New Delhi: Learning from the experiences of how real estate companies build high-quality projects with amenities within their premises while civic infrastructure outside is generally neglected, the government will allow private developers to act as “urban infrastructure administrators” in key redevelopment areas under the ambitious Urban Challenge Fund (UCF) scheme.
This means they will develop and maintain infrastructure such as roads, water supply, sanitation and transportation. The scheme – with a central outlay of Rs 1 lakh crore – is scheduled to be launched soon to promote sustainable urban growth by transforming cities into growth hubs, promoting creative redevelopment and strengthening water and sanitation infrastructure.
The Ministry of Housing and Urban Affairs has also told the Public Investment Board (PIB), an inter-ministerial panel to evaluate fully government-funded schemes, that private developers will be allowed to bring up bankable urban infrastructure projects to avail financial assistance under the UCF scheme. These projects should be supported by state governments or urban local bodies (ULBs) and central assistance will be given through state-level escrow accounts.
UCF was announced in the budget. Under the scheme, while the central bank will provide 25% financial support for eligible projects, 50% will come from bonds, bank loans and public private partnerships. The remaining 25% will be funded by states and ULBs.
As per the recommendation of PIB, the scheme will be applicable to cities with a population of at least 10 lakh, industrial cities with a minimum population of 1 lakh and all state capitals. A separate sub-scheme will be launched for all cities and ULBs in hill states as well as ULBs with population less than one lakh.
To be eligible for support, cities must implement eight comprehensive reforms: operational, governance, tariff, property tax, transit, project financing, planning and building by-law reforms.
On the possibility of private companies bringing up bankable projects through state governments, experts said the major issue would be operation and maintenance. An expert said, “If states are unable to get finance for projects from banks with their guarantees, how will private contractors get them? Repayment of bank loans will also be a challenge. Under this model, while the loans will not come under the financial limit of state governments, they will attract higher interest rates. Banks will look for some guarantee.”
