Loan-to-grant scheme planned to revive JNNURM

NEW DELHI: Urban development minister Kamal Nath has a new plan for fixing the infrastructure mess in Indian cities that are struggling to keep pace with pressures of rapid growth.

Now, instead of funding urban projects in installments, the government will pay the entire cost upfront as a loan to municipal administrations. The loan will be converted into a grant if promised outcomes are achieved with the projects.

UPA's flagship Jawaharlal Nehru National Urban Renewal Mission (JNNURM) has been 'a complete failure that has wasted money and left an ugly spectre of unfinished projects across cities,' Nath told ET.

Under the JNNURM, the Centre gives funds to states but stops payments when municipal administrations do not carry out reforms mandated.

"How will nagar palikas implement these reforms (without any support)? It's an absurdity," the urban development minister said.

"It is up to us to pay them the rest so that the project at least is finished. With installments, you get sucked into a trap - our money is wasted and reforms don't take place either."

State urban officials agree. "Implementing reforms is not an issue, it is more about delay of release in money and inconsistent fund flow," a JNNURM project director of a southern state told ET.


"There is a lot of inconsistency in release of money to states under the scheme and projects have to be dropped half way," he said.

Under the new loan-to-grant scheme cities would be paid the entire project cost upfront. The scheme, unlike JNNURM's current form, would involve the Centre signing memoranda of understanding directly with urban local bodies.

"One city may be able to do reforms, but another within the state or the state itself may not do it. So why should urban projects' funding be state-specific?" Nath explained.

If the desired outcomes are met after the commissioning of projects, the entire funding to city corporations would be converted into a grant.

"This is the only way it will work," the minister stressed. Nath's idea is already being discussed with states in a sub-committee of the National Development Council.

Infrastructure consultancy firm Feedback Ventures' chairman Vinayak Chatterjee said the current scheme is 'not illogical, but maybe too theoretical.'

"Linking disbursements to reform steps is correct, but payments get delayed and projects get stuck due to bureaucratic delays," he said.

"Mr Nath's direct approach with municipal corporations is a good practical idea, but it must make strong linkages with the necessary urban level reforms to sustain Indian cities' growth," Chatterjee said.

About 30% of India's 1.2 billion citizens live in urban areas. By 2031, 600 million people will be in urban India.

Ensuring high quality public services in cities and towns would facilitate the full realization of India's economic potential, the high powered expert committee on urban infrastructure chaired by economist Isher Ahluwalia said in a report submitted to Nath in March.

Launched in 2005-06, JNNURM is being implemented in 65 cities with the objective of encouraging reforms and speeding up planned development in cities.

Initially, the Centre used to transfer money directly to district municipal corporations and Union Local bodies. But in 2006-07, the Centre adopted a state specific reform-based release system. States have to adhere to a set of reforms and two optional reforms every year, which include e-governance measures and land reforms.

Under phase-I of the existing initiative, 63 mission cities were funded. The ministry sanctioned 463 projects worth Rs 49,743.46 crore, and central assistance of Rs 8,253 crore was released to shape up the programme till December 2010.

National Institute of Public Finance and Policy economist NR Bhanumurthy said Nath's idea of giving an incentive to states and cities is a good idea. "Such an approach might speed up JNNURM project,"

In fact, the idea could be extended to other centrally sponsored schemes where intended outcomes get lost in the red tape between Centre and states. "This may prove to be a large window for states to provide the resources needed for programmes," Bhanumurthy said.