Ministry of Urban Development Government of India

Regional Policy Dialogue on Sustainable Urbanization in South Asia 17-18 December 2014 New Delhi, India

Background Paper

Urbanization has driven development of Asia-Pacific’s economies, but patterns of growth are unsustainable, and infrastructure gaps remain significant

An estimated 120,000 people arrive in Asia-Pacific’s cities each day and the region’s share of the world’s urban population is projected to grow from 42 to 63 per cent between 2010 and 2050 (ESCAP/UNDP, 2013). This process is driven by three main factors: natural demographic increase, the redrawing of administrative boundaries and rural-urban migration. China and India alone are expected to contribute over one third to the world’s urban population increase between 2014 and 2050, adding 292 million and 404 million people to their cities respectively (DESA, 2014)1. This unprecedented urban transformation has profound implications for many ESCAP member States, the Asia-Pacific region, and the world as whole.

The sources of demographic growth vary considerably. Amongst South Asian states, the focus of this Policy Dialogue, up to 70 per cent of Pakistan’s urban growth is due to natural population increase whereas in India this figure is only 58 per cent; 21 per cent is due to in-migration, and a further 21 per cent is due to city administrative boundary evolution (Mahbub ul Haq Human Development Centre, 2014). Likewise, there are key differences in the processes of urbanization in relation to city size. In the ESCAP region overall, urban growth is being driven by secondary and medium sized cities, while in South Asia megacities are playing a dominant role (see Figures One and Two). Understanding such

1 Although slow, India’s urban growth rate varies, with much higher rates of urbanization in the states of Gujarat or Mahrashtra. Similarly, the urbanization rate of Punjab in Pakistan is 50 per cent, whereas nationally it is only 37 per cent (Mahbub ul Haq Human Development Centre, 2014, Human Development in South Asia 2014 – Urbanization: Challenges and Opportunities, Lahore). trends has implications for urban policy and investment choices. However published figures can also be misleading. As an example the official urban figure of Sri Lanka (around 15 per cent) obscures many areas that would be considered urban elsewhere in South Asia. (Mahbub ul Haq Human Development Centre, 2014)

Figure One: Urban Population by City Size: Asia-Pacific (Source: DESA, 2014)

Figure Two: Urban Growth in South Asia is concentrated in megacities (Source: Mahbub ul Haq Human Development Centre, 2014)

2 Urbanization and economic growth are indivisibly linked. Cities are stimulating growth while also responding to economic change and have in recent decades become the growth engines of the Asia- Pacific: 45 per cent of the Asia-Pacific population that is urban generates around 80 per cent of GDP. Although impressive, urbanization and economic growth are not leading to equity, even as millions have been lifted out of poverty. The by-products of this transformation can no longer be ignored or left unattended. Environmental degradation, social divisions, persistent poverty, and inefficient patterns of growth have all become embedded in the region’s urban experience. South Asia has experienced slower economic growth and urbanization in relative terms, but according to many it is “poised for a major urban demographic transition” (World Bank, 2012). In meeting this opportunity, and challenge, South Asia must construct and shape its future urban growth in new and more sustainable ways.

In South Asia’s urban transformation there are emerging “growth with inequality” trends, even in the region’s most successful cities. Spreading the wealth and success of urban dynamism in addressing gaps is not the only challenge facing cities in the region however. In parallel with India’s urban growth, there will also be a huge rise in the middle-classes from 22 million to 91 million people in 2030 (McKinsey, 2010). The resulting shift in consumption and production patterns will have profound impacts on cities. Future cities in South Asia are at risk of becoming victims of their own success as they outstrip their resource base. A “cities as usual approach”, based upon carbon-intensive and car-based lifestyles, threatens to undermine the future development of South-Asia’s urban present, and future.

An alternative to unequal and unsustainable cities for the sub-region is of course possible. Infrastructure, in various forms, is often cited as a critical component for South Asia’s future urban growth and development. The commonly cited ‘infrastructure gap’ points to the economic and social implications of unmet needs and gaps ranging from sanitation2; pollution and congestion –with both economic and health costs to cities and its residents; energy3; housing – especially safe, resilient and affordable shelter4, being amongst the principle gaps and needs. In meeting these diverse but related challenges, it is logical for infrastructure deficits to be tackled in an integrated way which supports sustainable, resilient and inclusive urban growth, but also ensures that the economic potential of the region’s cities is realized.

