Budget for creation of sustainable cities

The Government of India is keen to create more sustainable cities with better living conditions through various new and innovative missions and programmes launched in early 2015. The total investment required is massive (estimated at Rs 31 trillion to be spent on infrastructure development over the next five years), with 70 per cent of funds needed for power, roads, and urban infrastructure segments. However, the mission grants by the Central and State governments will not be adequate to meet the requirements.

The cities will need to access funds from other sources e.g. private investments in form of PPPs, municipal bonds, or soft loans from bilateral and multilateral agencies for successful implementation of the mission. Given the present state of finances of the ULBs (except few larger ULBs) cities may face some problems in attracting private investments or raising funds through borrowings.

The current missions have shown good progress, but need support from the Government to facilitate access to the external funding. The Union Budget is around the corner and some of the financing issues of Smart Cities can be addressed by hon’ble Finance Minister, Arun Jaitley, through following options:

Budget allocation - making smart cities into sustainable cities

Indian cities have ambitious plans to develop priority projects in the pipeline and further allocation is required to address the Sustainable Development Goals (SDG) guidelines making these cities sustainable. Central and State budget allocation need to be in sync with the fund allocations approved by the Cabinet. The newly incorporated city SPVs would need to leverage Central and State government funds including equity to access funds from the external sources with sustainable development agenda.

Traditionally, the financial health of Urban Local Bodies (ULB) (except few in metropolitan cities) in India is not very robust. Sustainable linked financing is also missing. To stimulate municipal bonds market and set SDG-linked financing comforting investors, Ministry of Finance, and donors need to take up credit enhancement measures.

Convergence is also a critical component and cities can access funds from other government programs and missions. In last year, we observed that support under schemes like integrated power development scheme (IPDS) of ministry of power was not available to smart cities because of budgetary constraints. To ensure good convergence, it is suggested that a separate line of budget be created within key Ministries/ departments to provide funding support to cities for their projects.

A national financing facility for sustainable cities at the National level could also be brought about to raise funds from commercial borrowings and multilateral/bilateral agencies and financial institutions like ILFS, IDFC etc and provide funds to city SPVs directly. These funds can be backed up by guarantee from Union government. Further, the financing facility shall appraise projects and disburse funds directly to SPVs in a time bound manner.