Independent Research and Policy Advocacy

Financing Metropolitan Governments in Developing Countries

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The investment requirement of urban infrastructure over the next 20 years is estimated by the Isher Ahluwalia Committee to be in the region of Rs. 40 lakh crore. The issue of how this investment will be financed is central to the provision of urban services. Any discussion of the financing options available to a municipality will have to begin with an understanding of the finances that it generates internally since , at a fundamental level, the internal revenue generation of a municipality is a reflection of the quality of its governance, and the transparency and accountability of its administration.

Internal revenue sources like the property tax and user charges are, perhaps, the most critical funding levers available to a municipality because without effective, predictable generation of internal revenues, it will be a tremendous challenge to attract new, external sources of funding. External sources, whether in the form of bank loans, bonds or other capital market instruments, will be available to municipalities only on the basis of the internal revenues they generate now and are expected to generate in the future. There is also a corresponding need to create a stable and predictable flow of grant funding to cities from upper tiers of government. In the absence of such sustainable financing models for municipal infrastructure, the agenda for inclusive, equitable cities in India could be seriously jeopardised.

In the below talk, delivered at the Conference on Financing Metropolitan Governments in Developing Countries, ICRIER, Anand Sahasranaman of IFMR Finance Foundation highlights the need to understand how the various levers of funding available to cities can be fully leveraged in the task of infrastructure provision and service delivery.

Watch the video below:

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