Towards a low-carbon, inclusive and resilient urban future

2 An estimated 700 million people do not have access to basic sanitation infrastructure in South Asia (UNESCAP, 2013) 3 Globally, an estimated 1.3 billion people still do not have access to electricity, two-thirds of whom are situated in Bangladesh, India, Indonesia and Pakistan (UNESCAP 2013) 4 Approximately 571 million people in Asia and the Pacific live in slums, with this number increasing each year. The slum population of the Asia-Pacific region is around two-thirds the global estimate (UNESCAP 2013)

3 While cities contribute greatly to the Asia-Pacific region’s economic transformation, this is not without its costs. The corollary of economic and urban growth is that urban areas are the principle sources of Green House Gas (GHG) emissions through buildings (around 40-70 per cent of emissions) industry (12- 30%) and transport (13-18 emissions)5 (UN-Habitat, 2011/UNEP, 2009). These figures vary greatly between countries due to climate and pre-existing infrastructure and yet, throughout Asia-Pacific there are opportunities to alter the way cities consume and produce energy. Dealing with these fundamentally related issues provides a challenge but also an opportunity for green and equitable retrofitting of cities, as how we build and what is built will influence not only current, but also future emissions.

Though both physical facilities (roads, sewers) and services (energy and water supply) are typical gaps faced by many governments, the key challenge is understanding how meeting such needs can be achieved concurrent to lowering carbon emissions and carbon intensity. Infrastructure “gaps” in essence need to be “greened”, rather than just simply filled. Infrastructure is a city’s “hard wiring”, and it holds the unexplored co-benefits for making cities greener, more equitable, and more economically successful. There are important synergies to be found in “Building Right” and “Building More” (World Bank, 2013). No matter which way one understands the infrastructure gap, tackling the challenge should result in investment but also in access (both social and physical) and quality. It is crucial to ensure that today’s solutions do not create tomorrow’s problems, because infrastructure is locked in for many generations. In this sense, there is a significant “potential for regret” (World Bank, 2012) that should galvanize action around greener approaches.

It is tempting to equate greater investment in infrastructure with greater access for all. This is debatable, as certain infrastructure types may only reach specific socio-economic strata. Some infrastructure influences livelihoods or non-income aspects of poverty (i.e. water and sanitation) whereas improved road access for instance invariably bring benefits to wealthier populations first. These gaps have been the focus of much investment for decades in the region but the most basic infrastructure is still lacking: Full access to water (MDG 7) has yet to be met, despite substantial progress having been made6; in terms of sanitation (MDG 7C), achievements have been limited, as almost 700 million people still do not have adequate access - mostly in India, Bangladesh and Pakistan. Globally, nearly 1.3 billion people still do not have access to electricity of which two thirds are situated in Asia, the majority in South Asia and South-east Asia7.

5 This does depend on whether one uses data that describes energy consumed or energy produced. 6 Nearly one-in-ten people lack access to clean drinking water in Asia, mostly in South Asia. 7 Bangladesh, India, Indonesia and Pakistan represent the region’s large off-grid populations (UNESCAP 2013). With less than 400 Kwh per person, annual energy consumption in Asia is still the second lowest, after Africa.

4 Finally, future infrastructure solutions must also contribute to the development of a resilient urban future. Indeed it is essential that in meeting infrastructure gaps we concurrently strengthen the functioning of urban systems especially those on which the poorest depend. Disasters and slow-onset changes resulting from climate change will increase pressure on existing services and infrastructure, with disproportionate impacts on poorer populations and communities, and vulnerable groups such as persons with disabilities, older persons and children. In response there is a need to mainstream disaster preparedness and resilience planning into future infrastructure. This should also be at the most appropriate scale and ‘fit for purpose’. Implementing low-cost and community-level design and flood protection measures can help ensure that essential infrastructure remains safe and operational during disasters (such as green and resilient schools). In greening urban infrastructure we must also look to strengthen urban systems for future climate-related changes and challenges.

Infrastructure gaps in South Asia: A brief assessment

As South Asia and the Asia-Pacific will continue to urbanize for decades to come, action must be taken that results in closing infrastructure gaps in ways which contribute to low carbon and liveable cities. Low carbon and inclusive infrastructure can tackle both local and future challenges of sustainability and equity: “Paying attention to the environmental impacts of growth is critical for the provision of adequate housing, energy, water, sanitation and mobility needs to people […] in a manner that does not cause major depletion of natural resources or endanger future generations” (UN-Habitat, 2008). Rethinking housing, sanitation and transport infrastructure in such a light would have significant impact on shaping cities of the future and moving away from ‘cities as usual’. This includes affordable solutions in which needs are matched to low-tech and low-carbon solutions. Supporting green industries through fiscal and other policy tools towards innovation across infrastructure sectors provides a key opportunity in support of these goals.

