India will need to invest $840 billion over the next 15 years—or an average of $55 billion per annum—into urban infrastructure if it is to effectively meet the needs of its fast-growing urban population, a new World Bank report estimated on Monday.
The report titled “Financing India’s Urban Infrastructure Needs: Constraints to Commercial Financing and Prospects for Policy Action” noted that there’s an urgent need for the developing country to leverage more private and commercial investments to meet emerging financial gaps that lay ahead.
An estimated 600 million people will be living in urban cities in India, representing 40 percent of the population by 2036, the World Bank stressed. This, therefore, will likely to put additional pressure on the country’s overwhelmed urban infrastructure and public resources.
“Cities in India need large amounts of financing to promote green, smart, inclusive, and sustainable urbanization,” said Auguste Tano Kouamé, Country Director, World Bank, India.
“Creating a conducive environment for Urban Local Bodies (ULBs), especially large and creditworthy ones, to borrow more from private sources will therefore be critical to ensuring that cities are able to improve living standards of their growing populations in a sustainable manner,” he stressed.
As the population will boom, India is expected to see a drastic spike in the demand for clean drinking water, reliable power supply, and efficient and safe road transport amongst others.
India’s central and state governments currently finance over 75 percent of city infrastructure, while urban ULBs finance 15 percent through their own surplus revenues. Just 5 percent of the infrastructure in Indian cities is being financed through private sources. This implies that the government’s current (2018) annual urban infrastructure investments will top at a whopping $16 billion, and much of the gap will require private financing.
World Bank, in its report, recommends that India must expand its capacities at a fast pace to deliver infrastructure projects at a large scale. Currently, the 10 largest ULBs were able to spend only two-thirds of their total capital budget over three recent fiscal years, it noted.
Furthermore, India will face a weak regulatory environment and weak revenue collection that is expected to add to the challenge of cities accessing more private financing, the bank said. And hence, a series of structural reforms including those in the taxation policy and fiscal transfer system is required which should allow cities to leverage more private financing.