The Union urban development ministry along with the World Bank is setting up a $500 million (Rs2,150 crore) fund that cities can tap for funding urban infrastructure projects, in order to circumvent a constitutional provision preventing states and urban local bodies from directly accessing foreign currency debt from external aid agencies. India’s cities need to upgrade their infrastructure, but funding proves a constraint in many cases.
Negotiations for the national urban infrastructure fund are at a final stage, with the department of economic affairs and the Planning Commission involved in the process according to secretary in the ministry of urban development M. Ramachandran. Cabinet approval for the fund is expected within two months.
“I have just concluded a meeting with World Bank officials to decide on the details,” Ramachandran said. The money would be given as loan to the Indian government, which would then pass it on to cities as grants, he added.
“The World Bank could contribute upto $300 million (Rs1,290 crore) while the rest could be generated by the government and other financial institutions,” Richard Clifford, senior urban specialist with the World Bank said. The Bank, however, has not worked out whether the fund would be managed by an entity set up specifically for that purpose.
“The initial idea was a $1 billion fund that would offer loans and credit enhancement. However, it has been pared to $500 million,” he said. The World Bank has an annual lending portfolio of $2-4 billion a year in India alone.
“The funding could be through a variety of financial mechanisms. They could directly fund specific projects. But more importantly, the money could also help serve as a guarantee to help cities access the capital markets.”
The ministry has an existing corpus of Rs50,000 crore earmarked for infrastructure projects in 63 cities with populations of one million or more. The scheme is called the Jawaharlal Nehru National Urban Renewal Mission. The government has so far approved projects worth Rs13,000 crore under the mission.