Relevance: GS Paper II (Urbanization)
Source:
Introduction
India has embarked upon what can be called the most ambitious and comprehensive programme of planned urbanisation undertaken anywhere in the world. This development is also a recognition of the fact that by 2030, 600 million Indians, or 40 per cent of India’s population, will live in urban spaces.
Initiatives taken by the govt towards urbanization
- The government has allocated over Rs 4 lakh crore across five flagship urban missions:
- Pradhan Mantri Awas Yojana (PMAY),
- Smart Cities Mission,
- Swachh Bharat Mission,
- Atal Mission for Rejuvenation and Urban Transformation (AMRUT) and
- Heritage City Development and Augmentation Yojana (HRIDAY).
- This is over and above the three-fold increase in grants to urban local bodies under the 14th Finance Commission, amounting to Rs 87,000 crore.
- The government recognises that to meet the urban infrastructure gap, increasing contributions will need to be made by state governments and municipalities themselves.
The Smart Cities Mission
- The Smart Cities Mission has been structured to give cities flexibility to envision their own projects and leverage the mission’s funds to raise private capital.
- They are empowered to raise private funds through the entire gamut of instruments available — municipal bonds, public-private partnership, value capture finance and term loans — which are available to the 100 cities selected under the mission.
The municipal borrowings
- Specifically on municipal bonds, a series of measures have been undertaken by the ministry of housing and urban affairs, ministry of finance and Sebi) to facilitate municipal bond issuances.
- Pune, Hyderabad and Indore have issued municipal bonds cumulatively amounting to over Rs 600 crore — constituting close to 30 per cent of issuances over the last two decades.
How to increase municipal borrowings?
- States and cities, particularly of the top 500 one lakh-plus cities covered under AMRUT, need to strengthen their own sources of revenue. This requires better financial management by both state and city governments.
- Cities also need to better leverage land and property to gain a share of the economic growth, which can be reinvested in infrastructure.
- Project selection and execution need to inspire confidence in potential investors, who need to be convinced that project cash flows are sufficient to meet debt service obligations, and that project timelines will be met.
- Cities should draw up a list of ‘bankable’ projects as a subset of their Smart Cities and AMRUT projects that meet this criteria.
- States need to design a robust fiscal responsibility and budget management framework for cities that will bring transparency and accountability to financial reporting by municipalities.
- Drawing up five-year medium-term fiscal plans, which lay out capital investment plans and revenue sources, is a critical need.
- States need to strengthen administrative capacities at the city level through better-quality workforce across both finance and engineering functions.
- The need of the hour is a modern workforce and reviewed through position-specific performance indicators.
- Creating an online marketplace for municipal financial information
- Laying down comprehensive standards and frameworks for easy replicability and use by states and cities
- Close engagement with the ministry of finance, regulators, and the full spectrum of market players on further policy action required to sustain and grow the municipal borrowings market
Conclusion
The Smart Cities Mission has created a new paradigm in facilitating large-scale access to capital markets to fund urban infrastructure within a framework of cooperative federalism, which will stand us in good stead over the next few decades.
