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Report on Indian Urban Infrastructure and Services :: Water Supply :: Sewerage :: Solid Waste Management :: Storm Water Drains :: Urban Roads :: Urban Transport :: Street Lighting :: Traffic Support Infrastructure Report on Indian Urban Infrastructure and Services March 2011 The High Powered Expert Committee (HPEC) for Estimating the Investment Requirements for Urban Infrastructure Services Chairperson Dr. Isher Judge Ahluwalia, Chairperson, Indian Council for Research on International Economic Relations Member Member Shri Nasser Munjee, Dr. Nachiket Mor, Chairman, Development Credit Bank Limited Chairman, IFMR Trust Member Member Dr. M. Vijayanunni, Shri Sudhir Mankad, Former Chief Secretary, Kerala; Former Chief Secretary, Former Registrar General of India Government of Gujarat Member Member Dr. Rajiv Lall, Shri Hari Sankaran, Managing Director, Infrastructure Vice Chairman and Managing Director, Development Finance Corporation Infrastructure Leasing and Financial Services Member Member Shri Ramesh Ramanathan, Prof. Om Prakash Mathur, Co-Founder, Janaagraha; National Institute of National Technical Advisor of JNNURM Public Finance and Policy Member Secretary Shri P. K. Srivastava, Joint Secretary and Mission Director (JNNURM), Ministry of Urban Development, Government of India Preface This Report on Indian Urban Infrastructure and Services is a result of over two years’ effort on the part of the High Powered Expert Committee (HPEC) for estimating the investment requirement for urban infrastructure services. The HPEC was set up by the Ministry of Urban Development in May, 2008, and I was invited to be the Chairperson of the Committee. The Committee’s Terms of Reference are presented in Annexure I. The Report documents the nature of the urbanisation challenges facing India. Its central message is that urbanisation is not an option. It is an inevitable outcome of the faster rates of growth to which the economy has now transited. Indeed, urbanisation is itself a process that will support growth. The Committee has made recommendations on how to deal with these challenges of urbanisation. The Committee has projected very large investment requirements for providing public services to specified norms and also supporting the growth process. The challenge of financing these investments is inextricably linked with the challenge of governing the cities and towns of India. The Committee has proposed a framework for governance and financing which will enable the municipal corporations, municipalities and nagar panchayats to discharge their responsibilities of delivering public services of specified standards to all including the poor. In doing so, they will have to be accountable to the people. Both the Government of India and state governments will have to play a major role in making this happen. The members of the Committee have given their time generously, and we have also had enormous support from officials at all levels of government. I would particularly like to mention Dr M Ramachandran, former Secretary, Ministry of Urban Development, Mr Navin Kumar, current Secretary, Ministry of Urban Development and Ms Kiran Dhingra, Secretary, Ministry of Housing and Urban Poverty Alleviation, for their support to this Committee. Mr P K Srivastava, Joint Secretary and Mission Director (JNNURM) was also very helpful as Member Secretary in organising interactions with officials from state governments and urban local bodies and providing necessary information on plans and policies of the governments. The Committee has held several meetings with officials from the Government of India, state governments and local governments and also met with academicians and other stakeholders with interest and expertise in Indian urban issues. The Committee was invited by the Asian Development Bank to Manila for an interaction with urban experts who briefed members on their assessment of the urbanisation experience in other Asian countries. The World Bank facilitated visits by delegations from South Africa and Brazil to Delhi to meet with the Committee members and share their experience of urbanisation in their countries. I would like to express the appreciation of the Committee to the managements of the ADB and the World Bank for making these exchanges in knowledge sharing possible. V Reports like this one cannot be written without collective effort by a large number of persons. I would like to take this opportunity on behalf of the Committee to mention only a few names. First of all, I would like to record a special word of thanks to Dr P K Mohanty who provided very valuable professional and intellectual inputs and contributed ground level knowledge to the Committee’s work. Dr K P Krishnan and Mr Arbind Modi also gave