The Pulse | Economy | Environment | South Asia

India’s Cities Need Green Infrastructure Financing

The time is ripe for a new system to narrow down sustainable urban infrastructure financing gaps.

By Soumyadip Chattopadhay for
India’s Cities Need Green Infrastructure Financing
Credit: Flickr/Güldem Üstün

India’s rapid urbanization coupled with incoherent urban policies and inadequate urban infrastructure have made its cities among the most vulnerable to climate change. The outbreak of the COVID-19 pandemic has already shown how global shocks can further unearth the evils of decades of mismanagement of cities. Ironically, but not surprisingly, urban residents of slums and squatter settlements bear the maximum brunt and this, in turn, exacerbates existing socio-spatial gaps in Indian cities. So, cities need to change as they grow. Of late, green infrastructure has been viewed as a development priority, especially with respect to the creation of livable, environmentally sustainable and efficient cities for all citizens. Green infrastructure is conceptualized as “the network of natural and semi natural features, green spaces, rivers and lakes that intersperse and connect villages, towns and cities” and when appropriately planned, designed and managed, they have the potential to mitigate and adapt the effects of climate change.

Recent government policies signal climate conscious urban transition in India. In particular, India adopted a National Action Plan for Climate Change in 2008 with some of the mission components explicitly focused on the cities. The “Nationally Determined Criteria” of India has attempted to balance environment protection, equity and inclusiveness and economic growth in their development objectives. However, many Indian cities have been experiencing, albeit in varying degrees, significant depletion of their water and green spaces to meet the increasing needs of industrial and infrastructural facilities and find it difficult to sustainably manage their environmental resources. Policymakers face the uphill task of balancing the climate and environmental praxis with the growth discourses and these result in a critical disconnect between policy prescriptions and their implementation. Planning for and investment in green infrastructure can be used as an adaptive approach to urban development in India to reconcile such competing discourses.

But, how to finance such green infrastructure action plans in Indian cities? Investment needed for funding a similar plan is challenging as the government of India’s high-powered expert committee estimated urban infrastructure investment deficit of $827 billion at 2009–2010 prices for the period 2012–2031. Moreover, the government of India has estimated that around $450 million per year is needed to finance India’s ambitious targets for renewable energy and urban sustainability over the next 10 years. Filling this urban infrastructure investment gap requires preparation of green action plans and clear finance strategies consisting of the right combination of spending decisions and taxes and financing instruments.

Climate responsive urban policy is key to address the financial shortfalls. In practice, the climate risks that urban India faces are multifaceted and are functions of local specificities and climatic conditions. Cities need to set local sustainability targets after duly incorporating sustainability and resiliency aspects into their planning exercises. However, fragmented urban governance structure in India marked by the presence of wide range of actors with conflicting as well as overlapping interests and mandates seriously undermine the scope for concrete sustainable infrastructure plans. New governance approaches are needed to engage with all levels of government (national, subnational, and local) and to involve a diverse range of urban stakeholders in green infrastructure planning and implementation. Properly designed projects can also help cities mobilize funding from both public as well as private sources.

Many city governments in India struggle to finance urban basic services on a sustainable basis, let alone large infrastructure projects, due to their infirm financial health. They depend on intergovernmental transfer from higher levels of government to ensure a national minimum standard of urban services and undertake a comprehensive urban development plan. But such transfers are found to be inadequate and often discretionary and hardly correspond to the expenditure needs of the cities. Moreover, following the 74th Constitutional Amendment Act, devolution of municipal functions has not been followed by the devolution of finance, and city governments are left with limited taxing instruments as well as little autonomy over them. Revenue constraints have become more severe due to underuse of taxing power and instruments available with the city governments. Poor assessment of properties, inefficient collection, and widespread exemptions have undermined the revenue potential of property tax. User charges are rarely levied to cover the cost of urban services. State governments, out of their fear of losing political power, have found to be, by and large, reluctant to increase both municipal taxing power as well as amount of shared taxes. Given such dismal financial situation, rarely are the municipal projects perceived as commercially viable for which fund can be arranged through public-private partnerships (PPPs) or accessing the capital market.

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Now is the time to “lock-in” a well-designed urban finance system to narrow down the sustainable urban infrastructure financing gaps. No strategy can ever serve as a substitute to getting the basics right. City governments will have to find ways to expand their revenue streams through increasing revenue from existing local taxes and strengthening the revenue-raising power of the city governments. For example, improvement in valuation techniques, expansion of tax base, efficient tax collection and management can be useful for exploiting the full revenue potential of property tax in India. Sound and robust financial health of the city governments, then, would make them attractive before the private investors, and help them explore other innovative sources of financing including municipal bonds, PPPs and so on. These initiatives must be supplemented by adoption of standardized budgeting framework, complete disclosure of financial information, and active citizen participation in civic affairs in order to establish financial and social accountability and operational transparency of the cities.

Soumyadip Chattopadhay teaches at the Department of Economics and Politics, Visva Bharati University India. He was associated with Graduate School of Geography, Clark University as a C V Raman Fellow and Department of Urban Studies and Planning, University of Sheffield as a Commonwealth Academic Fellow. His research interests lie in the field of development studies and more specifically focuses on urban finance, urban inequality and ongoing transformations in urban governance in Indian cities.