Considerably influencing the way that a city’s urban form develops, green and inclusive transport infrastructure and services, in particular public transport, are foundations for inclusive green urbanization. Variations between provision and usage prevail in the sub-region: although Pakistan inherited the same aging colonial era railway system as India, it has developed motorised infrastructure for inter-urban and intra-urban travel and left this system underused, despite its greater potential for sustainability gains (Mahbub ul Haq Human Development Centre, 2014). Transport infrastructure is capital intensive and cities in South Asia have, on the whole, not invested enough. Instead, an overemphasis on road construction has encouraged car use, locking in carbon-based transport for decades to come.

Public transport also provides livelihoods for many urban dwellers: in Dhaka, up to 580,000 people are employed in various forms of public transport provision or maintenance. From reducing car use,

5 enabling access to jobs, opening up impoverished areas to investment and so on, public transport can improve health and bring significant reductions in the vulnerabilities experienced by residents of segregated areas. In India a lack of investment in public transport systems has seen transit ridership drop from 40 per cent of total trips in 1994 to 30 per cent today. For cities to function transit use needs to dramatically change. South Asian cities have some of the worst air pollution measurements in the world as increasing car use is causing health hazards and declining quality of life, not to mention contributing to GHG emissions.

A culture of public transport use also needs to be fostered as many construe public transit as being the reserve of the poor. Indeed, many poor people do not have the luxury of choice in much of South Asia and public transport is often not safe for certain groups, in particular for women. Apart from benefitting the urban poor directly, investments in the public transport sector also imply important economic multipliers and boost the development of green industries.

In a similar vein, greater investment in housing would also bring economic multipliers in South Asia. The spatial projection of this very tangible infrastructure gap is manifested in the sub-region’s sprawling slums. Over half of the world’s slum population is situated in the Asia-Pacific; this constitutes an average of 40 per cent of the region’s urban population (UN-Habitat, 2011). The challenges are daunting in South Asia: in Bangladesh three quarters of the urban population live in slum conditions; in Karachi, 8 million people out of the total 16 million live in slums.

Slums reflect and reinforce various forms of exclusion and discrimination in the sub-region. For example, in Jaipur despite only representing 16 per cent of the overall population underprivileged castes make up 61 per cent of the slum population (Mahbub ul Haq Human Development Centre, 2014). The effectiveness of the housing enabling environment is crucial for positively influencing overall supply and affordability, crucial factors for responding to the housing backlog. In India for example, there are still significant hurdles for the buying and selling of land, and formal title recording could be improved. There are severe shortages of housing throughout South Asia’s cities, in particular in the sub-region’s economically dynamic medium sized and mega-cities.

The answer however is not just to build housing along the model of public housing schemes that were built during the 1980s and 1990s because these walk-up apartments and high-rises were largely built with little regard to resources or needs. They were also rarely suited to need, or affordable for the poor. Overall mass public housing approaches have not enhanced quality of life. Indeed, many public and private housing schemes are managed in a laissez-faire system that favours private developers who do not cater or respond to the needs of the urban poor. In Mumbai, many high-rise condominiums built for the wealthy are empty, while homelessness still persists. The extent of

6 housing need in South Asia urgently demands that a system that can rapidly meet the needs of large numbers of people, while contributing to low-carbon and inclusive outcomes, must be examined. The issue of the scaling of green techniques is crucial in this context as 40 per cent of energy consumption goes into housing through heating, cooling, construction and maintenance processes, so the low- carbon mitigation potential is very high (UN-Habitat, 2011)

In meeting basic infrastructure gaps, urban health and liveability are threatened by insufficient sanitation systems throughout South Asian cities. South Asia continues to have high rates of open defecation; of one billion people worldwide who do not have access to a toilet, 600 million are in India (Economist, July 2014). In Dhaka, over 5 million people do not even have access to public lavatories. Although many argue that the persistent culture of open defecation is a rural problem, a prevailing lack of toilets is not facilitating a change of attitudes in urban areas. Providing such facilities for urban dwellers is relatively affordable as the cost of providing water and sanitation in urban areas is 30-50 per cent cheaper than in sparsely populated areas. Despite this, investment in sanitation has stagnated in recent decades: in 1990 134 million urban dwellers did not have access to sanitation whereas in 2010 the figure was 196 million (UNICEF, 2010). Promisingly, the South Asia region does have a number of successful participatory sanitation implementation projects at a certain scale, such as the Orangi Pilot Project in Pakistan. Similar methods are still not universally accepted, though they can offer a great deal in spurring innovation and meeting needs in the sub-region.

Against the background of such a range of needs, the facilities that are built or services that are put into place must ensure against the lock in of carbon-intensive future uses or materials, and against the locking-out of the poorest populations from the choices and benefits that quality infrastructure can bring. As much of the built environment and infrastructure is still to be built in emerging urban areas in South Asia, there is significant potential for low carbon growth that is also equitable and improves the liveability of current and future cities.

