Below post is cross-posted from our Financing Small Cities Blog.
By Anand Sahasranaman, IFMR Finance Foundation
Given the magnitude of investments and expertise needed for sustainable development of urban infrastructure in India, it is essential that there be substantial private sector involvement. This post explores how there has been a greater thrust towards private funding models post-1990 and what how policy can incentivize cities to move further in this direction.
Evolution of urban infrastructure financing in India
Prior to 1990, urban infrastructure in Indian cities was financed largely through government grants and Plan funds of central and state governments. Decisions on local infrastructure investments were made by state and central governments. Because of the disconnect between local needs and infrastructure plans drawn up at higher levels of government, these infrastructure investments made were without any clear understanding of local demand. In the absence of inputs on both the nature and extent of local demands, the infrastructure that was built ended up being inadequate, of poor quality and often unrelated to people’s needs.
In addition to these direct government levers of grants and Plan funds, cities were also allowed to access debt from the Housing and Urban Development Corporation (HUDCO), which was directed by the central government to lend to cities. These borrowings from HUDCO were guaranteed by state governments, thereby de-risking the investment for HUDCO by ensuring that the lender was exposed to the state government’s risk and not the particular project’s risk. By design, such an arrangement ensured that the credit discipline that is associated with prudent, commercial lending programs was missing here. The incentives of the lender were completely skewed by disconnecting the lending from the project risk, and the incentive of the city to structure a viable project was also skewed by the knowledge that the ultimate risk of default lay with the state government. This financing structure fundamentally lent itself to the design of sub-optimal, unsustainable projects.
Click here to read the full post.
—
Also read on our Cities blog:
Land based financing for cities – Lessons from Latin America
Excerpt: In a recent report titled “Implementing Value Capture in Latin America- Policies and Tools for Urban Development“, Martim O Smolka of the Lincoln Institute of Land Policy discusses a wide suite of land financing instruments that have been used in Latin America. The report focuses on instruments of value capture, which are based on the principle of recovery by the public of land value increments (unearned income) created by actions other than the landowner’s direct investments. Although all such increments constitute unearned income, value capture instruments focus primarily on the increment created by public investments and administrative actions.
The City that Lost its Soul: New York City in “Naked City”
Excerpt: In the early years of the twenty-first century, New York City lost its soul. Some people doubt that the city ever had a soul, because New York has always grown by shedding its past, tearing down old neighbourhoods and erecting new ones in their place, usually in a bare-faced struggle for financial gain. Others just shrug because, today, all big cities are erasing their gritty, bricks-and-mortar history to build a shiny vision of the future.
Sharon Zukin explores the notion of authenticity in a city that by placing a high premium on it is effectively destroying it. New York’s quest for authenticity might be seem contrary to the concept of “Manhattanization,” that signifies everything in a city that is not thought to be authentic: high-rise buildings that grow taller every year, dense crowds where no one knows your name, high prices for inferior living conditions, and intense competition to be in style.
Ekumenopolis – Istanbul and the Making of the ‘Global City’
Excerpt: Ekumenopolis, directed by İmre Azem is a hard-hitting Turkish documentary that reveals how the rapid growth of the city of Istanbul is engendering two polarizing visions for the future of the city. On the one hand, the Turkish state is intent on making Istanbul a global city; the cultural, artistic, economic and financial node of the region. This forms part of the larger vision of the ekumenopolis, a global network of urban areas that is expected to coalesce into a single, contiguous city-planet. On the other, the ordinary citizens of Istanbul, the migrants who come to the city seeking a better future, the quasi-visible proletariat who lubricate the city’s burgeoning service sector find themselves increasingly excluded from this vision. They want a future that they can claim a stake to- one that protects their right to the city and that they can shape themselves. This echoes of the conflict in most developing world mega-cities, including Indian cities such as Mumbai and Delhi which aspire to be global cities but at the same time struggle to provide the most basic services to large swathes of their populations.
