Urban renewal to get $500mn IBRD boost

India is negotiating an urban infrastructure fund worth $500 million with the World Bank to take forward the Jawaharlal Nehru National Urban Renewal Mission (JNNURM), a plan to modernise 63 cities.

The fund was likely to be announced shortly, Urban Development Secretary M Ramachandran said.

The World Bank had approached the Planning Commission for the fund, which would require Cabinet approval.

"Financial credibility will be a must for local urban bodies to access the fund," Ramachandran added.

Sources in the ministry said larger cities could be able to access more funds as they were more credible financially. The credit rating of the mission cities would be over by October.

The ministry is in talks with banks and financial institutions for financing the urban infrastructure at subsidised interest rates.

"If this type of investment requirement is to be met, the government of India's share in the form of grants to states will have to be something like Rs 1,35,000 crore. States and local bodies will have to find the balance amount. Here is a challenge to our government, local bodies, and banks and financial institutions," Ramachandran said.

A review of the mission, which comprises projects worth about Rs 26,500 crore, earlier this week found that India lacked the contracting capacity to undertake and execute these projects. This served to underscore what Finance Minister P Chidambaram had earlier said "" that India does not lack public sector investment but the ability to spend it.

"Cities have been reporting constraints in the execution capacity and there is a need to attract large engineering firms to ensure timely execution of projects," the reviewers said. They also suggested a subsidised interest rate regime for projects undertaken by the mission, especially by banks and financial institutions.

They also noted that banks have an essential role in financing these projects and needed to have a second look at the terms and conditions on which money was being lent.

Representatives of city corporations, officials from banks and financial institutions, industry organisations and state government representatives attended the meeting.

After city development plans are submitted by most cities, the projected investment requirement (sector-wise) would be as follows: Rs 81,418 crore will be required for 7 mega cities and Rs 55,973 crore for remaining 56 cities, for urban transport. Rs 40,062 crore will be needed for all 63 cities to improve water supply while Rs 33,324 crore is estimated for sewage. Another Rs 20,100 crore will be needed for drainage while Rs 56,649 crore will be required for basic services for the urban poor.