India needs to invest nearly $55 billion a year in urban infra: World Bank report

India will need to invest $840 billion over the next 15 years to upgrade its urban infrastructure if it is to effectively meet the needs of its fast-growing population in cities, a World Bank report said Monday.

The report, titled 'Financing India's Infrastructure Needs: Constraints to Commercial Financing and Prospects for Policy Action', pitched a host of policy actions including switching to a more stable, formula-based, and unconditional fiscal transfer regime at both state and central levels for urban local bodies and creation of a dedicated structure such as a Cities Investment Support Unit. The unit can focus on infrastructure finance to assist specific states and cities with regulatory reform, transaction preparation and implementation for private financing including borrowing and private-public partnership transactions, it said.

The report underlined the need to improve the financing avenues for India's urban local bodies, better involve the private sector in project implementation, and improve revenue streams by leveraging more private and commercial investments.

"Only 5% of the infrastructure needs of Indian cities are currently being financed through private sources," it said, adding that with the government's annual urban infrastructure investments only topping $16 billion (2018), much of the gap would require private financing.

Currently, the central and state governments finance more than 75% of city infrastructure, while urban local bodies (ULB) finance 15% through their own surplus revenues.

"Cities in India need large amounts of financing to promote green, smart, inclusive, and sustainable urbanisation. Creating a conducive environment for ULBs, especially large and creditworthy ones, to borrow more from private sources will therefore be critical to ensuring that cities are able to improve living standards of their growing populations in a sustainable manner," said Auguste Tano Kouame, country director, World Bank, India.

By 2036, as many as 600 million people will be living in cities in India, representing 40% of the population, the report highlighted, observing that it was likely to put additional pressure on the already stretched urban infrastructure and services of cities.

It said investment in urban infrastructure and services remained significantly short of needs across India and that private financing through borrowing and public private partnership (PPP) had not attained anywhere near the desired scale and volume.

Push for policy reforms
Over the medium term, the report suggested a series of structural reforms including those in the taxation policy and fiscal transfer system - which can allow cities to leverage more private financing. In the short term, it identified a set of large high-potential cities that have the ability to raise higher volumes of private financing.