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Session PPT

The document discusses urbanization policies and practices, focusing on financing cities, including the need for infrastructure and operational costs. It highlights the gaps in current financing approaches and suggests various instruments for implementation, such as legislation and public-private partnerships. Additionally, it emphasizes the importance of optimizing spending and leveraging land resources to meet the significant financial needs of urban areas.

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Amrutha Valli
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11 views35 pages

Session PPT

The document discusses urbanization policies and practices, focusing on financing cities, including the need for infrastructure and operational costs. It highlights the gaps in current financing approaches and suggests various instruments for implementation, such as legislation and public-private partnerships. Additionally, it emphasizes the importance of optimizing spending and leveraging land resources to meet the significant financial needs of urban areas.

Uploaded by

Amrutha Valli
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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Urbanization Policies

and Practices

Session 7
Financing Cities

OP Agarwal
[email protected]
Last class

• Presentation on the Jaga mission


• What are inclusive cities
• What kinds of projects are inclusive
• What can we do to ensure better planning for
inclusion
This class
• Review of progress reports
• Refresh on:
• What is a policy
• Instruments for implementation
• Elements of a policy paper

• Financing needs for cities


• State of municipal finance
• National programs
• How have they worked
• Approaches to financing cities of the future
Review of progress reports
Some common gaps
• Still stuck at problems level
• Too much space used up in literature review
• Lack of clarity between policy and plan and
actions
• In some cases no mention of the problem we are
trying to tackle
• Some even want to change the topic
Suggestion
• Please think yourself – use your common sense -
don’t be guided entirely by what the literature
review tells you about the suggestions of others
• Focus on the problem you are trying to resolve
and keep that at the back of your mind always
• Make sure you don’t copy paste from elsewhere
– plagiarism is not accepted
• Simple language is fine – no need for fancy
vocabulary or jargon
Vision
My city will be the most and comfortable to live in

Desired Objectives
Convenient
Improve air quality Improve Safety Low cost of living
Transport

Policies
Land use and urban layout Mode share Financing

Plans
Mass transit NMT improvement Plans

Projects
Mass Transit System corridor Pedestrian access Intelligent transport systems
X improvement - area Y for integrating subsystems
Instruments for
implementation
• Legislation – enact laws that compel action in
a certain direction
• Executive regulations – issue orders that seek
action in a certain direction
• Incentives driven – offer incentives for action
in a certain direction
• Create the needed infrastructure – that
attracts action in a certain direction
• Campaigns – create a kind of social pressure for
action in a certain direction
• Advisories – advise action in a certain direction
Choice of instruments
• Depends on the criticality of compelling the
desired action
• Preference between nudging and forcing
National, state or local policy
• Where does the responsibility lie under the
constitution
• Is there a justification for the policy to be
formulated at a higher level of the Govt.
• Is there a justification for some elements to be
at a lower level and some at a higher level
Elements of the policy
• Problem sought to be dealt with
• Policy options
• Choice of the policy with a rationale
• Stakeholders
• Who benefits and who loses
• Mitigation of losses
• Choice of instrument for implementation
Financing cities
What do cities need financing
for
• Building the infrastructure needed to provide
basic services to the people
• Maintaining and operating these facilities
• Paying salary to their staff
• Meeting needs for office expenses
• Paying for the energy and fuel consumed
Two types of finance
Building the required infrastructure
• Water supply networks
• Sanitation systems
• Roads and bridges
Capital OR one- • Schools
time expenses • Hospitals
• Affordable housing

Meeting operational costs


• Staff salary
Operating OR • Fuel costs
• Repairs and maintenance
everyday • Other payments
expenses • Debt servicing / loan
repayments
• Paying dividends

14
Typical sources for these funds

• Investors Equity (own


funds)
Capital
• Debt / Loans
Expenses
• Grants

• Earnings
Operating • Grants
Expenses • Own taxes or earnings
from other sources

15
How much do they need
Capital investment - $1.2 Trillion
over a 20 yeas (approx 53 lakh
crores)
O&M expenses of $1.04 Trillion
ove 20 years (approx. 46 lakh
crores)
McKinsey study
OR 5 lakh crores each year for the
Capital investment - Rs 39.2
next 20 years
lakh crores between 2012 and
2031:
• Asset creation – 31 lakh
High Power crores
Committee of • Asset renewal – 4.1 lakh
GOI crores
• Capacity Building – 1 lakh
crores
O&M - Rs 19.9 lakh crores

OR – 3 lakh crores each year


16
for the next 20 years
So we are looking at about
2.5 to 3 lakh crores per
year, for the next 20 years
India’s mega schemes
• JNNURM allocated 50,000 crores over 7 years from GoI
and an equal amount from states

• Smart Cities mission allocated Rs 1 lakh crores over 5


years and an equal amount from states and cities

• These are very small amounts compared to the needs


• JNNURM – 3% of McKinsey and 4.8% of HPEC estimates
• Smart Cities mission – 8% of McKinsey and 13% of HPEC

• So, the public budget can only meet a small portion of


the needs

• Key question – where will the rest come


from
Lets look at possibilities
• Local body’s own resources
• Capital markets through
• Private sector
• Public private partnerships
• Optimize spending
• Do we really need all that much
Local bodies sources of
revenue
• Tax revenue – property tax
• Non – tax revenue – rents, fees, user charges for
utilities
• Devolution of funds from the State Government
• Grants against development schemes, from the
Central and State Governments
• Borrowings
Property tax
• Tax paid by property owners
• Increasing tax rates year to year has proved
difficult
• Besides, only about 60 - 70% of the urban
properties are assessed
• Collection efficiency itself is only about 40 – 50%
Borrowings
• Municipal bodies have limited powers to borrow and
must seek the approval of the State Govt for doing so
• They generally issue bonds as a way to borrow funds
• Bangalore municipal corporation was the first to
issue bonds in the 1990s, backed by a State
Government Guarantee
• Ahmedabad Municipal Corporation was the first to
issue bonds without a State Govt. Guarantee
• Many others have followed these leads – Chennai,
Madurai, Hyderabad, Visakhapatnam, Nagpur,
Nashik, etc.
• But smaller cities do not have the strength to borrow
Thus, the experience so far
Declining share of own
revenue
Capital exp to total exp
So what can we do?
Land as a resource
• Most municipal corporations have several assets in the
form of land and buildings
• In most cases they are at prime locations and have
considerable market value
• Renting, or selling these can yield significant financial
resources
• Most Chinese cities have financed a large share of their
investments using land as a resource
• The Hongkong metro earns more from its property than
from fares
• Unfortunately, Indian cities have been weak in doing this
• Poor land records and titling
• Sensitive topic / suspicion of the private sector
Private sector / PPP
• Private sector can bring in money from the
capital market (outside public funds)
• But they will invest if they can earn profits
• If fares and other charges are going to be very
low then limited possibility for profits
• PPP is a good approach, but also needs to earn
profits for the private partner
• Private sector not interested in urban roads as
there is no way they can charge for its use
• Can we think of innovative ways of enabling the
private sector to earn profits
Optimize spending
• Review project ideas very carefully and build
appraisal capacity
• Do we need these high cost metro rail systems in every
city that is building them?
• They don’t necessarily get votes – only photo
opportunities
• Public Private Partnerships
• For operations
• For construction and operations
Have the estimations of
funds required been carefully
made
HPEC report
McKinsey report
Where should public funds be targetted
So, what kinds of policies will
help us find the required
funds?

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