frameworks relating to urban infrastructure
development and land and housing market requireamendments to facilitate public private partnershipand improve functioning and efficiency of thegovernments
There is multiplicity of urban local agencies andtheir revenue raising and financial managementcapacities are inadequate (poor credit-worthiness,weak management systems, limited revenueraising powers)
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Availability and Gap in Investment
Requirements
There is a huge gap in the availability and requirements
of funds for urban infrastructure development
In the next ten years, the requirement of funds for key
urban infrastructure of water supply, sewerage, solidwaste management and urban roads is about US$ 90
billion and the availability is just about US$ 10 billion
Projected gap for just the O&M of basic services in cities
for the next five years alone has been estimated as US$17 billion
If urban mass rapid transit systems are also included, the
gap would be much higher
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Investment Requirements Driven By
Past under-investment
Rapid urbanisation
Rapid economic growth Increasing trade and globalisation of the Indian
economy
Demand from public and business for better
infrastructure Infrastructure required for international
competitiveness
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Financial Support to Sub-national
Governments and Local Bodies
Central financial devolution to states to supplement the
resources of municipalities: As per recommendations
of Central Finance Commission
Devolution of financial resources to local bodies as perrecommendation of the State Finance Commissions
Grants-in-aid to local bodies by the States
Integrated Development of Small and Medium Towns
Scheme
To develop infrastructure in small and medium
towns capable of generating economic growth
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Financial Support to Sub-national
Governments and Local Bodies
Mega City Scheme- To undertake development of infrastructure in five megacities (Mumbai, Chennai, Kolkata, Hyderabad, and Bangalorein the country
Financial Support for National Urban Information SystemScheme
- To develop urban management and spatial informationsystems by using GIS, GPS and GPR
Accelerated Urban Water Supply Scheme
-To extend financial support to state govern-ments/municipalities to provide water supply facilities insmall/medium towns
Support for desalinisation plants where water source is a
problem
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Proposed Urban Infrastructure
Development Scheme (UIDS)
A new scheme (UIDS) is under consideration to
Improve infrastructural facilities and help createdurable public assets in cities & towns
Enhance public-private-partnership ininfrastructural development
Decentralize urbanisation and promote planneddevelopment of towns, cities and metros
The components for assistance under the schemewill include all urban infrastructure development
projects excluding water supply and sewerage
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Decentralisation and Empowerment
of Urban Local Bodies
In order to decentralise local governance, the
Constitution of India has been amended to:
recognise urban local governments as third tier ofgovernment after central and state
empower the urban local bodies through functional
and financial devolution
facilitate peoples participation in local governance
enable integration of plans prepared by the local
bodies.
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Support Through Urban Sector
Reforms
Thrust on Public-Private Partnership
Hitherto public sector has been responsible forurban infrastructure provision but now there isthrust on partnership with private sector andattracting foreign investment
It is realised that public sector has neither the
finances nor the capacities to manageinfrastructure development
Public policies are being developed to attractprivate sector investment
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Incentives for Urban Sector Reforms
Urban sector reforms initiated in a major way
Government of India has issued guidelines for 100% FDI
in development of integrated townships (of 2000dwelling units/100acres)
An Urban Reform Incentive Fund (URIF) has been set
up to provide reform linked assistance to the states in the
country (reforms such as amendment of rent control act,repeal of urban land ceiling act, reduction in duty for
land and property transaction, improvement in
accounting system, computerisation of land records)
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Incentives for Urban Sector Reforms
A City Challenge Fund (CCF) is proposed to facilitate city-
level reforms by funding the transition costs of moving
towards sustainable systems of municipal management and
service delivery A Pooled Finance Development Scheme (PFDS) has been
designed to facilitate access to capital market by smaller
urban local bodies
Tax-free status has been granted to Bonds issued by urbanlocal bodies (so far about 15 local bodies have raised
resources using this financial instrument)
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Incentives for Urban Sector Reforms
Government of India has provided fiscalincentives for urban infrastructure in the form of:
Tax holiday for solid waste management and watertreatment systems
Custom duty exemption for import of equipmentsfor water, sanitation and solid waste management
projects
Enlargement of the definition of infrastructure fortax benefits to include urban infrastructure such aswater supply and sanitation
Definition of infrastructure for tax benefitsmodified to include urban reforms such as water
supply and sanitation
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Urban Poverty Alleviation
Targetted subsidies to Urban Poor
SJSRY (Swaran Jayanti Shahari Rozgar Yojana)Urban self employment and wage employment
programme VAMBAY (Valmiki Ambedkar Awas Yojana) forproviding shelter and upgraded shelter to urbanpoor/slum dwellers below poverty line
NSDP (National Slum Development Programme)now converted to Additional Central Assistance tostates for development of slums with community
participation
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Investment Environment
Improvement Legal provisions are being made to facilitate
private sector and foreign direct investment
Municipal Acts being modified to enable urbanlocal bodies partnership with private sector and toimprove municipal governance and management
Systems being introduced for efficient urban
management and good urban governance Reforms being initiated in developing
regulatory systems
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Investment Environment
Improvement Major thrust on improving credit-
worthiness of urban local bodies
Development of capital market for urbaninfrastructure financing
Improvements in services delivery andmanagement taking place through public-private partnerships and introduction of e-governance in municipalities
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Investment Environment
Improvement Improvements in revenue-raising capabilities
through
Rationalisation of user-charges to recover at leastthe cost of operations and management of services
improvements in tax assessment and
administration particularly in property tax
Changes in municipal accounting and financial
reporting systems from single-entry cash based to
double-entry accrual based systems