Given the enormity of the fund requirements, the government has to look for various sources for funding the Smart Cities Mission and other urban projects
Now that the Modi government has announced big-ticket urban development plans, financing and execution of these grand dreams will prove to be the real test. The NDA government’s mega urban development plans which are expected to cost Rs 98,000 crore — the Smart Cities Mission, under which 100 smart cities would be built, and the Atal Mission for Rejuvenation and Urban Transformation (AMRUT) for 500 cities with outlays of Rs 48,000 crore and Rs 50,000 crore, respectively — over the next five years will pose challenges to both the Central and state governments, urban local bodies (ULBs) and private partners. While there are specialised state-sponsored finance companies such as India Infrastructure Finance company, Hudco and sectoral fund raisers in power and railways, the fund requirements are huge and over a longer period.
Banks have been major fund providers so far. Outstanding bank credit to the infrastructure sector, which stood at Rs 9,500 crore in March 2001, has increased gradually to Rs 10,07,400 crore in March 2015, a compound annual growth rate (CAGR) of 39.5 per cent over the last 14 years. However, there are road bumps ahead. The reason: bad loans or non-performing assets in the infrastructure area. “ The growing level of stressed assets in the infrastructure sector is a serious concern impinging upon the lenders’ ability to purvey more credit to the sector,” Reserve Bank Deputy Governor HR Khan said at the infra conclave of SBI Caps. “While the primary drivers of stress in the banks’ books are global and domestic economic slow-down, contribution of other factors like delay in obtaining statutory and other approvals in respect of projects under implementation as well as weak credit appraisal/monitoring by banks during the high growth years is also significant.”