Challenges

The key challenges posed by urbanization in Karnataka are summarized below:

Unbalanced Urbanization
As in the case of economic and human development, there are serious regional
imbalances in urban development in Karnataka, as noted in the previous chapter.
Much of the imbalance is caused by the huge gap between the size and economic role
of Bangalore and the next largest cities in the State or what may be called the
Bangalore-Centric development. Hubli-Dharwad, the second largest city in the state
has a population of less than a million. The enormous advantages Bangalore enjoys
pull migrants and investments to the capital city. This has also exerted pressure on
Bangalores infrastructure and services. How to accelerate urban development in other
regions of the state without sacrificing the interests of Bangalore constitutes a
formidable challenge.
Urban Poverty
In Karnataka, the rate of urban poverty is more than that of rural poverty. The urban
poverty ratio of 32.6% in Karnataka is also higher than that of several other states
It is interesting to note that urban poverty level is higher than the all India average of
25% in highly industrialized states such as Maharashtra (32.2%), Andhra Pradesh
(28%) and Karnataka (32.6%), except Gujarat which has the lowest rate of 13%.
Karnataka also fares poorly in respect of another dimension of poverty, namely,
Monthly Per Capita Expenditure (MPCE) where it ranks tenth among all states. While
it is slightly better than the all-India average, it is much lower than Kerala,
Maharashtra and Gujarat. The MPCE, is particularly low among SC/STs, Muslims
and OBCs. The high level of urban poverty and low level of MPCE in the state are a
cause of concern
Requirements vary from a high of 74,952 hectares in Bangalore Urban District to a
low of 5,714 hectares in Kodagu district. While meeting land requirements for the
purpose of housing (especially for the poor) industry and infrastructure, it is also
important to ensure optimum utilization of land.

Urban Land Management

Supply of serviced land is critical to urban development. The absence of a welldeveloped urban land market in India and the increasing demand for serviced land has
resulted in rising land prices, speculation and growth of informal settlements.
Government policies relating to supply of land are deemed restrictive and hampering
investments and development. Poor land management is a serious problem in all
urban areas which is reflected in violation of land use regulations and illegal
constructions.
The land requirement for urban use in Karnataka is estimated to be 5,67,285 hectares
by the year 2025. According to this estimate, about 1,40,262 hectares additional land
would be required.
Housing and Slums
Housing is recognized as a basic human right. According to Census 2001, there is a
housing shortage of 1.76 lakh units in urban Karnataka, of which 1.17 lakh houses
which are in rehabilitation condition and 0.59 lakh houses are required to deal with
crowding. In terms of overall quality of housing, nearly 78% of houses are permanent,
about 18% are semi-permanent structures and only 1,50,170 (4%) are temporary
structures.
In respect of slums, Karnataka fares comparatively better than most of the states
except Kerala. It may be seen that only 7.8% of the urban population of the state lives
in slums in 35 towns compared to 10.4% in Tamil Nadu, 24.9% in Andhra Pradesh
and 27.3% in Maharashtra. According to NSSO, 58th round (2002) survey of urban
slums, the number of slums in Karnataka is estimated to be 1983 with 4,83,828
households.
Infrastructure Gaps
a) Water Supply: As per the Census 2001, 92.2% of urban households in Karnataka
have access to safe drinking water compared to 80.9% households in rural Karnataka.
However, in 23 out of 29 districts, more than 90% have access to safe drinking water
but in four districts, viz., Bidar (nearly 30%), Dakshina Kannada (39%), Uttara
Kannada (less 50%) and in Udupi (31.6%), the majority lack access. In a number of

