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Special Feature | March 2012

Urban Infra – The Barometer of Development

 Urban infrastructure in major cities and towns in India needs to be built or upgraded to provide the requisite thrust to development.Over the next 20 years, a massive investment of Rs 31 lakh crore (at 2009-10 prices) would be needed to create adequate infrastructure.

The urban sector plays a critical role in the structural transformation of the Indian economy and in sustaining the high rates of economic growth. Ensuring high quality public services for all in the cities and towns of India will facilitate the full realisation of India’s economic potential. Many of the urban infrastructure services are in the nature of ‘local’ public goods with the benefits from improved urban infrastructure in a given city limited to the citizens living in that city. The empowerment of local governments to take economic and service delivery decisions requires a new framework for public finance, where urban expenditures are driven through urban local governments.To support greater urban local government oversight and accountability for urban and municipal functions and to support control of service delivery investments, operations and financing to urban and municipal governments across functional urban areas, the current fragmentation of authority between state and local government needs to be resolved.The country has the second largest urban population in the world. Essential infrastructure facilities need to be provided to this growing urban population. The government has initiated a number of steps to improve the physical and economic infrastructure and improve facilities in urban areas.

Cities and towns of India are visibly deficient in the quality of services they provide, even to the existing population. Considering that the Indian economy is now one of the fastest growing economies in the world, and standards are rising, current service levels are too low relative to the needs of urban households. They are also low relative to what will be required to sustain the economic productivity of cities and towns. Public services such as drinking water, sewerage, solid waste management, roads, and street lights must be accessible to one and all to achieve the goals of inclusion.At the same
time, they must meet the service norms as set out by the Ministry of Urban Development in 2008 to ensure the contribution of cities to economic growth. To achieve both inclusion and economic growth will, however, require shifting the focus of policy from creating physical infrastructure to delivering services. The challenge is to focus on reforming governance for service delivery. Without this, additional capital investments in urban infrastructure will not result in improvements in service delivery. The challenge of urbanisation in India is to ensure service delivery at the enhanced  minimum standards that are necessary when planning ahead. This is particularly so in a situation when even the current urban population is inadequately served and total urban population is likely to increase by at least 250 million.

Urban transport is a key element of urban infrastructure. An effective urban transportation network not only enhances productivity and facilitates high growth of the economy, but also empowers the poor by increasing employment opportunities. Urban transportation systems in large developing cities face major challenges due to the continuous growth of urban population, private vehicle ownership, congestion, and the fragility of public transportation systems. Transport thus becomes a binding constraint on both economic growth and social development and inclusion, along with increased negative impacts on health and on the environment.While urban infrastructure is important in its own right and is in the nature of a local public good, there are important urban-rural linkages and externalities.The organizational capacity and professional staff for providing urban infrastructure service can take on additional functions in the outlying rural areas which would harness economies of scale and scope.

Investments in urban infra: 2012-2031
The investment estimates for the eight sectors of urban infrastructure for the 20-year period (2012-2031) amount to Rs 39.2 lakh crore at 2009-10 prices.Sectors delivering urban services such as water supply, sewerage, solid waste management and storm water drains account Rs 8 lakh crore (or 20 percent) of the total investment requirement. The backlog for this sector is very large, ranging from 50 percent to 80 percent across the cities of India.

The estimates indicate a higher investment requirement for water than sewerage, because provision has been made for upgradation of the distribution network for continuous water supply (Rs 88,000 crore) and metering of water connections (Rs 21,500 crore). The estimation for water requirements also includes an investment requirement of Rs 30,000 crore for industrial water. Urban roads, including local and sub-local, roads, constitute the highest share of urban infrastructure investment, i.e. 56 percent of the total.Investment in urban transport and traffic support infrastructure accounts for 17.3 percent of the total infrastructure investment of over Rs 39 lakh crore.

The Infra Problem
In spite of its prominent role in Indian economy, urban India faces serious problems due to population pressure, deterioration in the physical environment and quality of life.Nearly one third of urban India lives below poverty line.About 15 percent of the urbanites do not have access to safe drinking water and about 50 percent are not covered by sanitary facilities.

Traffic congestion has assumed critical dimensions in many metropolitan cities due to massive increase in the number of personal vehicles, inadequate road space and lack of public transport. There is a huge and widening gap between demand and supply of essential services and infrastructure.Urban poor in India are forced to live under unhygienic conditions in slums, lacking in basic amenities.Slums have grown in almost all major cities due to inability of major chunks of population to afford accommodation in planned areas of the cities.

Urban local governments (ULBs) in India are among the weakest in the world both in terms of capacity to raise resources and financial autonomy.While transfers from state governments and the Government of India have increased in recent years, the tax bases of ULBs are narrow and inflexible and lack buoyancy, and they have also not been able to levy rational user charges for the services they deliver. ULBs can borrow from the market only within limits and with explicit approval of the state government. However, this has mostly not been a binding constraint since the real challenge in accessing external finance has been the precarious state of their own finances and poor governance.

The Government of India will have to take a leadership role in financing a major part of the programme and,at the same time, facilitate and encourage the involvement of state governments and ULBs. State governments will have to contribute by way of a constitutionally mandated revenue sharing arrangement with the ULBs. On their part, the ULBs will carry out reforms in overnance and financing to deliver public services of specified norms to all including the poor. This should be done within a framework of accountability. Rising aspirations of the increasing numbers of people in urban India will make further demands on ULBs, and community participation will be an important factor in ensuring accountability.

