Towards Bank Financing of Urban Infrastructure

Provision of quality urban infrastructure is an area of major concern for the Indian Economy. The financing of this component of infrastructure may turn out to be a somewhat tractable problem, even in the short to medium term. The present paper focuses precisely on this issue. In more recent times, however, several initiatives have been taken to ensure that greater devolution of political and economic power actually happens. Amongst them the 73rd and 74th Constitutional Amendment Bills have sought to give local government – municipalities and panchayats true measure of financial autonomy. Given the need for commercial funding or attracting funds from the capital market for urban infrastructure a large number of initiatives have been made in India, some in participation with the World bank and USAID. Attempts are being made to make the ULBs develop the required commercial outlook for private funding. The volume of debt and equity financing has grown significantly for concessions and some financing mechanisms have evolved, mostly syndicated bank loans arranged by foreign banks and, to a much smaller degree, bond financing. However in adapting these institutional practices to the Indian conditions will require several crucial modifications. In the context of ‘universal banking’ the existing financial institutions and commercial banks may be mandated to do the job, thereby saving the cost of setting up new institutions.