towns, water is supplied once in 3-5 days. The per capita supply ranges from 40-100
lpcd.
In terms of sources of drinking water in urban areas, 78.4% of urban households have
access through taps, 7.5% through tube wells and the remaining through other sources
such as ordinary wells. 75 towns, where water is supplied by KUWS&DB depend on
ground water as a primary source. The sustainability of ground water for continued
use for drinking purposes is an issue that needs to be addressed. 42 towns in the state
are yet to be covered by surface water supply.
b) Sanitation: Access to bath rooms and latrines within the house and type of
drainage are the two key indicators of sanitation. The proportion of urban households
having bath rooms and latrines within the house in the State is 79.1% and 75.2 percent
respectively. In other words, nearly 25% households needs to be provided with toilets.
However, there is significant regional disparity with a number of northern districts
lagging behind. Coverage of toilets is below 50% in the five districts of Gadag
(33.5%), Bagalkot (33.7%), Koppal (39.4%), Raichur (43%) and Bijapur (43.2%).
The coverage is more than 80% only in 6 districts of the State.
In respect of drainage connectivity for waste water outlet in urban households, it is
observed that 19% lack in any kind of drainage facility, 41.6% have closed drainage
and 39% have open drainage.
d) Road Infrastructure: Roads constitute the arteries of cities and are critical to rapid
urban development. Urban Karnataka suffers from serious deficiencies in road
infrastructure- inadequate road capacity, poor quality of roads, impediments on roads
such as potholes, depressions etc. which hinder free movement of vehicles and cause
accidents.
The shortfall in the road network ranges from 13% in class II cities to 56% in Class I
cities. The poor condition of roads also contributes to traffic congestion and accidents.
An analysis of the type of the roads shows that as much as 36% of the roads in most
of the towns and cities of the State are kachcha roads except in City Corporation areas
where it is 13%. Tar roads in non-Corporation urban areas constitute less than 40%.
Another serious drawback in our cities is the poor quality of sidewalks or foot paths;
in most places, they are virtually absent. This indicates the lack of concern for
pedestrians.

The maintenance of storm water drains leaves much to be desired. Most of the
drains are open drains which join naalaas or water bodies. At times, the storm water
and sewerage water gets mixed and lead to water contamination. Irregular desilting
results in blocking of drains.
e) Urban Transport: The spatial and economic growth of urban Karnataka in the last
three decades has placed a heavy demand on its transport facilities. The State has
witnessed a steep increase in the number of motor vehicles in recent years.
The number of vehicles increased from 16 lakhs in 1991 to 82 lakhs in 2008-09, a
fivefold increase in 18 years. It must, however, be pointed out that bulk of them i.e.,
as many as 30 lakh vehicles have been concentrated in Bangalore (40%). The modal
split indicates that 71.6% of the vehicles are two wheelers followed by cars (10.5%),
goods vehicles (3.56%) and auto rickshaws (3.5%). One of the reasons for increase in
number of private vehicles in the State is inadequate public transport services. Urban
transport and traffic is one of the most serious challenges faced in all the major cities
in Karnataka and India.
Solid Waste Management
While there is no precise assessment of the waste of municipal solid waste (MSW)
generated in most of the towns, it is estimated that Bangalore generates about 3000
metric tons per day and the other urban areas generate 4,300 tons a day. About 23% of
the waste generated does not get collected. The more serious problem relates to the
lack of treatment and disposal facilities. The unscientific manner of disposal of solid
waste, dumping in open sites and low lying areas constitutes a serious public health
issue. All the ULBs are spending a considerable part of their budget on solid waste
management (including the salaries of concerned staff) and cities are nowhere as
clean as they should be.
Environmental Challenges
The physical expansion and demographic growth of urban areas have exerted an
adverse impact on the urban environment. The large scale conversion of agricultural
land in the urban periphery for urban uses like industries, housing and infrastructure
has resulted not only in loss of greenery but in creation of urban heat islands. A large
number of trees and water bodies have given way to concrete structures. The increase

in motor vehicular traffic in cities and industrialization have contributed to air

