Context

• The world bank recently released a report on Indian infrastructure titled, ' Financing India's infrastructure needs: Constraints to commercial financing and prospects of Policy Action'.

Key Points of the report

• India has to increase its average annual investment in city infrastructure from $10.6 billion in the previous ten years to $55 billion per year which is $840 billion in next 15 years.
• It recommended series of policy actions that include switching to more stable, formula based and unconditional fiscal regime for Urban Local Bodies (ULB) both at central and state level.

Policy Intervention Suggestions

• Creation of dedicated structure like 'Cities Investment Support Unit' .
• These units can focus on infrastructural finance and assist state and cities in their infrastructural financing and management.
• It suggested to improve the financing avenues of ULB by:

• Leveraging more private and commercial investments .
• Providing opportunities for more private participation.

Public Private Partnership

• Present urban infrastructure financing,

• 75% is done by the Centre and the states.
• 15% is made by ULBs through their own surplus revenues.
• 5% are financed by the private sector.

• The annual government investment in urban infrastructure topped $16 billion (2018) which shows the significance of private investments.
• The desirable amount of private sector financing through borrowings and public private partnership has not been attained yet.
• Urban property tax was 0.15% of GDP between 2011 and 2018.

• Norm for low and middle-income countries is 0.3-0.6%.

• A low service fee for municipal services also reduces the financial viability and appeal to private investment.

Other Observations

• The report predicted that by 2036 almost 600 million people will be living in Indian cities representing 40% of the population.
• It highlighted the significant role of private players for green, smart, inclusive and sustainable urbanization.

Present Condition of Infrastructure in India

• India has the second highest infrastructure gap in the world (after Brazil), as it has had rapid growth of more than 6% since the early 1990s without a corresponding rise in supply.
• The enormous funding shortfall for infrastructure in India, which is thought to be greater than 5% of GDP, is the country's biggest challenge.
• Obstacles to infrastructure PPPs are

• Land acquisition,
• Competitive bidding,
• Non-performing assets