Urban Infrastructure in India Where India stands and where it should head

Infrastructure is the basic structure, services and facilities required for the proper functioning of an economy. It refers to the structures required to support the society such as transportation, agriculture, water management, telecommunications, industrial and commercial development, power, petroleum and natural gas, housing and other segments such as mining, disaster management services, and technology related infrastructure. Urban Infrastructure refers to the physical structure present in cities and towns. Infrastructure development has a key role to play in both economic growth and poverty reduction.

In the 1950s the general perception of the policy makers was that India is pre-dominantly an agriculture-based economy. Over development in urban areas was considered skeptically as they held the notion that it will lead to the draining out of the resources from the country-side to the cities. The problems regarding the urban areas were considered just as welfare problems rather than problems of national importance. The investment in this sector was of residual nature.

Present ScenarioPresent Scenario

The importance of urban infrastructure has seen a dramatic change from the 1950s till now. Its importance can easily be estimated by the fact that the percentage of urban population increased from 17.28 percent in 1951 to 23.33 percent in 1981, 25.71 percent in 1991 and which further increased to 28 percent in 2001. The contribution of the urban population to the GDP has been calculated to be around 30% of the total, in 2001.

YEAR POPULATION(in millions)

Decadal Growth Rate %

Urban Population (in millions)

% of Urban Population to total Population

Number of towns

1951 361.1 13.31 62.4 17.28 28431961 439.2 21.64 78.9 17.96 23651971 548.2 24.80 109.1 19.90 25901981 683.3 24.66 159.4 23.33 33781991 846.3 23.86 217.6 25.71 37682001 1027 21.34 287.6 28 4368

Contrary to popularly held conception of India being predominantly a rural economy, an increasing percentage of the population resides in urban areas today. Most of the commercial activity perhaps other than agriculture and village merchandise takes place in urban areas. Therefore, to a large extent, urban India is the engine of productivity and growth in the country. The Indian government has recognized this fact and has been working towards the development of this propeller of growth.

The massive increase in the percentage share of urban population in class I cities from 26.0 in 1901 to 68.7 in 2001 has often been attributed to faster growth of large cities, without taking into consideration the increase in the number of these cities. There were only 24 class I cities in 1901 that have gone up to 393 in 2001. The pattern of growth has remained similar over time although there is a general deceleration in urban growth in all size categories in the past two decades. Class I cities in the country experiencing higher population growth as compared to other categories (except VI) is due to both aerial expansion as well as in-migration. A large number of satellite towns have emerged in the vicinity of these cities.

The Constitution (74th) Amendment Act 1992 has unleashed a new era of dynamism and reform in Urban India. Given the risks involved in large projects, the government has identified the main problem as the availability of funds. The public sector cannot fund these large projects all by itself. The government thus has proposed a flexible budgetary scheme with allocation to Public-Private-Partnership (PPP) for infrastructure projects. A special purpose vehicle (SPV),

called the Indian Infrastructure Finance Company (IIFC) has been proposed to fund such projects. The IIFC will fund projects in urban infrastructure such as roads, ports, railways, airports and tourism.

There is no denying the fact that power is one the major drivers of the growth machine of any economy. In recent years, there’s been an uninterrupted policy focus resulting in forward looking India Electricity Act 2003, de-licensing of thermal power generation, restructuring of SEBs, proper market for power, setting up of power exchanges amongst other initiatives. As such, significant project opportunities are expected in the power generation sector and the interest in the sector is at an all-time high. Efforts have been made to make the tariff policy of power transparent. The Electricity Act lays down the method of calculating the tariff considering all the factors involved. The generation capacity has leaped from a mere 1713 MW just after independence to 147402.81 MW of installed capacity in 2009.

The transporting sector has seen mixed activities. While some areas have seen developments some has not. Clearly better the connectivity better is it for the economy.