pollution which in turn has an adverse effect on the health of the people. Cities are
huge consumers of energy and resources generating more waste than they can absorb.
The increasing consumption of water is leading to depletion of water resources,
particularly underground water. The enormous quantities of waste generated in cities
proliferation of slums and lack of sanitation are serious environmental hazards.
Urban Governance
There is a multiplicity of laws and institutions governing the urban areas in the State.
There are 219 Urban Local Bodies (ULBs) or Municipalities which have elected
representatives. Besides, there a number of parastatal organizations catering to ULBs
specialized services like water supply, land development, housing, slum improvement
etc. While the ULBs are governed by municipal laws, others are governed by separate
statutes.
The ULBs in the state suffer from several weaknesses such as shortage of financial
resources, lack of adequate professional manpower and lack of autonomy. The 74th
Constitution Amendment Act envisages that the Municipalities would be developed
into units of self-government and the State Legislatures have been empowered to
provide the ULBs with necessary authority and resources. The implementation of the
provisions of the Amendment Act in Karnataka has been tardy. The State Government
continues to exercise considerable control over the ULBs and there is little
decentralization in the true sense of the term.
The administrative system in our cities suffers from institutional weaknesses.
Conflicts of jurisdiction and authority, inefficient planning systems, lack of
transparency and accountability and poor management capacity characterize the urban
institutions.
Resources
Urban infrastructure development is highly capital intensive. According to a study
carried out by KUIDFC (20 year), the total requirement of the State (excluding
Bangalore) to provide normative standards of water supply, UGD, SWM and SWD
will be Rs.30,760 crores at 2008-09 prices and another Rs.6037 crores for operation
and maintenance of the assets to be created over the five year period 2010-15. The
requirement of Bangalore over the next five years as per the study carried out by M/s.

CRISIL is Rs. 27,825 crores for the above services and an additional Rs. 25,299
crores for transport and traffic. Thus the total requirement of the State of the order of
Rs. 90,000 crores.
The pace of urban infrastructure development in Karnataka depends to a large extent
on mobilizing the needed resources and building the institutional capabilities for
service delivery.
Risks

The effectiveness of the infrastructure to be developed under the Investment

Program depends on the level of ownership of and commitment by the
Investment Program ULBs. The ULBs must be committed to institutional
change and financial reforms, especially the NNP. Offering ULBs more
favorable loan conditions based on the number of core reforms adopted will
mitigate some risks, but at the same time, the ULBs must continue to
demonstrate the political will to increase tariffs to achieve full cost recovery
within a reasonable time frame. A key risk is that Investment Program ULBs
may fail to manage and maintain the newly acquired assets properly and may
be tempted to minimize costs through inappropriate operations. GoK is
mitigating this risk by launching a well-prepared human resources policy
designed to abolish redundant and/or antiquated positions and appoint wellqualified staff through competitive selection procedures.

Long-term contractual relationships, such as the PBDPS and PBMC

modalities, involve risks. Each of these risks carries with it a cost to the
contracting parties, and these costs are ultimately borne by Investment
Program beneficiaries in the form of tariffs or taxes. As such, careful attention
to risk mitigation measures can help ensure that PSP arrangements result in
improved service delivery at the lowest possible cost to Investment Program
beneficiaries. The allocation of risk for a subproject will depend on specific
subproject conditions, including the type and location of the subproject, the
services to be provided, and the negotiating positions of the parties involved

A number of Investment Program ULBs will continue to depend on water

sources which are not under their control but from which sufficient quantities
of water must be made available for them. Thus one risk is the impact of
potential conflicting upstream demands on water sources and another is
upstream pollution. The success of the Investment Program also depends on
the successful rehabilitation of existing water treatment, transmission, and
distribution systems and of existing sewerage systems. As these assets
continue to deteriorate with age, the level of investment required to achieve
the stated objectives may increase. The risk of underinvestment is increased as
a result of the current limited knowledge of the systems because of the lack of
original plans, as-built drawings and operational data. Improving the level of
system understanding will be a key task for the program consultants. In
addition, delays in land acquisition, where undertaken, could result in
implementation delays

POTENTIAL ENVIRONMENTAL IMPACTS AND MITIGATION

MEASURES
Water Supply
Key Issues.
Unreliable water supply in terms of supply, duration and quantity supplied.
Defunct water supply network in some slums,
Problems of water pressure and quality.
Lack of access or less secure access to alternate sources during water shortage
periods and
Unmetered supply of water, which renders determination of actual water
consumption (and thereby demand) and cost recovery for water supplied, by the CMC
is difficult.
Sewerage and Sanitation
Key Issues
Inadequate sanitation facilities leading to the practice of open defecation,
Blocking of roadside/storm drains due to disposal of night soil in the drains,

