Nobody really knows how much it’s going to cost to build India’s urban infrastructure. The Jawaharlal Nehru National Urban Renewal Mission (JNNURM) has—for the first time—got Capital Investment Plans from cities. With some assumptions, we can derive a defendable figure of around $300 billion for India’s urban price tag.

Against this, the total outlay by states and cities is pathetic. In the words of the Planning Commission, “the present level of funding is not even tackling the fringes of the problem". JNNURM itself promises only Rs50,000 crore, about 5% of the total amount needed.

Our cities are facing a funding crisis. They will have to find Rs50,000 crore a year for several years to come. A marketplace of ideas will have to be encouraged—public private partnerships, judicious land monetization and so on.

Even with all this, massive municipal debt financing is inevitable. But cities are not credible borrowers. Lenders want far more comfort on projects: their importance to the city, the timeliness and quality of implementation, and visible cash flows. The municipal bond market in India has barely begun, with just a few hundred crores of funding.

However, from the citizens’ perspective, even these early trends are being seen with deep suspicion: projects they don’t want, implementations they don’t have a say in, lining of corrupt pockets, and all this funded by money that they have to repay. For example, Bangalore has desperately needed a mass transit system for a long while now. However, the Metro project has opponents because of the opacity surrounding the project. In this unplanned melee, delays become inevitable—the project cost has already doubled to Rs7,500 crore and the meter is still ticking.

The reality is that—in many cases—the interests of the lenders could be aligned with those of citizens: Every one wins by working on high-priority consensus projects. It takes a little longer to get consensus, but a lot less time and money to implement the projects. Democratic processes and market mechanisms can be mutually reinforcing.

In fact, it would be good if there were a financing instrument that brought these interests together. Let me offer an idea for precisely such an instrument that I call “LILIES"—“Local Investment for Local Infrastructure Enablement Schemes"—yes, I know, I am stretching the acronym to make it work! Quite simply, LILIES are urban infrastructure projects which have a minimum threshold—say 25%—of the borrowed funds coming from local residents—individuals who can show bona fide domicile in the city—ration card, voter ID, utility bill, etc.

LILIES provide tax-free returns and have a small interest incentive for the local resident compared with other lenders—say, 0.50%. Institutional investors in LILIES only need to top up the funds to the amount needed. So, for example, suppose that in a Rs100 crore LILIES project, local resident participation is Rs35 crore. Additional funds of Rs65 crore come from institutional lenders. Local residents in LILIES will get—say—8.50% tax-free interest, while institutional investors will only get 8% tax-free. If there is no local interest for at least Rs25 crore, this is not a LILIES project.

There are three reasons why LILIES might make sense. First, they tap into the growing savings pool of urban India. Much of the growth in bank deposits and mutual funds is coming from urban India. LILIES can be an extremely attractive tax-friendly investment alternative for large numbers of urban Indians.

Second, LILIES provide a very important information loop for lenders: local resident participation provides data into the legitimacy and credibility of the project, information that cannot be discovered otherwise through market mechanisms. Projects that do not secure local resident contribution can be questioned about their real benefits.

Third, the benefit of LILIES could go beyond just funding, and result in better project implementation as well. Local residents are more likely to be more active stakeholders in the progress of a project than a removed institutional lender.

While Indians have got comfortable borrowing for their personal lives, India is still not comfortable with borrowing for its public infrastructure. For this alone, LILIES would be an important addition to the available set of financial instruments for urban infrastructure investment. LILIES are not la-la ideas, they can actually be implemented if the ministries of urban development and finance take leadership. Who knows, maybe a thousand LILIES could bloom in one corner of the urban funding field!

Ramesh Ramanathan is co-founder, Janaagraha. Möbius Strip, much like its mathematical origins, blurs boundaries. It is about the continuum between the state, market and our society. We welcome your comments at