India’s cities are large, economically important, and growing. Local governments need access to adequate revenue sources to finance the public services they are mandated to provide. They also require to put in place robust systems to manage and utilize these funds efficiently. While bigger cities with large economies are beginning to raise their own revenues by improving their financial management and tapping into innovative financing, smaller cities do not enjoy the same level of financial autonomy. More than 60-70% of their revenue comes through direct grants from Union Governments. The Government of India’s Union Budget 2023-24 has a promising focus on urban development, with a significant emphasis on public investments in infrastructure and sustainable growth. Some of the key highlights include:
- Increasing allocation toward Urban Development
India was dubbed a “reluctant urbanizer” for many years, but this shifted in 2010 with initiatives such as the Jawaharlal Nehru National Urban Renewal Mission (JNNURM), which spotlighted urban development. The 2023-2024 budget allocated a significant increase in funds for urban development, with Rs 76,432 crore earmarked under the Ministry of Housing and Urban Affairs, compared to the Rs 42,965 crore allotted in 2018-2019. This marks a 77% increase over the past 5 years.
- Facilitating Urban Infrastructure in Tier 2 and 3 Cities
The Budget emphasizes the need to facilitate tier-2 and tier-3 cities to gear up for the future while nurturing India’s megacities. An Urban Infrastructure Development Fund will be established for the development of urban infrastructure by public agencies in tier-2 and tier-3 cities. The Fund will be managed by the National Housing Bank and is expected to have an annual allocation of Rs 10,000 crore. It may be considered as the next round of JNNURM and Smart Cities Mission.
- Pushing for Safe and Dignified Sanitation
Continued focus and increased allocation on schemes like AMRUT and Swachh Bharat Mission highlight the emphasis on basic urban facilities like piped water, sanitation & drainage. Enabling all cities and towns to transition to mechanical desludging of septic tanks and sewers was also announced. This is significant since, despite laws banning manual scavenging, the practice continues unabated in many cities.
- Prioritising Green Growth and India’s Energy Transition
The government has allocated Rs 35,000 crore for “priority capital investments” towards India’s energy transition in various sectors including urban development and transport. The Green Credit Programme was announced to incentivize companies and local bodies to help mobilize sustainable actions. Subsidies on Electric Vehicle batteries and customs duty exemption for goods and machinery required for the manufacture of lithium-ion cells will aid the production of electric vehicles. The Center will also support scrapping and replacing old polluting vehicles in cities.
5.Encouraging Cities to become Self-reliant by Increasing Credit Worthiness
Municipal Bond Market in India is at a nascent stage. Of the 94 cities that have been assigned credit ratings in 2018, 59 percent received a rating of investment grade or above, highlighting the underutilized potential for bond financing by Indian municipalities. In order to make cities self-reliant, the Budget incentivizes cities to increase their creditworthiness for municipal bonds. This will be done through property tax governance reforms and ring-fencing user charges on urban infrastructure.
- Encouraging State-led Investments and Reforms for Urban Development
Urban planning and development is a State subject in India. To incentivize states to accelerate capital spending towards infrastructure, the Centre extended the 50-year interest-free loan scheme by one year for state governments and increased the outlay from Rs 1 lakh crore to Rs 1.3 lakh crore. The budget also proposed a tax exemption on any income to development authorities constituted under State Acts for the planning and development of cities. States and cities would also be encouraged to undertake reforms in urban planning like an efficient use of public land resources, adequate resources for urban infrastructure, transit-oriented development, and enhanced availability of urban land to aid the planned development of cities.
The Budget for 2023-2024 seems to embrace urbanization and the opportunities that come with it. It has significantly raised the finances for cities and urban development. However, turning this intention into action requires substantial investment in capital spending, as well as implementing structural reforms. Emphasis should be placed on devolving power to the local level and strengthening the capacity and capabilities of local governments to drive change.