 Health, hygiene and environmental implications due to the absence of safe disposal
system, and
Inability of the poorest households to bear capital costs, which will have
implications for tariff and subsidy design
Solid Waste Management
Key Issues.
Inadequate dustbin facility in slums,
No regular collection of disposed waste, and
Blocking of roadside drains, improper disposal and irregular collection,
Health and hygiene implications, animal nuisance, and implications on the
surrounding environment
Roads and Drainage
Key Issues.
Poor condition of approach roads due to lack of regular maintenance,
Lack of roadside drains, and if present, improper management, and
Blocking of roadside drains due to disposal of solid waste and night soil
Some of the key LA and R&R issues identified during compliance reporting include:
Possession of Land and Fencing. It was observed that at many sites though land
acquisition process is completed and ownership has been transferred in urban local
bodys (ULB) name, ULB has not taken the possession of land.
These lands were also not adequately fenced due to lack of funds with the ULB.
Moreover, such work is built into contractors cost and is a contractors responsibility.
This practice has given a chance to APs to continue with cultivation activities at the
acquired site (at least wherever civil works are not started or considerably delayed)
and again claim for compensation.
Temporary Impacts during Pipe laying. Though it has been indicated that
network/pipelines will be laid within the available existing right of way (RoW) of the
road or along the natural drain etc., construction activities (excavation, dumping,
refilling, vehicle movement) require additional space. Wherever approach/road is

narrow and there is an ambiguity in ownership (natural drains etc.) temporary impacts
on adjoining private lands are unavoidable. Not identifying and addressing such
impacts prior to construction has lead to construction delays and financial
implications
Summary of Proposed Actions.
Support to APs during early stages of Land Acquisition. Land acquisition (LA)
process follows a structured process and requires stipulated time for field verification,
verification of ownership records, estimation of losses, issue of public notifications,
addressing of complaints/grievances etc. As per the ADBs safeguard policies and
NKUSIPs Resettlement Framework it is mandatory to complete LA and R&R
activities before taking possession of land and start of civil works. However, it has
been observed in almost all LA cases under NKUSIP that the affected people (APs)
were compensated much later after the land possession was taken. Among these also
include cases that are delayed due to court intervention for enhancement of
compensation for losses incurred.
Many of the consulted landowners in such cases were of opinion that accepting lower
compensation reduces merit of their case in Court and hence they preferred to wait.
Discussion with many APs also indicated that though they were well informed, they
did not had the support during initial stages (when land acquisition was being
processed) like the support they receive during RP implementation from
Implementing NGO as most of them are not well educated and do not understand the
legalities involved.
Fencing of Acquired Lands. All government lands that are identified for subprojects
and all private lands for which acquisition process is completed needs to be fenced to
avoid possibility of further encroachments. ULB should also place sign board at the
site indicating project information.
Preparation of Intermediate Corrective Action Plans. Towns where temporary
impacts are envisaged/identified will be required to prepare corrective action plans to
mitigate/address incurred losses.

POTENTIAL ENVIRONMENTAL IMPACTS AND MITIGATION

MEASURES
Potential environmental impacts is categorized into four categories considering
Investment Program phases: location impacts and design impacts (pre-construction
phase), construction phase impacts and operations and maintenance phase impacts.
(i) Location impacts include impacts associated with site selection, and include loss of
on-site biophysical array and encroachment either directly or indirectly on adjacent
environments. It also includes impacts on people who will lose their livelihood or any
other structures by the development of that site
(ii) Design impacts include impacts arising from project design, including technology
used, scale of operation/throughput, waste production, discharge specifications,
pollution sources and ancillary services.
(iii) Construction impacts include impacts caused by site clearing, earthworks,
machinery, vehicles and workers. Construction site impacts include erosion, dust,
noise, traffic congestion and waste production
(iv) O & M impacts include impacts arising from the operation and maintenance
activities of the infrastructure facility. These include routine management of
operational waste streams, and occupational health and safety issues.
Environmental Impacts and Mitigation Measures of Drainage Up gradation
Construction Impacts
Impact: Impacts to livelihood
The Construction of Storm Water drain will disturb the day to day activities of public
such as shops, residence and also leads to un-safe condition to them
Mitigation: Will compensate any business loses as per the Resettlement Framework
and Maintain assess to business (shops) people by providing planks / makeshifts
pathway, etc.

