Budget 2025-26 has proposed an ‘urban challenge fund’ of ₹1 lakh crore to implement the proposals for develop cities as growth hubs. This fund will finance up to 25 per cent of the cost of bankable projects with a stipulation that at least 50 per cent of the cost be funded from bonds, bank loans and public-private partnerships (PPPs). Let us unpack the significance of this announcement and how cities can strive to utilise it.
It is estimated that about half of India’s population will reside in cities and towns by 2050. Cities contribute about 60 per cent to the country’s GDP.
The current urban planning mechanism in India is essentially a colonial legacy. It is primarily focused on ‘controlling’ and ‘regulating’ development rather than facilitating or promoting economic growth. This practice often disregards the fact that cities are not just a collection of built and natural assets but a dynamic market of land and labour.
Need to be proactive
Hence, the conventional urban planning regime is inadequate to cater to the rising informality, congestion, inefficiency and sprawl across Indian cities. Secondly, unlike developed economies, there is a missing link between the State-level economic visions and city-level planning and budgeting in India.
To navigate the existing systems, and still harness the urban challenge fund, States and cities would require both proactiveness as well as preparedness. Proactiveness would include: identifying cities that can be future growth hubs; undertaking their economic visioning and setting KPIs to raise per capita incomes, GDP, firm productivity, and liveability; developing economic development strategies to boost productivity, enhance efficiency and enable transformation; creating a pipeline of investible projects; and strengthening or devising governance structures, processes and policies.
Further, as mentioned in the Budget, 50 per cent of the cost of the project must be mobilised from the market. The private sector would need policy stability, fair risk allocations, clear revenue streams, audited account books, and so on, to be able to invest in these projects. Towards this, the States and cities would need to evaluate their preparedness and take multi-level and multi-sectoral reforms where necessary.
In sum, making cities as growth hubs will require States to look at cities beyond the urban housing and service provision lens. It would require capacity-building, creativity and collaboration.
The writer is Partner and Leader Capital Projects and Infrastructure Development, PwC India. Anshika Gupta, Director, PwC India, also contributed to the article