Towards enabling frameworks: Implementation and financing challenges for low-carbon and inclusive infrastructure

Governance and financing (which can be understood as “soft” infrastructure) are fundamental and co- dependent factors underpinning the implementation of “hard’ infrastructure. Infrastructure involves a vast assortment of sectors and implies a daunting variety of investment segments for national governments, private companies, individual investors and the international donor community. Urban agglomeration advantages represent savings that could be spent on low-carbon infrastructure while green industries that facilitate the development of higher-value jobs could be brought about through enhanced collaboration between the private and the public sector. This also encourages cities to

7 access and understand green technologies that are often perceived as expensive or complicated.

Rethinking infrastructure in an interconnected way helps realign the challenge posed through conventional processes related to infrastructure, questioning what infrastructure is built, how we build it, and where the funding sources are. Projected costs are very high and there are widely ranging estimates as to the extent of the infrastructure-financing gap in South Asia, or in the wider Asia- Pacific. In 2009, the ADB estimated that 8 trillion USD between 2020 and 2050 for the whole of Asia would be needed. The World Economic Forum concluded that there was an overall need for basic infrastructure provision of around 3.7 trillion USD worldwide per year. UNESCAP’s Executive Secretary recently affirmed that 2.5 trillion USD per year would be needed to close infrastructure gaps in the Asia-Pacific (UN-ESCAP, 2014). Concerning South Asia, the World Bank stated that US$ 1.2 trillion per year is needed (World Bank, 2011). In terms of “installed” infrastructure capacity, India’s per capita expenditure is 15 USD, compared to 116 USD in China’ (McKinsey, 2011). As these figures vary it would seem important to qualify what the greatest spending necessities are within these considerable estimates.

Infrastructure spending as a percentage of GDP is still low in the South Asian sub-region and governments need to allocate a greater percentage of public spending to infrastructure, including redirecting unsustainable and inefficient energy subsidies to infrastructure investments (Economist, March 2014). A problem lies in identifying sources of funding as commercial banks have become reticent to finance long-term, slow-maturing investments since the 2008 financial crisis. A key question is: could other investors plug the gap? A solution that is cited by many, mostly private sector actors is the raising of financing through enhanced and more effective regional capital markets, and mobilizing untapped corporate, sovereign and private savings that recent economic boom has brought to the region. Tax collection also remains a significant source of revenue generation; although many Asia-Pacific economies have boomed over recent decades, many nations have failed to capture sufficient fiscal revenues. The development of carbon financing mechanisms, on an urban or national scale, could also be looked at to provide green incentives that ensure whatever infrastructure is built, is also sustainably financed. Nevertheless, these funds need to find their way to the city level as the effective redistribution of national revenue to sub-national levels has proven insufficient vis-a-vis need.

On a different governance scale, cities themselves provide a potentially potent tool and enabling environment. The adoption of innovative infrastructure types such as smart grids or urban agriculture could support highly urbanising cities so that they are less dependent on fossil fuels, provide more efficient energy sources, while becoming more equitable as they grow. For example, economically vibrant cities such as Bangalore and Hyderabad are in very strong positions to harness their

8 developing high-tech infrastructure networks, and provide basic and advanced infrastructure in a holistic way. Urban planning is crucial for this, targeting sustainable infrastructure investments with needs via both long-term scenarios and detailed needs-based planning. Urban planning can reconcile servicing basic needs with a “focus on the development of cities as economic engines rather than as locations for improving lives” (Mahbub ul Haq Human Development Centre, 2014). Many cities in South Asia have out-dated and ineffective urban plans that are not adapted to the speeds at which their agglomerations are evolving. Worse still, these plans are often esoteric or based around obsolete colonial-era systems (McKinsey, 2011).

It is estimated that through better, more compact city-planning that India could save over 6 million hectares of arable land through increasing city densities (McKinsey 2010). Both economic growth and quality of life need to be understood as two sides of the same coin in order to achieve truly sustainable scenarios. Kathmandu Valley has started to implement a multi-stakeholder urban planning process that has taken steps towards developing a model that would enable such approaches to evolve. The National Urban Development Strategy (2014) aims to deal holistically with environmental, social and economic infrastructure planning as part of urban planning practices. This approach is based around a “Clustered City Approach” that will aim to link together basic needs and resource use. For example rainwater harvesting is linked to building regulations while land use is connected to public transport. Crucially, this approach is multi-stakeholder driven: for the implementation of such projects the strategy enshrines gender equality and social inclusion as underlying principles for the project’s implementation. Additionally, Thimphu, Bhutan, is developing its urban strategic planning to give greater consideration to sustainability, including in balancing redevelopment with existing building stock. There are initiatives in the sub-region from which to learn.

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