Impact: Exposure of workers to contaminated soil during disilting and excavations

Mitigation: Occupational Safety Plan shall be prepared.
This includes: (i) provision of personal protection equipment such as gloves, boots,
(ii) Manual handling of waste shall be avoided as far as possible; and
(iii) Training of workers on safe handling of sludge
Impact: Disturbance to traffic due to storage of construction material/waste and
material transport vehicles and other equipment
Mitigation: Construction material shall be stockpiled to minimize traffic blockages
Impact: Excavation of trenches will produce large amount of waste soil.
Mitigation: Find beneficial uses for waste soil in construction, land raising
Impact: Trees may be removed along drain routes
Mitigation: Only remove trees if it cant be avoided. Plant and maintained two trees
for every one removed
Impact: Business may lose income if customers access is impeded
Mitigation: compensate business for lost income as per the Resettlement Framework.
Leave spaces for access between mounds of soil and provide planks for continued
access across trenches. Provide bridges to allow people & vehicles to cross trench
Impact: Excavation could damage other Infrastructure
Mitigation: Determine location of water pipes, electrical pylons, etc. and design
scheme to avoid damage
Impact: Traffic may be disrupted by soil and vehicles ion roads
Mitigation: Keep soil vehicles machinery off road when possible. If work will affect
road, conduct when traffic is light. Ensure police provide warning signs / diversion if
needed

Impact: Traffic in town could be disrupted by vehicles en route to and from site,
delivering material or removing waste
Mitigation: Plan routes to avoid narrow streets, congested routes, important / fragile
buildings, key religious & tourism sites
Impact: Ground disturbance could damage archaeological and historical remains
Mitigation: Request state and local archaeological authorities to assess
archaeological potential of proposed STP site. Include state and town historical
authorities as a project stake holders to benefit from their expertise.
Develop and apply protocol to protect chance find (excavation observed by
archaeologist stop work if find are suspected: state authority to plan appropriate
Impact: Workers and the public are at risk from accidents on site
Mitigation: Prepare and implement a site health and safety plan that includes
measures to:
- Exclude the public from site
- Ensure that workers use Personnel Protective Equipment
- Provide Health & Safety training for all personnels
Impact: Economic benefit if local people are employed in contractor force
Mitigation: Contractor should employ at least 50% of workforce from communities
in vicinity of construction sites
Impact: Dust nuisance
Due to dry weather conditions, the dust generated due to the construction activity may
be significant.
Mitigation: Dust suppression activities such as water sprinkling shall be employed
Operation Impacts
Impact: Silting and pollution of water bodies due to non-clearance of construction
work site
Mitigation: Ensure clearing of debris/waste and material from the drainage bed

Pre-Construction Impacts
Utilities. Telephone lines, electric poles and wires, water lines within the proposed
subproject locations may require to be shifted in few cases. To mitigate the adverse
impacts due to relocation of the utilities, CSS will
(i) Identify the locations and operators of these utilities to prevent unnecessary
disruption of services during construction phase; and
(ii) Instruct construction contractors to prepare a contingency plan to include actions
to be done in case of unintentional interruption of services
Social and Cultural Resources. Any work involving ground disturbance can uncover
and damage archaeological and historical remains. For this subproject, excavation will
occur in open area, so it could be that there is a medium risk of such impacts.
Nevertheless, CSS/Divisional ES will:
(i) Consult CMC to obtain an expert assessment of the archaeological potential of the
site;
(ii) Consider alternatives if the site is found to be of high risk;
(iii) Include state and local archaeological, cultural and historical authorities, and
interest groups in consultation forums as project stakeholders so that their expertise
can be made available; and
(iv) Develop a protocol for use by the construction contractors in conducting any
excavation work, to ensure that any chance finds are recognized and measures are
taken to ensure they are protected and conserved.
Site selection of construction work camps, stockpile areas, storage areas, and
disposal areas. Priority is to locate these near the subproject locations. However, if it
is deemed necessary to locate elsewhere, sites to be considered will not promote
instability and result in destruction of property, vegetation, irrigation, and drinking
water supply systems.
Residential areas will not be considered for setting up camps to protect the human
environment (i.e., to curb accident risks, health risks due to air and water pollution
and dust, and noise, and to prevent social conflicts, shortages of amenities, and
crime). Extreme care will be taken to avoid disposals near water bodies, swamps, or
in areas which will inconvenience the community.