their time generously in discussions and feedback to help the Committee resolve some of the complex issues in urban governance and financing. The Committee would like to put on record its thanks to Mr Arun Maira, Dr Kasturi Rangan, Dr Parthasarathi Shome, Dr Govinda Rao, Mr Anil Baijal, Mr Gajendra Haldea, Mr A K Mehta, Mr Vikram Kapur, Mr S K Lohia, Mr B I Singhal, Mr J B Kshirsagar, Mr Shankarnarayanan, Mr Dhinadayalan and Dr Dipak Roy Choudhury. Others who provided very useful inputs for the analysis and challenges of urbanisation in India included Dr Junaid Ahmed, Dr Patricia Annez, Dr Jessica Wallack, Prof Shivanand Swamy, Dr Bimal Patel, Mr O P Agarwal, Prof Srinivasa Chary, Ms Swati Ramanathan and Mr Shubhagato Dasgupta. Ms Elisa Muzzini of the World Bank helped with the preparation of the estimates of investment requirements. I would like to acknowledge the professional contribution of Mr Ranesh R Nair who as a Consultant to the Committee for the past eighteen months helped with the preparation of the report. Dibyendu Samanta and Pavan Kumar Ankonapalli provided able research assistance. Shailee Raychaudhuri not only worked as a research assistant but also helped meticulously with editorial assistance. Shalini Shekhar provided editorial review and Deepa Gopalan provided secretarial support. I would like to thank Ajay Pereira and his team for the design and layout of the Report. I am thankful to National Institute of Urban Affairs, particularly to its Director Prof Chetan Vaidya and Prof Usha Raghupathi who provided all assistance to the Committee in their capacity as secretariat to the Committee. Isher Judge Ahluwalia Chairperson VI Contents Abbreviations and Data Notes XIV Summary and Recommendations XIX Chapter-I 1 Urbanisation and Economic Growth in India 1.1 Introduction 3 1.2 Economic growth and structural transformation 6 1.3 Contribution of migration from rural areas 10 1.4 Some evidence on urbanisation across the states of India 12 1.5 The challenge of urban poverty 16 1.6 Preparing India’s cities 18 i. Agglomeration vs congestion 18 ii. Creating synergy with rural development 20 1.7 Planning for urbanisation 22 1.8 JNNURM: An assessment 28 1.9 The Way Forward 35 1.10 Capacity Building 39 Chapter-II 41 The State of Urban Service Delivery 2.1 Introduction 43 2.2 Service norms for Indian cities 43 2.3 State of urban service delivery 45 i. Water supply 46 ii. Sewerage and sanitation 50 iii. Solid waste management 53 iv. Urban transport and roads 56 2.4 Factors contributing to poor service delivery 61 i. Inadequate investments in urban infrastructure 61 ii. Poor maintenance of assets 62 iii. Fragmented institutional set up 62 iv. Capacity constraints 64 2.5 State of inclusive development 64 VII Chapter-III 67 Estimates of Investment for Urban Infrastructure 3.1 Introduction 69 3.2 Methodology for urban infrastructure investment estimates 70 i. Service standards 72 ii. Data sources 73 iii. Per capita investment cost 73 iv. Computation of the service backlog 75 3.3 Estimates of investment in urban infrastructure: 2012-2031 75 i. Investment estimates for eight major sectors of urban infrastructure 75 ii. Investment estimates for urban infrastructure 78 iii. Investment for renewal and redevelopment including slums 78 iv. Investment for capacity building 79 3.4 Annual investment projections 80 3.5 Estimating operations and maintenance cost 82 Chapter-IV 85 Challenges of Urban Governance 4.1 Introduction 87 4.2 Basic rules for local governance 88 4.3 Institutional framework for urban governance 89 4.4 Administrative reforms 92 i. Autonomy in city management 92 ii. Empowered Mayors with effective devolution 92 iii. One Ministry for Urban Affairs and Housing 94 iv. Convergence of institutional responsibilities 95 4.5 Reforming systems of delivery 96 i. Corporatisation of urban services 98 ii. Coming together to deliver 100 iii. Public private partnership 100 iv. Regulatory regime for urban services 102 v. Accountability and citizen participation 104 vi. e-Governance 105 4.6 Capacity building 107 4.7 Urban planning 111 4.8 Inclusion and focus on the poor 116 4.9 Fiscal reforms 117 i. Financial reporting, disclosures, and audits 118 ii. Fiscal devolution 119 VIII Chapter-V 121 Financing Urban Infrastructure 5.1 Introduction 123 5.2 Own revenue 126 i. Tax revenues: ‛Exclusive taxes’ for ULBs 131 a. Property tax 131 b. Profession tax 135 c. Entertainment tax 135 d. Advertisement tax/fee 135 e. Octroi and entry taxes 136 ii. Tax revenues: Other taxes 137 a. Motor vehicle tax 137 b. Stamp duty 138 iii. Tax revenues: ‛Revenue-shared taxes’ 138 iv. Non-tax revenues: User charges and fees 139 5.3 Inter-governmental transfers 143 5.4 External finance 145 i. Debt financing 145 ii. Public private partnership 147 iii. Role of financial intermediaries