The launch of the JNNURM in December 2005 by the Government of India signalled the importance of the urban sector for the Indian economy. The Mission has certainly helped focus attention of policy makers in all three tiers of the government on the challenges facing the cities and towns of India and created dynamism in a sector which has long suffered neglect.Progress in implementing reforms under the JNNURM has been slow, and it has been difficult to enforce conditionality of overall reforms in a project-based financing approach for a variety of reasons.The Mission has more generally exposed the lack of capacity at local government level to prepare and implement projects in urban infrastructure.

The cities of India will have to provide a receptive environment for innovation and productivity enhancement which can foster faster growth of the Indian economy and make room for larger migration from rural areas to higher-productivity sectors in urban areas. Government policy will have to address the challenges of an abysmal state of public services in Indian cities and towns.The rural-urban divide in India has been a cause of major concern and not enough effort has been put in to build synergies between the urban and the rural parts of the economy.The ability to manage urbanisation and prepare cities for their new role is one of the biggest challenges facing India’s planners.The growth momentum cannot be sustained if urbanisation is not accommodated and facilitated. Structural transformation is typically associated with reduced dependence of the population on agriculture and increased migration from low-productivity agriculture to high-productivity sectors of industry and services in search of employment.Since these sectors are based in urban areas, rapid economic growth is normally associated with urbanisation.

The Indian experience of economic growth and structural transformation in the period 1980-2005 (for which employment data are also available by sector), however, is associated with only a moderate decline in the share of agriculture in total employment in the economy. The transformed growth scenario in the economy in the 2000s and the expected acceleration in the growth of GDP, increasingly moving towards labour-intensive manufacturing, construction, and services, should augur well for migration in the years ahead. As more states join the fray of improving their investment environment through economic reforms, this should increase opportunities for non-agricultural employment. As the faster growth is expected to occur in the context of a more open economy, employment elasticity of the growth should increase.This should lead to greater employment opportunities in the industry and services sectors, and larger migration from rural to urban areas.Other forces contributing to urban growth would be expansion of city boundaries, large villages growing into towns in situ, and emergence of new towns either planned or the result of market forces possibly along the transport and growth corridors.

Some turnaround from a decelerating trend of urbanisation may be expected in the decade 2001-11 but a larger response of migration to the acceleration in economic growth as also expansion of city boundaries is more likely in the years ahead. Available estimates suggest that by 2031, the urban population of India as per the current definition would be 598 million, or just short of 40 percent of the total population. The UN population projections estimate that the urban population of India will be larger than its rural population by 2045.

The cities of India have been growing in population size. In 1951, there were only five metropolitan cities (with population of over 1 million), i.e., Kolkata, Mumbai, Chennai, Hyderabad, and Delhi.

Their number increased to 12 in 1981 and 35 in 2001.Their share in urban population increased from 18.9 percent in 1951 to 27.7 percent in 1981 and 37.8 percent in 2001. By 2001, all the original five metropolitan cities had grown to population of over 5 million, and Bangalore had joined their ranks. The 29 cities which had population between 1 million and 5 million in 2001 included four state capitals, i.e. Jaipur, Lucknow, Bhopal, and Patna, and other cities such as Meerut, Faridabad, Pune, Surat, Nagpur, Kanpur, and Ludhiana. As the projections for 2011 show, the number of such cities increases to 50 and their population accounts for 42.3 percent of the total urban population, and Ahmedabad and Pune join the rank of cities with population over 5 million.

Contribution of migration from rural areas
An important feature of urbanisation in India during the period 1981-2001 was the relatively small contribution of migration to the increase in urban population in India.Net migration from rural areas contributed about 21 percent to the increase in urban population in the 1990s, a little smaller than its contribution of 22.6 percent in the 1980s. Natural increase has been by far the largest source of increase in urban population (62.7 percent in the 1980s and 59.2 percent in the 1990s). Unlike what would be predicted by the standard theories on rural urban migration, the evidence in India suggests that the rural-urban differentials in productivity have widened since 1993-94, indicating that there is considerable scope for migrants to take advantage of the higher-productivity non-agricultural sectors if they can be equipped with the skills and education relevant for employment in urban areas.The economy seems to be far from reaching saturation point in migration and it is reasonable to expect a hastening in the pace of urbanization. Over the period 2010-2030, urban India will create 70 percent of all new jobs in India and these urban jobs will be twice as productive as equivalent jobs in the rural sector. Trends in urbanisation in India have necessarily to be seen in the context of overall trends in population growth. India is experiencing a significant slowing down of population growth in the period 2001-11, reflecting a decline in fertility rates. Growth of population after slowing down marginally from 2.1 percent per annum in the 1980s to 2 percent per annum in the 1990s is estimated to decelerate significantly in the decade 2001-11, increasing by only 1.5 percent per annum.

The deceleration in rural population growth is from 1.7 percent per annum to 1.2 percent per annum and that in urban population from 2.8 percent per annum to 2.4 percent per annum. Within the context of a slower growth of urban population in 2001-11 compared with the earlier decade, a differentiated urban spatial structure is emerging as India advances on the path of urbanisation and economic growth.Within the metropolitan cities, the ?Big Eight’ (Mumbai, Delhi, Kolkata, Chennai, Hyderabad, Bangalore, Ahmedabad, and Pune) with population exceeding 5 million (50 lakh) may have grown at a slower rate than others, but the sheer magnitude of their numbers and their importance in generating agglomeration economies and economic growth call for urgent attention to their urban  infrastructure deficits and the state of service delivery. Some of the big metros like Hyderabad and Bangalore have experienced peripheral expansion with smaller municipalities and large villages surrounding the core city becoming part of the larger metropolitan area.

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