Site selection of sources of materials. Extraction of materials can disrupt natural

land contours and vegetation resulting in accelerated erosion, disturbance in natural
drainage patterns, ponding and water logging, and water pollution. To mitigate the
potential environmental impacts, locations of quarry site/s and borrow pit/s (for loose
material other than stones) would be assessed by CSS. Priority would be sites already
permitted by Mining Department. If other sites are necessary, these would be located
away from population centers, drinking water intakes and streams, cultivable lands,
and natural drainage systems; and in structurally stable areas even if some distance
from construction activities. It will be the construction contractors responsibility to
verify the suitability of all material sources and to obtain the approval of Urban Local
Body. If additional quarries will be required after construction is started, then the
construction contractor shall use the mentioned criteria to select new quarry sites,
with written approval of CMC.
Construction Impacts
Although construction of the subproject components involves quite simple techniques
of civil work, the invasive nature of excavation and the subproject locations in the
built-up areas of the city where there are a variety of human activities, will result to
impacts to the environment and sensitive receptors such as residents, businesses, and
the community in general. These anticipated impacts are temporary and for short
duration. Physical impacts will be reduced by the method of working and scheduling
of work, whereby the project components will be
(i) constructed by small teams working at a time;
(ii) any excavation done near sensitive area like school, religious places and house
will be protected as per standard norms etc.
Air Quality. Emissions from construction vehicles, equipment, and machinery used
for excavation and construction will induce impacts on the air quality in the
construction sites.
Anticipated impacts include dusts and increase in concentration of vehicle-related
pollutants such as carbon monoxide, sulfur oxides, particulate matter, nitrous oxides,
and hydrocarbons) but temporary and during construction activities only.

To mitigate the impacts, construction contractors will be required to:

(i) Consult with PMU/CSS on the designated areas for stockpiling of, soils, gravel,
and other construction materials;
(ii) Damp down exposed soil and any stockpiled on site by spraying with water when
necessary during dry weather;
(iii) Use tarpaulins to cover sand and other loose material when transported by trucks;
and
(iv) Fit all heavy equipment and machinery with air pollution control devices which
are operating correctly.
Surface Water Quality. Mobilization of settled silt materials, run-off from stockpiled
materials, and chemical contamination from fuels and lubricants during construction
works can contaminate downstream surface water quality of the streams draining the
City. These potential impacts are temporary and short-term duration only and to
ensure these are mitigated, construction contractor will be required to:
(i) Avoid stockpiling of earth fill especially during the monsoon season unless covered
by tarpaulins or plastic sheets;
(ii) Prioritize re-use of excess spoils and materials in the construction works. If spoils
will be disposed, consult with PMU/CSS on designated disposal areas;
(iii) Install temporary silt traps or sedimentation basins along the drainage leading to
the water bodies;
(iv) Place storage areas for fuels and lubricants away from any drainage leading to
water bodies;
(v) Dispose any wastes generated by construction activities in designated sites; and
(vi) Conduct surface quality inspection according to the Environmental Management
Plan (EMP).
Noise Levels. There are no health facilities, scheduled or unscheduled historical,
archaeological, paleontological, or architectural sites near the construction sites.
However, construction works will be on settlements, along and near schools, and
areas with small-scale businesses. The sensitive receptors are the general population
in these areas. Increase in noise level may be caused by excavation equipment, and
the transportation of equipment, materials, and people. Impact is negative, short-term,
and reversible by mitigation measures.

The construction contractor will be required to:

