Indian cities need $840 billion in infrastructure over the next 15 years

The current total capital expenditure on urban infrastructure is four times less than required.
Indian cities need $840 billion in infrastructure over the next 15 years
Photo: Francis Mascarenhas (Reuters)
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India will need a capital investment of $840 billion in urban infrastructure and municipal services up to 2036 to meet the needs of a fast-growing population, the World Bank has said.

By 2036, up to 600 million people will be living in urban cities in India. The country, meanwhile, is set to become the world’s most populous one in 2023.

Its already stretched urban infrastructure is struggling to find financing sources and, therefore, is unlikely to keep pace with such rapid urbanization.

“A sustained increase in capital investment is needed in cities to enable economic growth, improve quality of living and livability, and build resilience to the expected impacts of climate change,” the World Bank report, published on Nov. 14, stated.

More than half of these investment needs—almost $450 billion—will be required in basic municipal services such as water supply, sewerage, municipal solid waste management, storm-water drainage, urban roads, and street-lighting. Mass transit will account for the rest.

India’s capital expenditure on urban infrastructure is already four times less than its estimated per capita needs.

Need for public-private financing in urban infrastructure

India’s government has highlighted the potential for private financing to bridge the gap. This includes municipal borrowing, public-private partnerships (PPPs), and private commercial financing.

Currently, the central and state governments finance over 75% of the country’s urban infrastructure, while urban local bodies (ULB) finance 15%. A mere 5% is financed through private sources, the World Bank report said.

“Cities in India need large amounts of financing to promote green, smart, inclusive, and sustainable urbanization. Creating a conducive environment for ULBs, especially large and creditworthy ones, to borrow more from private sources will, therefore, be critical to ensuring that cities are able to improve the living standards of their growing populations in a sustainable manner,” Auguste Tano Kouamé, director of World Bank India said.

The Reserve Bank of India, too, echoes this view.

Municipal corporations have other areas—establishment expenses, administrative costs, and interest and finance charges—to take care of, according to an RBI report (pdf). This, it said, leaves little room for capital expenditure.

Dismal revenue collection as well as low charges for municipal services worsens the challenge of accessing more private financing.

“With own revenue generation capacity of municipal corporations declining over time, dependence on the devolution of taxes and grants from the upper tiers has risen. This calls for innovative financing mechanisms,” the RBI report said.