The road network of India is the second largest in the world. The National Highways Authority of India is responsible for the strengthening and widening of the National Highways in a multiphase manner. Indian Railways, which a few years ago was operating at a loss, has, in recent years, been generating positive cash flows and been meeting its dividend obligations to the government, with operating profits going up substantially. The ports and airways sectors also have seen major developments in the recent past.

A major contributor to the urban development in recent times is the improvement in the telecom sector. A major upgradation in the voice services has lead to a steep decrease in the call rates and the involvement of many new players in this sector.

A major key for this project is the Foreign Direct Investment. FDIs have become one of the major sources of capital for emerging market economies (EMEs). To

encourage foreign funds flow into the Infrastructure in India, the Indian Finance Ministry has allowed Foreign Institutional Investors (FIIs) also to invest in unlisted companies. FIIs now can invest 100 % of their funds in the Infrastructure in India. In order to make the core sector more attractive for FDI, the Cabinet Committee on Foreign Investment (CCFI) has modified the 49 percent cap on foreign equity in the infrastructure sector to make fund mobilization easier.

Constitution (Seventy-Fourth Amendment) Act 1992 is a revolutionary piece of legislation by which Constitution of India was amended to incorporate a separate Chapter on urban local bodies, which seeks to redefine their role, power, function and finances. It has made the urban local bodies into vibrant self governing institutions. This has ushered in a new era of urban governance and urban management in India. The future is full of possibilities and excitement for investors, planners, administrators, economists and above all 300 million urban dwellers of India.

Problems Faced Problems Faced

Although the urban infrastructure has seen major developments in the recent past, it still faces some problems which are quite eminent. One the major causes of worry is the paucity of funds. This is augmented by the fact that there is a limit on external commercial borrowings for such projects. It is a well known fact that most of the funds made available under governmental programs for provision of basic services during the first three decades of planning, has gone to a few large cities and benefited mostly the high and middle income colonies.

The gestation period of any infrastructural project is very long. The heavy import duty levied on the imported construction materials aggravates the problem further. Also, although city transport, systems and airports have found place in the development processes, some of the essential elements such as drinking

water, sewerage management, drainage and primary health have not been given their due importance.

Another major problem in this sector is the availability of land. The Urban Land Ceiling Act (ULCA), that was proposed to ensure equity in access to land within a framework of planned urban development, unfortunately failed in achieving the objective. It is now considered as one of the key hindrances in development of cities.

The disparities in the developments that took place in the large cities and the one taking place in small towns are quite obvious. It’s only a handful of cities which command strong economic base that attracts investment from private and foreign investors. The deficiency of basic amenities in small towns has been a serious hurdle in attracting private investment from within or outside the country, which is reflected in the low demographic growth in these parts.

The FutureThe Future

It is now an established fact that development in the urban sector will have significant positive results on the economy of this country. It is predicted that by 2030, the urban sector will contribute about 70% to the national GDP. This easily establishes the amount of importance we can attribute to the urban infrastructure.

The public sector alone can’t carry out the amount of effort this sector demands. Thus the PPP model must be encouraged as far as possible. The government must provide import duty exemptions for PPP projects. Mechanisms must be undertaken to ensure planned and expeditious implementation of infrastructure projects. The projects must be properly phased in order to optimize the resource utilization.

The business proposition for infrastructure projects should be made more lucrative so that foreign investors are attracted towards this sector. Tax regime for FIIs should be made more lenient and agreements like Double Taxation Avoidance Agreements (DTAAs) be encouraged. More and more SEZs should be developed to attract investments by private sectors.

Special capital support must be provided to less developed states that are not able to allocate enough resources for their urban centers. The National Commission of Urbanization in 1988 proposed to increase the resources allocated for urban centers. Policies must be so designed that most of these funds go to the small cities and towns where it is most required. Reform in land acquisition policies is the need of the day.

I finally conclude by stating that the future of the urban infrastructure surely looks bright and it will be a major player in the nation’s economy in near future. Appropriate steps must be taken to ascertain this sector keep growing and contributing to the economy.