(i) Plan activities in consultation with PMU/CSS so that activities with the greatest
potential to generate noise are conducted during periods of the day which will result
in least disturbance;
(ii) Horns should not be used unless it is necessary to warn other road users or
animals of the vehicles approach;
(iii) Minimize noise from construction equipment by using vehicle silencers, fitting
jackhammers with noise-reducing mufflers, and portable street barriers the sound
impact to surrounding sensitive receptor; and
(iv) Maintain maximum sound levels not exceeding 80 decibels (dB (A)) when
measured at a distance of 10 m or more from the vehicle/s.
Landscape and Aesthetics. The construction works will produce excess excavated,
excess construction materials, and solid waste such as removed concrete, wood, trees
and plants, packaging materials, empty containers, spoils, oils, lubricants, and other
similar items.
These impacts are negative but short-term and reversible by mitigation measures. The
construction contractor will be required to:
(i) Prepare and implement Waste Management Plan;
(ii) Avoid stockpiling of excess excavated soils;
(iii) Coordinate with ULB for beneficial uses of excess excavated soils or
immediately dispose to designated areas;
(iv) Recover used oil and lubricants and reuse or remove from the sites;
(v) Manage solid waste according to the following preference hierarchy: reuse,
recycling and disposal to designated areas;
(vi) Remove all wreckage, rubbish, or temporary structures which are no longer
required; and
(vii) Request PMU/CSS to report in writing that the necessary environmental
restoration work has been adequately performed before acceptance of work
Surface and Groundwater Quality. Another physical impact that is often associated
with excavation is the effect on drainage and the local water table if groundwater and
surface water collect in the voids. To ensure that water will not pond in pits and voids

near subproject location, the construction contractor will be required to conduct

excavation works on non-monsoon season.
Accessibility. Hauling of construction materials and operation of equipment on-site
can cause traffic problems. Potential impact is negative but short term and reversible
by mitigation measures. The construction contractor will be required to:
(i) Plan transportation routes so that heavy vehicles do not use narrow local roads,
except in the immediate vicinity of delivery sites;
(ii) Schedule transport and hauling activities during non-peak hours;
(iii) Locate entry and exit points in areas where there is low potential for traffic
congestion;
(iv) Keep the site free from all unnecessary obstructions;
(v) Drive vehicles in a considerate manner;
(vi) Coordinate with Traffic Police for temporary road diversions and with for
provision of traffic aids if transportation activities cannot be avoided during peak
hours; and
(vii) Notify affected sensitive receptors by providing sign boards informing nature
and duration of construction works and contact numbers for concerns/complaints
Socio-Economic Income. The subproject components will be located in
Government land. Construction works will impede the access of residents to specific
site in limited cases.
The potential impacts are negative and moderate but short-term and temporary. The
construction contractor will be required to:
(i) Leave spaces for access between mounds of soil;
(ii) Provide walkways and metal sheets where required to maintain access across for
people and vehicles;
(iii) Increase workforce in front of critical areas such as institutions, place of worship,
business establishment, hospitals, and schools;
(iv) Consult businesses and institutions regarding operating hours and factoring this in
work schedules; and
(v) Provide sign boards for pedestrians to inform nature and duration of construction
works and contact numbers for concerns/complaints.

Socio-Economic Employment. Manpower will be required during the 18-months

construction stage. This can result to generation of contractual employment and
increase in local revenue. Thus potential impact is positive and long-term. The
construction contractor will be required to:
(i) Employ at least 50% of the labor force, or to the maximum extent, local persons
within the 2-km immediate area if manpower is available; and
(ii) Secure construction materials from local market.
Occupational Health and Safety. Workers need to be mindful of the occupational
hazards which can arise from working in height and excavation works. Potential
impacts are negative and long-term but reversible by mitigation measures. The
construction contractor will be required to:
(i) Develop and implement site-specific Health and Safety (H&S) Plan which will
include measures such as:
(a) excluding public from the site;
(b) ensuring all workers are provided with and use Personal Protective Equipment;
(c) H&S Training3 for all site personnel;
(d) documented procedures to be followed for all site activities; and
(e) documentation of work-related accidents;
(ii) Ensure that qualified first-aid can be provided at all times. Equipped first-aid
stations shall be easily accessible throughout the site;
(iii) Provide medical insurance coverage for workers;
(iv) Secure all installations from unauthorized intrusion and accident risks;
(v) Provide supplies of potable drinking water;
(vi) Provide clean eating areas where workers are not exposed to hazardous or
noxious substances;
(vii) Provide H&S orientation training to all new workers to ensure that they are
apprised of the basic site rules of work at the site, personal protective protection, and
preventing injuring to fellow workers;
(viii) Provide visitor orientation if visitors to the site can gain access to areas where
hazardous conditions or substances may be present. Ensure also that visitor/s do not
enter hazard areas unescorted;
(ix) Ensure the visibility of workers through their use of high visibility vests when
working in or walking through heavy equipment operating areas;

