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World Bank Report on Urban Financing

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February 04, 2023

Why in news?

A recent report on urban financing for India is another case of a top down approach that is over dependent on technocentric solutions and capital-intensive technologies.

What is the case of urbanization in India?

  • Urbanization - Urbanization is the increase in the proportion of people living in towns and cities.
  • Urbanization occurs because people move from rural areas to urban areas (towns and cities).
  • Trend in India - In 2021, approximately a third of the total population in India lived in cities.
  • Major causes of urbanization
    • Industrialization
    • Commercialization
    • Better services in urban areas
    • High standard of living
    • Ample employment opportunities
    • Modernization
    • Rural-urban transformation

What are the findings of the World Bank report?

  • Focus area - The World Bank report focuses on private investments ameliorating urban problems.
  • Source of urban finance - After three decades of reforms, urban finance predominantly comes from the government.
  • Of the finances needed to fund urban capital expenditures, 48%, 24% and 15% are derived from the central, State, and city governments, respectively.
  • Public-private partnership projects contribute 3%.
  • Government revenue - The report points out that nearly 85% of government revenue is from the cities.
  • WB estimates - The World Bank (WB) estimates that nearly Rs 70 lakh crore would be needed for investment in urban India to meet the growing demands of the population.
  • Suggestion - The solutions suggested include improving the fiscal base and creditworthiness of the Indian cities by enhancing the tax base.

urban-finance

What are the issues?

  • Demand and supply gap - Matching the gap between demand and supply is a major challenge.
  • The flagship programmes such as the Smart City mission, the Atal Mission for Rejuvenation and Urban Transformation (AMRUT), the Pradhan Mantri Awas Yojana (PMAY), etc., are not more than Rs. 2 lakh crore.
  • Skepticism in enhancing the tax base - Meeting the rising demands of urban infrastructure in the cities even by enhancing the tax base remains skeptical.
  • Top to bottom approach - The basic problem with this report is that it is made using a top to bottom approach, with too much of a focus on technocentric solutions.

What is the need of the hour?

  • Plans must be made from below by engaging with the people and identifying their needs.
  • The city governments and the people need to be empowered.
  • The recommendations of the national task force that reviewed the 74th Constitutional Amendment, chaired by K.C. Sivaramakrishnan can be implanted. It includes
    • Empowering the people
    • Transferring subjects to the city governments
    • 10% of the income-tax collected from cities be given back to them
    • Ensuring that this corpus fund was utilised only for infrastructure building
  • Regular elections should be held in cities and there must be empowerment through the transferring of the three Fs: finances, functions, and functionaries.

The 74th Amendment Act of 1992 provides a basic framework of decentralisation of powers and authorities to the Municipal bodies at different levels.

 

Quick facts

  • The Smart City mission - To promote cities that provide core infrastructure, clean and sustainable environment and a decent quality of life to their citizens through smart solutions
  • The Atal Mission for Rejuvenation and Urban Transformation (AMRUT) – To provide basic services (e.g. water supply, sewerage, urban transport) to households and build amenities in cities to improve the quality of life for all
  • The Pradhan Mantri Awas Yojana (PMAY) - To provide affordable housing to the urban poor by the year 2022

 

Reference

  1. The Hindu | A reminder of the flaws in India’s urbanisation policies

 

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