Economic Survey recommends a user charge-financed approach to facilitate massive increase in capital expenditure on urban infrastructure. It is possible for urban institutions to access resources from the capital markets to finance a large portion of urban capital expenditure when it can be serviced by user charges. Pradeep Jain, Chairman, Parsvnath Developers Ltd, S S Kohli, CMD, India Infrastructure Finance Company Ltd, and Vinayak Chatterjee, Chairman, Feedback Ventures (P) Ltd, analyse the effectiveness of this approach.

VC: It is serious, but not critical – there is money available but it has to be spent well.
PJ: In modern development paradigm, urbanization is a healthy and desirable phenomenon. Not only do large urban sectors generate lucrative market profits and enhance competitiveness of industry, they also offer increased accessibility to physical and social infrastructure at a reduced cost. However, such advantages will be available only if urban systems are run on effective and efficient urban infrastructure. The funding requirement for creating adequate infrastructure has grown too large to be financed through government resources only.
As it is, State governments are seriously short of revenues for investment and maintaining the existing urban infrastructure facilities. Effective utilization of existing financial resources could certainly help to narrow the gap but will not help in eliminating the need for private capital investment.
SS: The Ministry of Urban Development and Poverty Alleviation currently estimates that the requirement of resources for urban local bodies to provide even the basic civic services and infrastructure per annum could vary from Rs 40 bn to as much as Rs 250 bn.

VC: Not enough money is available from the municipalities' own sources – they're dependent mostly on state governments, which themselves don't have enough money.
PJ: Small and big cities alike need appropriate funds through innovative and structured financing. In spite of discussions and debates about private participation in urban infrastructure sector, till date, we have not been able to produce many success stories.
There is a need for strong political will supported by sustained long term government policies to come out with reforms of financial sectors required to improve credit worthiness of projects. There is a need to leverage the resources from capital market through raising bonds.
The public-private partnership is the ultimate option for augmenting financial resources for infrastructure and development. However, the leveraging of government resources by attracting good finance from private financing is an ideal method for dealing with infrastructure projects. Continued flow of resources in such funds will depend upon investment being made in sound projects, well built financing mechanism and revenue models, supported by good regulatory framework.
SS: Small and medium towns whose number is substantial (more than 5000, according to the 2001 Census) are not in a position to access the capital market on stand-alone basis largely due to their lack of credit worthiness individually. However, a beginning has been made in the Indian context in terms of “Pooled Finance mechanism” that seeks to serve as debt fund for small and medium size municipal entities.

VC: It can be effective but it has to be tied to local commitment and local support for the completion of the projects under the mission and their subsequent maintenance. It is not a magical pot of gold that our cities can accept. They have to work hard to ensure its success.
PJ: The user pays for the services utilized, and the provision of services should be effective and competitive. This will synergise gains of many current development schemes as also that of National Urban Renewal Mission. Jawaharlal Nehru National Urban Renewal Mission is a welcome gift of government. However, the contribution to be made available by State governments and local bodies will be in question. It is here that the State governments and local bodies could seek private sector participation to provide required contribution through well-designed innovative special purpose vehicles (SPVs) for pricing, financing and revenue recovery.
SS: Jawaharlal Nehru National Urban Renewal Mission (JNNURM) would cover around 60 cities. By design, the mission is meant to target only the larger urban formations. The provision of Rs. 50,000 crore has been agreed to as Central assistance for the mission for a period of 7 years beginning 2005-06. One of the pre-condition for the mission is commitment to the reform of the structures of urban governance. The mission highlights the importance given by the Central government to the process of urban infrastructure development.
On the other hand, the concerns facing urban infrastructure are not only of financial resources but also of institutional capacity. Further, the coming into existence of SEZ concept has the potential of opening a new approach to urban infrastructure development in which greenfield townships with latest amenities provide an alternative way of urban life as compared with sub-optimal level of urban infrastructure in existing cities and towns.

VC: Realistically, I see a limited success in this. At best, up to 25 per cent of the spending for infrastructure can come from the private sector – using PPP and other methods. The government still has to take the lead.
PJ: That Central or State governments or municipal corporations will take care of the total need of infrastructure is a myth. We realize and appreciate the role of private sector investment, which has to become important element in overall infrastructure. The option is either leaving everything to government or enjoying improved services through appropriate payment for utilizing water, electricity, roads or paid parking etc.
SS: Public-Private Partnership (PPP) model has immense possibility in augmenting investment for infrastructure in general and urban infrastructure is no exception. However, making PPP work in complex urban scenario is not an easy task. Further, there is also a mindset issue in using private sector for delivery of public goods. We also need to realise that PPPs also cannot succeed without the government playing a facilitator’s role.