Vasu: Found this interview interesting and thus putting it here for all of the forum members to read..

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JNNURM to speed up development of cities & towns
KG NARENDRANATH & RAJAT GUHA

Economic Times

Urban development secretary M Ramachandran dwells upon policy initiatives aimed at finding resources to build urban infrastructure and the importance of increasing the financial position of urban local bodies.


The 74th amendment of the Constitution in 1992 introduced the third tier of the government. But local governments, including urban local bodies (ULBs), continue to be largely hamstrung, both financially and functionally.

It is true that despite the 74th constitutional amendment, the functional and financial status of the ULBs have not improved as desired. Given the low level of resources at the disposal of ULBs, unbundling of certain basic urban services for private participation is needed.

The urban development ministry has recently prepared an agenda for action for ULBs aimed at their better management. The 21-point agenda includes suggestions for citizen charter, tips for improving basic services, assistance under central sector schemes, management of urban areas, revision of building bye-laws, use of IT, urban transport, financial system etc.

What are the steps being taken to increase own financial resources of ULBs?

Our ministry has proposed that cities that meet specified criteria in terms of improving civic amenities be given financial rewards under the JNNURM. The criteria-based ranking of cities that we are planning will, in turn, improve their credit rating and thereby ability to raise resources. More creditworthy cities can tap the bond market directly whereas others could benefit from pooled finance.

We have also suggested that the terms of reference of the state finance commissions be enlarged to propose new resource mobilisation measures for ULBs.

Property tax reforms aimed at enhancing coverage and collection efficiency would itself go a long way in boosting ULBs’ financial independence, as is being demonstrated by cities like Surat. Online approval of construction plans has been introduced in Pune and, to an extent, in Mumbai. This will help reduce tax evasion. Other cities are expected to emulate this. Efforts are also on in many cities to improve the recovery of service costs, especially that of water supply and solid waste management.

How successful has been the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) launched in 2005-06 in bridging the huge deficit of urban infrastructure in the country?

The mission runs over seven years and the total funding available during the period would be Rs 50,000 crore; the outlay this fiscal is Rs 4,987 crore. It is being implemented by our ministry, along with the ministry of housing and urban poverty alleviation. Our role is to use the resources for addressing infrastructure issues like drinking water, sanitation, sewerage, solid waste management, transportation etc.

JNNURM, we think, will go a long way in fast tracking planned development of the cities and towns with focus on efficiency in urban infrastructure and service delivery mechanisms in 5,161 cities, including 63 larger ‘mission cities’. There is in-built incentive for reforms under the mission in the form of additional central aid linked to specified mandatory reforms at the state and ULB levels. These include stamp duty rationalisation at 5 per cent, repeal of urban land ceiling acts at the state level as well as property tax reform and service cost recovery at the ULB level. The money is released in phases, contingent upon the reform steps undertaken.

The PPP model doesn’t seem to have picked up in urban infrastructure sector.

This mode of funding has recently gathered pace in solid waste management and transport, but not yet in other areas like drinking water projects. A few cities including Indore, Bhopal, Pune, Ahmedabad and Visag are implementing bus rapid transport systems through the PPP mode. Mass rapid transport systems (metro rail) of many major cities such as Bangalore, Chennai, Kolkata and Hyderabad are either being freshly implemented or expanded through the PPP route. Some of these projects also benefit from the viability gap funding (VGF) mechanism. We have written to the Planning Commission for an increase in VGF share in total project cost from the current 20 per cent.

How does JNNURM act in conjunction with the SEZ policy?

We coordinate with the board of approval for SEZs to ensure that the local self government functions are not compromised in SEZs. It may be noted that the Constitution provides for only an elected government. The state will have to take over governance in case the SEZ developer exists.

What are the estimates of housing demand in the country, the funds required to meet it and the availability of resources?

As per 2001 census, there are only 179 million homes for 192 million families in India. About 60 per cent of the shortage is in the rural areas and the rest in the urban sector. The Planning Commission has since said that nearly 34 million housing units are required for the additional population during 1996-2016. According to an estimate, India’s booming housing sector needs $44 billion a year.

The construction industry is growing at 7 per cent a year whereas the realty segment is growing faster at 30 per cent. However, this growth is not enough to meet the housing demand. Realty business has by and large remained in the unorganised sector. It attracted little corporate funding. This has led to not only uneven distribution of real estate but also artificial scarcity of land, especially in urban localities. About 30 per cent of India’s population live in urban areas and the estimate is that this would be 40-50 per cent in the next 10-15 years. Urban housing sector is facing a dire need for more funds and professional management of all related resources.

How will FDI impact the realty sector?

Government’s decision to permit FDI in the sector is a shot in the arm for the sector. It would lead to exit of smaller and unorganised players and entry of professional players. Fiscal incentives in the form of direct tax sops, including 100 per cent tax holiday for profits, are available for investors. I believe FDI in realty should be viewed in terms of its overall strengths, weaknesses, opportunities and threats. The strength is that FDI could result in huge influx of capital. This will happen only if the foreign investor finds the process hassle-free. FDI would bring cheap and maintenance-free technology. FDI has led to fall in prices in the telecom, electronics and auto sectors and the same could happen in the realty too.

At the government level, are you exploring any other avenue for raising funds?

We are negotiating a loan from the World Bank to create a new Urban Infrastructure Fund to make available money to urban projects at less than market rates. The fund would have an initial size of $500 million but could be doubled in due course. The money will be parked in a new financial entity managed by the government. An AMC will be created and the projects will remain partly mortgaged with it till the services are charged by ULBs at the optimum level. ADB is keen to lend to ULBs but we have not taken a call on this.

Real estate prices are spiralling, much faster than the growth in income and this makes housing unaffordable to large sections of the population. What are you doing to correct this distorted growth model?

More than 90 per cent of the housing shortage is for the poor and low-income category. We are considering many measures with a view to ensuring that real estate prices are kept within the reach of the common man.

The price rise is also a result of location-specific unavailability of urban land while also forces that create artificial scarcity are at work. The idea is that realty providers — both private and public — strike a balance so that all sections of society are benefited without compromising the interests of weaker sections. The development should be inclusive. It is with this intent that we are now planning real estate regulatory bill for the NCR which will bring all property dealers and builders under the scanner of a regulator. The idea is to prevent entry of fly-by-night operators into the sector. The model could be emulated by all states. Realty risks — construction-related and legal — can be reduced if rating is there. Maharashtra has such a policy. We will have to see whether the time has come to have more Real Estate Investment Trusts.

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More than 90 per cent of the housing shortage is for the poor and low-income category. We are considering many measures with a view to ensuring that real estate prices are kept within the reach of the common man.

The price rise is also a result of location-specific unavailability of urban land while also forces that create artificial scarcity are at work. The idea is that realty providers — both private and public — strike a balance so that all sections of society are benefited without compromising the interests of weaker sections. The development should be inclusive. It is with this intent that we are now planning real estate regulatory bill for the NCR which will bring all property dealers and builders under the scanner of a regulator. The idea is to prevent entry of fly-by-night operators into the sector. The model could be emulated by all states. Realty risks — construction-related and legal — can be reduced if rating is there. Maharashtra has such a policy. We will have to see whether the time has come to have more Real Estate Investment Trusts.

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