Tussle over urban scheme funding

Finance ministry and plan panel differ over financial allocation for project

The finance ministry and the Planning Commission are locked in yet another battle. This time over the National Urban Renewal Mission (NURM).

More specifically, over the loan-grant component of the allocation to be made for a project aiming at improving urban infrastructure across the country. The matter is expected to go to the Cabinet for resolution.

While the finance ministry wants the funds to be allocated in a 70:30 ratio for loan and grant, the same as for any other centrally-sponsored scheme, the Planning Commission has been pushing for a 100 per cent grant. It has drawn up a list of options on the ratio depending on the type of the project to be funded.

The NURM was conceptualised as a reforms-driven, fast-track, planned development of identified cities with a focus on efficiency in urban infrastructure and services delivery mechanism.

The finance ministry has been arguing that like all other central schemes, the NURM should be funded on a 70:30 basis. This will also mean that the Centre will only have to provide about Rs 1,500 crore in the Budget for the programme.

However, the Planning Commission is of the view that if the point was to offer states incentives to undertake reforms, a loan (even a soft loan) will not suffice.

The NURM, as proposed by the Planning Commission, lists six mandatory reforms, including introduction of an independent regulator for urban services, a reduction in stamp duty to 5 per cent or less in five years and repeal of the Urban Land Ceiling and Regulation Act, which will have to be undertaken by states within a prescribed period. In addition, there is an optional list of reforms, of which five would have to be undertaken.

In the mid-term appraisal of the Tenth Five-Year Plan (2002-07), the Planning Commission had recommended that municipalities, which brought about a minimum critical level of reforms, would become eligible for funds on a per-project basis.

This money would then be used as equity contribution and to raise loans from financial institutions, the commission had said.

"The project conception was that the Rs 5,500-crore earmarked amount would be used as seed money and municipalities would leverage it by borrowing from the market. If only 30 per cent of this is given as grant, the amount they will be able to leverage will also go down, as a loan cannot be leveraged to raise another loan," said a Planning Commission official.