Only 30% urban infra in place for Viksit Bharat target, financing for local bodies critical: DFS secretary

Nagaraju suggested that collaboration with multilateral development banks, especially those focused on green funds, could help India leverage blended financing structures.

India has built only 30 percent of the urban infrastructure required to achieve the goal of Viksit Bharat by 2047, making adequate financing of urban local bodies (ULBs) crucial, department of financial services (DFS) secretary M Nagaraju said on February 6.

He was speaking at a National Bank for Financing Infrastructure and Development (NaBFID) event in the capital.

"By 2030, around 40 percent of India’s population is expected to reside in urban areas, up from 31 percent in 2011, and these areas will likely contribute nearly 70 percent to the nation’s GDP. Given that only 30 percent of the required urban infrastructure for 2047 is currently in place, financing local bodies becomes paramount," Nagaraju stressed.

He added that provision of high-quality public services in urban areas will play a significant role in enhancing India’s growth potential.

Urban Local Bodies (ULBs) are tasked with developing critical infrastructure, efficient public transport systems, water and sanitation facilities, solid waste management, and other services essential for improving urban living standards. However, many ULBs face significant financial constraints. Many corporations struggle with revenue deficits, Nagaraju noted.

The current state of municipal bond markets and green bond issuance further highlights the funding challenges. "Municipal bonds constitute less than 1 percent of total corporate bonds outstanding, while the green bond market is still in its nascent stage, burdened by high costs," he said.

Nagaraju suggested that collaboration with multilateral development banks, especially those focused on green funds, could help India leverage blended financing structures.

"NaBFID can work with multilateral institutions to learn from global best practices in designing risk-sharing structures and financing strategies for urban infrastructure," he said, adding that pooled finance structures could be explored to help municipal bodies raise resources.

"Such structures can also help in designing PPP models and investible structures through transaction advisory services."

Nagaraju emphasised the importance of capacity building for ULBs, including technical expertise and technology adoption, to meet the growing infrastructure demand. "Focussed initiatives on capacity development will enable ULBs to enhance their efficiency and delivery," he said.

According to him, investing in urban infrastructure will not only create employment but also generate a significant multiplier effect on the economy. "It will boost the productive potential of human capital through high-quality public services and generate economic benefits far greater than direct benefit transfers."

Auguste Tano Kouame, World Bank’s Country Director for India, present at the same event, said that India is truly determined to achieve the goal of Viksit Bharat by 2047, and the Budget deepens the foundation for that.

“India is maintaining fiscal and social stability while remaining the fastest-growing economy. However, cities need to be liveable, especially in terms of air quality. While progress has been made in infrastructure, sustainability is key as 70 percent of the urban infrastructure needed by 2047 still must be built. Given the limited own-source revenue of cities, mobilising funds from the market is essential," Kouame added.