India is on a high growth trajectory and requires huge investment in infrastructure, both from public and private sources; the XI Plan document has worked out the investment requirements for basic urban infrastructure to the tune of Rs.129237 crore ($2637.49 million). The investment required for urban transport alone during Eleventh Five Year Plan is Rs.1,32,590 crore. Under JNNURM, 329 projects have been sanctioned by the Central Sanctioning and Monitoring Committee of Ministry of Urban Development with an approved project cost of Rs.30604.80 crore ($624.60 million). The Central Government has released Rs.3916.06 crore ($79.92 million.
While Addressing Indo-American Chamber of Commerce (IACC’s) Dr. M. Ramachandran, Secretary, Ministry of Urban Development, said here today that with JNNURM underway, raising capital for Urban Local Bodies (ULBs) is the biggest challenge and this is not going to be easy for most cities, given the delicate nature of their finances which will require serious ‘out of the box thinking’ and emphasis on private - public partnerships.
Following is the text of the speech by Dr. M. Ramachandran, Ministry of Urban Development: -
Rapid urbanization and growth of towns and cities is irreversible and is gaining momentum. It is estimated that by 2051, half the population of India would reside in urban settlements and the number of metropolitan (million plus) cities would be 75 and total number of the urban centers would be more than 6000. Further, in future, the contribution of urban settlements to the GDP may be around 75%-80% and it would play a key role in overall economic development.
Large-scale urbanization in India has put a severe strain on urban infrastructure like water supply, roads and transport, sewerage and sanitation, drainage and solid waste management, etc. If the momentum of economic growth is maintained, challenges thrown up by large-scale urbanization will have to be addressed on priority.
Urban areas typically face problems of inequities in distribution among different income groups. Infrastructure inadequacies and inequitable distribution are accompanied by the absence of efficient and effective management which has led to ineffective linkages and losses and deficiencies in services which are largely absorbed by the low income and poor sections of the population.
Ministry of Urban Development have taken many initiatives to encourage various players in the infrastructure sector. With a view to enhance the competitiveness in service delivery and also extend maximum benefits to the urban dwellers of the country. The challenges of urban governance, funding for urban infrastructure, urban planning, impact of JNNURM on ULBs, current perspectives on the second generation of urban reforms and policy interventions for the sustainable development of urban areas are need to be taken up.
11th Five Year Plan: The Government of India has recently finalized the 11th Five Year Plan (2007-12). This Plan lays specific emphasis on urban development with the vision that Indian cities emerge as true engines of economic growth over the next two decades. The strategy of urban development as outlined in the 11th Five Year Plan includes increasing the efficiency and productivity of cities, strengthening urban local governance, dismantling public sector monopoly over urban infrastructure and creating conditions for the private sector to invest, establishing an autonomous regulatory framework to oversee the functioning of public and private sector, and using technology and innovation in a big way. The emphasis is on making Indian cities more livable and inclusive.
JNNURM: To meet the challenges of growing urbanization and to enable Indian cities to develop to global standards, a comprehensive programme, namely Jawaharlal Nehru National Urban Renewal Mission (JNNURM) was launched in December, 2005. Under the JNNURM, approximately Rs.1000 billion (US $ 25 billion) would be invested during the seven year period 2005-2012 for improvement of urban infrastructure and providing basic services for the poor in urban areas. Large projects like Bus Rapid Transit System (BRTS), water supply projects, drainage systems and desalination plants, etc. are being supported under the Mission. States and urban local bodies (ULBs) accessing JNNURM grants must accomplish a total of 23 reforms, during the seven-year period (2005-12). Some of reforms such as streamlining of building plan approval process, simplification of conversion of agriculture land to non-agriculture land, transfer of city planning functions to urban local governments, computerized registration of land and properties, etc. are directly linked to improved city planning and governance.
JNNURM is a catalyst and has triggered a new wave of governance and project implementation. By its very nature it is meant to be a more gradual solution to the challenges faced by cities. So it is clear that whilst JNNURM can provide some of the capital required by the cities to grow, initiate and catalyze some of the reforms required, the cities themselves have to take on the main agenda of reforming their governance mechanism taken on and a position to attract the necessary investments. Under JNNURM, the cities are being encouraged to opt for PPP in the delivery of basic services and there has been proactive emphasis on capacity building. Hence, increasing private sector role in infrastructure implies better regulation and thus capacity building for regulators. There is a huge gap in capacity of regulators to deal with the changing scenario.
There are critical areas for which capacity is needed to be developed; like managing regulatory structure; fixing progressive tariffs; ensuring better bidding process; contract management/dispute resolution process; project finance; clear policy direction for non compete clauses. There may be isolated cases for PPP but private investors will not come forward unless there is clarity of policy on all these issues.
India needs more investment in urban infrastructure from the current level of 2% of GDP to may be 5% of GDP. Limited government resources and increasing demand for investment in urban infrastructure sector has induced government to follow the PPP approach for growth.
Sustaining capacities is made more difficult by the rotation of staff, once they have acquired knowledge. This problem is likely to increase at the municipal or local level, where capacities are likely to be lower and the number of PPPs fewer, offering a reduced opportunity for learning-by-doing. Consultants can play a large role in providing specialist skills for public authorities in any PPP program. But certain core skills have to remain with the public sector or it will be impossible to make the best use of the consultants.
Given the pace and scale of the JNNURM, the private sector will have to play significant role. Partnerships will be required from the private sector and non-government sector not just in terms of contracting capacity for project implementation; but also in the area of implementation of urban sector reforms that are linked with project implementation.
