Urban India stands on the cusp of transformation, with 70% of its future infrastructure yet to be built by 2047. The challenges are immense: by 2036, cities will house 600 million people, contributing 70% of GDP. However, urban infrastructure investment has languished at an
average of 0.6% of GDP, far below the 1.2% required annually. To bridge this gap, Urban Local Bodies (ULBs) must adopt innovative financing strategies beyond traditional government grants.
Under the 74th Constitutional Amendment, most States have empowered ULBs to collect property taxes, manage urban services like approving building plans, water & waste management, and urban infrastructure development & maintenance. However, own source
revenues from such services are estimated at only around 61% of total revenues, with around 39% coming from grants and transfers from Central and State Governments. Over and above revenues themselves being inadequate, around 40% of revenues are estimated
to go towards meeting administrative, establishment expenses. As a result, capital investment in urban infrastructure has suffered over the years. Innovative resource mobilisation solutions are the need of the hour.
As in other countries, Municipal bonds in India too are emerging as a game-changer, with more than 10 ULBs having mobilised close to Rs. 4,000 Crores during 2017-21.
The other option which has been successful in most developed countries like the US is Tax Increment Financing (TIF). The TIF structure essentially envisages capturing the incremental property / related tax revenues arising due to urban redevelopment projects in a separate
fund, which is then used to repay financiers.
Another promising model is leveraging Business Improvement Districts (BID), where property owners collaborate with the ULB to collectively fund the development and maintenance of their district or ward. A differential tax structure is used for residential, commercial and industrial property owners, with the municipality also levying an additional fee for enhanced municipal services . This model has transformed urban districts in cities like New York and Cape Town, showcasing the power of collective investment.
Such innovative financing mechanisms not only address the resource gap but fosters efficiency, transparency, and stakeholder collaboration. While a good beginning has been made with municipal bonds, it is time the ULBs adapt some of these models to meet the country’s “Vikshit Bharat” objectives by 2047.
# urban development #municipal financing #Vikshit Bharat