The past weeks have seen a concerted attempt by the PM, FM and Planning Commission's Deputy Chairman to infuse fresh life into the reform agenda. They have suggested that more political space be created to sustain 8-9% economic growth, and are investing their political capital to make this happen. A key role in the growth story will be played by infrastructure investment in the country. In scripted succession, the troika has talked of the $300-odd billion infrastructure investment need in various sectors like highways, power, ports and so on.
However, urban needs are sorely missing in this infrastructure arithmetic - city roads and street lighting, water and sanitation lines, solid waste management systems and so on. The union and state governments have quietly washed their hands of this capital investment responsibility by passing on the functional domain to city governments. These items of urban infrastructure also suffer from a visibility problem they appear trivial and puny when compared to the lumpy, muscular infrastructure projects that captures the imagination of our national politicians and policy makers.
One reason for this is that we have grossly under-estimated the true cost of urban infrastructure in our country. We have had 20-odd committees over the past several decades to answer this question, including the Planning Commission and several Finance Commissions. While figures of Rs 50,000 Rs 100,000 crores are proferred, the bottom-line is that we don't really have a legitimate figure for our urban infrastructure needs. While the authors of these reports have had poor data to work with, one persistent gap has been the missing link between the investment cost and service levels; this is like estimating a hotel cost without defining what type of hotel one wants, a roadside dhaba or a five-star resort.
I asked, " How is a Rs. 500 crore project going to help you fix the whole problem, how does it fit into a larger plan?" There was animated discussion, until finally the commissioner - a remarkable officer with an extremely sound grasp of the city's challenges - said, "You know, we have never really thought about our problems this way. We have had a middle-class mentality in solving our cities' problems, cutting the suit to fit the cloth. We are always trying to solve yesterday's problems, rather than getting ahead of tomorrow's challenges. Forcing ourselves to face the problem in its entirety is intimidating, because we don't know if we will have the funds."
I suggested that while they may not have the money, it would be self-deceiving to not even know what it would take to solve the entire problem, resulting possibly in inappropriate allocation of scarce resources. As we discussed the issue, what was remarkable was that the team knew all the details, every low lying area, every slum that needed distribution pipes. While detailed plans would take months, the rough estimate they came up with was Rs 5,000 crores to solve the city's sanitation problems in totality - the initial project would only have been tinkering with the issue. And this was just for sanitation. The same holds for water supply, solid waste, local roads, street lights and so on. So the real capital investment needs of the city was much larger than what had been recorded, or planned for there was a substantial Capital Investment Deficit that the city faced.
All cities in India face this same problem of under-estimating their infrastructure needs. This has implications not only for how they plan their investments, but also for how they manage their finances, mobilise their resources, and make demands of state and union governments. Only when we acknowledge this will the appropriate fiscal microstructure be created for healthy municipal finances. Ultimately, this under-estimation trickles upwards to present a less-than-complete picture at the national level. What we have therefore is a gigantic Capital Investment Deficit in our cities, not for flyovers or 6-lane highways or international airports, but for basic infrastructure, things that every urban resident - rich, middle-class, or poor - would need.
While a rigorous national exercise to estimate this urban Capital Investment Deficit is urgently needed, it would be useful to get a rough market benchmark against current national figures. I asked one of the country's leading private developers to produce estimates based on their large residential complexes - not for the exclusive super-rich, but of high quality with internal roads that have underground ducts for service lines, so no road-cutting is ever required; 24 x 7 water supply; tertiary treated sewage systems that recycle water; solid waste management with composting facilities and landfill sites, etc. The cost came to around Rs 50,000 per capita, subtstantially more than current national estimates. This suggests that our national Capital Investment Deficit for urban infrastructure is over $300 billion, an astonishingly large number. While this could be a high-end estimate, it at least comes with clearly defined service levels.
Urban India's Capital Investment Deficit is as much a national imperative as other forms of infrastructure, and requires the same application of political capital from our leaders. Whether we like it or not, the inescapable truth is that cities are our gateways to globalisation. If we want our national economy to aspire to 10% economic growth, we need to make sure that our cities don't let the country down. Or rather, that our country doesn't let our cities down.