There is a need to take a number of initiatives to assist and encourage capacity building at the state and central levels like capacity building needs of State Governments, providing assistance for the creation of state level PPP Cells as nodal agencies, streamlining approval processes, developing PPP tool kits, model concession agreements (MCAs), project manuals, biding documents and project preparation manuals. Arrangements also need to be finalized under which State Governments may be able to avail of consultancy support for developing PPP projects in the urban development sector.
Other Initiatives: In addition to JNNURM, GOI has undertaken several initiatives such as National Urban Infrastructure Fund, National Urban Information System, SEZ development, market-based financing, e-Governance, satellite towns, Information Technology towns, etc. About 25-30 new or satellite cities will come up in and around the medium and large size million plus cities and the population of these new cities will range between 5-10 lakhs. For promoting public transport, Government has sanctioned/considering Metro Rail projects for about 370 Kms costing about Rs.80,000 crore. In Mumbai and Hyderabad Metro projects have been taken up on Public Private Partnership. BRTS projects have been sanctioned for 9 cities under JnNURM for a total length of 405 kms at a total cost of Rs.4015 crore. To promote Intelligent Transport System enabled modern city bus service in various cities in India, the Ministry has released the Urban Bus Specifications recently. The Ministry is also promoting setting up of Traffic Information management Control Centres to have ITS based traffic management, control and planning. All these Government initiatives have important implications for urban planning and development in the country.
Road Ahead: Given the fact that urbanization is inevitable, Government of India has taken several initiatives. Sectoral reforms and restructuring are needed to create an environment necessary for efficient and sustainable infrastructure development and to help mobilize resources needed for future development. Issues of concern include policies to improve cost recovery, reduce wasteful consumption of water, increase revenue collection, commercialize operations of service providers, and allow competition in the provision of services.
The challenges in making this happen are many. While we need to build capacity of municipal bodies, private sector capacities also need to be developed in delivering public services. Private agencies in delivery of public services will need to work in an environment of public scrutiny and wide-spread transparency. They will need to work towards balancing their profitability goals with the public willingness and ability to pay for the services and build systems to serve all classes of citizens.
With regard to challenges for infrastructure service delivery, the model of governance of our cities, has too long, been federally led and does not presently provide for institutional involvement of citizens, i.e. devolution of decision making to the lowest unit like Area Sabhas / RWAs. In addition, the existing Municipal bodies do not have the capacity to execute large value investments projects of infrastructure until and unless they are professionally managed.
Real Estate
In the context of Real Estate, I may say that real estate sector has not really picked up due to the paucity of fund flow into the sector. Real estate business in India has by and large remained in the unorganized sector and thereby, has attracted little corporate funding. Few efforts have been made to streamline the sector and its financial environment. One of the recent developments however appears to be a major shot in the arm for the real estate sector. The decision of the Government of India to permit foreign direct investment (FDI), a long pending issue, has been viewed by many as the much needed prescription to bring about a competitive environment in the sector, thereby forcing smaller and unorganized players to move out and make way for more professionally and globally sound players.
Although it has taken a long time for the government to carry out the unbundling process with some degree of success, it has not been a mean achievement. India has set a record for foreign direct investment (FDI) in the fiscal year ending March 2002, bringing in US $ 4.1 billion compared with the US $ 2.5 billion received in year 2000/01, this represents a neat 65 percent growth. The reasons for this have been continued liberalization, rising of FDI cap in various sectors, telecom reforms and foreign companies being permitted to buy out Indian partners. Nevertheless, although FDI growth has been great, it accounts for only 0.9 percent of India’s GDP while in Vietnam, it is 6.8 percent, in Malaysia it is 3.9 percent and in China is 3.8 percent.
FDI in real estate in Indian cities may be viewed in terms of its overall strengths, weaknesses, opportunities and threats. In terms of strengths, one of the major benefits, which FDI is slated to bring about, is influx of huge capital. This will of course happen only if we ensure investments by the foreign investor are free from hassles. It is still a general perception that the real estate sector in India is not the right place to park funds. The real estate industry of India has a very poor image in the global scenario. The Government of India has proactively recognized that FDI policy has great strength to rake in a lot of money. We earnestly feel that the current industry has certainly matured in terms of quality and design and foreign entry would certainly improve the product. Improved, cheap and maintenance free technology is another strength which can be brought in by foreign companies. On the whole, greater professionalism would certainly be induced into the real estate industry. The FDI has resulted in competition and fall in prices in telecommunication, electronics and automobiles sectors and the consumers have been immensely benefited, however the same has also to be realized in the real estate sector. The real estate providers both private and public have to strike a balance so that all the sections of the society are benefited.
The goals for sustainable development of urban infrastructure: -
Supporting urban reforms, industrialization, productivity growth, expansion of financial and other services, and promoting economic activity in both formal and informal sectors;
Coverage of urban infrastructure facilities: water supply, sewerage and drainage, solid waste management, transport, health care, education, etc;
Creating an enabling legal, planning, financing and regulatory framework for the sustainable augmentation of housing, infrastructure and social amenities
Facilitating commercialization of urban infrastructure and alternate forms of service provision, including privatization and public – private partnerships;
Assisting the urban poor in income generation activities, improving the quality of their physical environment and enhancing their access to basic services like safe drinking water and sanitation, primary health care and education;
Protecting the urban environment and ensuring harmonious development of rural and urban areas with due regard to the conservation of natural resources; and
Installing and sustaining people-friendly and transparent and accountable urban governance based on empowered elected local bodies, committed political leadership, partnerships with civil society, participatory planning, capacity building of stakeholders, etc.
Ministry of Urban Development is gearing up to meet the challenges of the urbanization especially in the era of globalization wherein market forces will be by and large shaping the future of cities. We look forward to urban infrastructure specialists and real estate developers from USA embarking on technical collaboration with Indian counterparts which can be mutually beneficial and further strengthen Indo-US bilateral cooperation in Urban Development.
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