LM: What India’s urban infrastructure price tag is going to be is a big challenge: Oct 23, 2008

India’s cities face many challenges, and one looms larger than the rest: How much will it cost to build our urban infrastructure?

 

Among the recent sources of urban infrastructure cost estimations are:

—From JNNURM cities’ capital investment plans and projects data, extrapolating the estimates from the reports of 63 mission cities across urban India indicates a requirement of Rs8 trillion for 5,161 cities.

 

—The Central Public Health and Environmental Engineering Organisation (CPHEEO) estimates the requirement for 100% coverage of safe water supply and sanitation services by 2021 at Rs1.73 trillion.

 

—RITES’ estimate of Rs2.07 trillion needed for urban transportation in Class I cities over the next 20 years.

These sources supplement the more formal estimates for urban infrastructure requirements, such as the India Infrastructure Report, 1996 (also known as the

Rakesh Mohan committee report); the 10th Plan of the Planning Commission of India, which contains estimates for water and sanitation services, and the Zakaria committee report of 1963, which is still used as a basis for estimating urban expenditure.

 

One of the challenges posed by these multiple sources of data is to reconcile their various estimates. For example, the per capita estimates for water supply under the Planning Commission norms are in the range of Rs1,332-1,999 (2006 prices), while the JNNURM data indicates the average across different city classes at Rs3,349, 70-150% higher. Similarly, the figure for solid waste disposal is estimated between Rs166 and Rs266 in the Planning Commission figures, while the JNNURM data indicates Rs569, a figure that is two-three times this estimate.

 

The Rakesh Mohan committee estimated that the cost of urban infrastructure (across the three key services of water, sanitation and roads) comes to Rs28,000 crore (1996 prices) over a 10-year period up to 2006. Of this, the share of water and sanitation was Rs15,523 crore. Compare this figure with the share of water supply and sanitation in the more recent JNNURM data—Rs2.13 trillion. Adjusting for inflation, this is almost 10 times the estimate in the Rakesh Mohan report—a difference that cannot be explained by incremental demand alone. Clearly, with the increasing volume of data coming in from JNNURM, we need to revisit the basis for urban infrastructure estimation.

 

Another aspect of all current estimates for urban infrastructure is that they are not related to the service levels. The relationship between cost of provision and service levels is not a trivial one. One example is the move to continuous supply by the Delhi Jal Board (DJB), where a phased approach (phase I covering 12% of total DJB connections) was estimated at about Rs275 crore. With certain assumptions, this translates into a high-level per capita cost of Rs1,690, which at 1998-99 prices of Rs1,355 would still be substantially higher than the estimated total cost of Rs706 per capita for provision of water supply including sourcing, transportation, storage, treatment and distribution as per the Zakaria committee report.

 

The issue of service levels also brings into question the estimates of backlogs—historically, we haven’t thought of backlogs based on service levels. Today, there is not a single urban local body that provides 24×7 water supply service. Hence, assuming that the DJB project was for service level upgradation, the “service backlog” cost alone (different from the commonly used “coverage backlog”)—for moving all current urban consumers to 24×7 service—would be around Rs51,000 crore. Given the poor service levels we have in urban India, this hidden “service backlog” cost alone for other core urban services such as solid waste, roads, street lighting, etc., could also be enormous.

 

There are other challenges as well, which I won’t go into here. The bottom line: We really don’t know what India’s urban infrastructure price tag is going to be—chances are that the figure could be in excess of a staggering Rs20 trillion for the next 15 years. A few months ago, the government of India established a high-powered expert committee under the chairmanship of Isher Ahluwalia to estimate urban infrastructure finance requirements, among other things (disclosure: I am a member of it). The output of the committee could result in critical decisions that will impact not only urban finances, but also potentially the overall architecture of fiscal federalism in India: The need to restructure the fiscal transfer system not just between the Union and state governments, but across Union-state-local levels; as also whether and what new fiscal handles should become available to urban local governments to help them address the enormous infrastructure burden that lies ahead.

 

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. Comment at mobiusstrip@livemint.com