(x) Ensure moving equipment is outfitted with audible back-up alarms;

(xi) Mark and provide sign boards for hazardous areas such as energized electrical
devices and lines, service rooms housing high voltage equipment, and areas for
storage and disposal. Signage shall be in accordance with international standards and
be well known to, and easily understood by workers, visitors, and the general public
as appropriate; and
(xii) Disallow worker exposure to noise level greater than 85 dB (A) for a duration of
more than 8 hours per day without hearing protection. The use of hearing protection
shall be enforced actively.
Community Health and Safety. Hazards posed to the public, specifically in high
pedestrian areas may include traffic accidents and vehicle collision with pedestrians.
In most of the cases location of project sites at isolated area, hence health and safety
risk to community is minimum. Potential impact is negative but short-term and
reversible by mitigation measures.
The construction contractor will be required to:
(i) Plan routes to avoid times of peak-pedestrian activities.
(ii) Liaise with PMU/CSS in identifying risk areas on route cards/maps.
(iii) Maintain regularly the vehicles and use of manufacturer-approved parts to
minimize potentially serious accidents caused by equipment malfunction or premature
failure.
(iv) Provide road signs and flag persons to warn of dangerous conditions, in case of
location near the road.
Work Camps. Operation of work camps can cause temporary air and noise pollution
from machine operation, water pollution from storage and use of fuels, oils, solvents,
and lubricants. Potential impacts are negative but short-term and reversible by
mitigation measures.
The construction contractor will be required to:
(i) Consult with PMU/CSS before locating project offices, sheds, and construction
plants;
(ii) Minimize removal of vegetation and disallow cutting of trees;
(iii) Provide water and sanitation facilities for employees;
(iv) Prohibit employees from poaching wildlife and cutting of trees for firewood;

(v) Train employees in the storage and handling of materials which can potentially
cause soil contamination;
(vi) Recover used oil and lubricants and reuse or remove from the site;
(vii) Manage solid waste according to the following preference hierarchy: reuse,
recycling and disposal to designated areas;
(viii) Remove all wreckage, rubbish, or temporary structures which are no longer
required; and
(ix) Request PMU/CSS to report in writing that the camp has been vacated and
restored to pre-project conditions before acceptance of work.
Social and Cultural Resources. For this subproject, excavation will occur at specific
isolated locations, so it could be that there is a low risk of such impacts. Nevertheless,
the construction contractor will be required to:
(i) Strictly follow the protocol for chance finds in any excavation work;
(ii) Request PMU/CSS or any authorized person with archaeological/historical field
training to observe excavation;
(iii) Stop work immediately to allow further investigation if any finds are suspected;
and
(iv) Inform PMU/CSS if a find is suspected, and take any action they require ensuring
its removal or protection in situ.
Operation and Maintenance Impacts

There may be minor odor and noise nuisance due to the STP. Buffer zone in
the form of landscaping and earthwork shall be created and well maintained
around the site to mitigate this impact. The buffer zone, as required by
KSPCB, will be at least 100 m around the STP compound.

Improper sludge disposal methods from the STP may lead to pollution and
health hazards. To avoid this, safe sludge handling methods shall be employed
- Personal protection equipment such as gloves, boots, shall be provided to the
operators. Sludge shall be dried in drying beds before its disposal. This sludge
may be used as manure for non- food crops or land filled. Sludge Management
Plan shall be prepared and implemented.

Pipe bursting and leakage problems will lead to public health issues. This can
be managed by regular maintenance and cleaning of the sewer system. The
CMC will be required to ensure that the leakage rectification time shall be
minimized.

Improper disposal of silt and debris removed from sewers could cause
Inconvenience to public. Silt and debris shall be collected in trucks and
transported to the Municipal Solid Waste Disposal Site and shall be used as
covering material for the waste being landfilled

Repair works could cause some temporary disruption of activities at locations

of social and cultural importance such as schools, hospitals, churches, tourist
sites etc., so the same precautions as employed during the construction period
should be adopted. CMC needs to:

(i) Identify any buildings at risk from vibration damage and avoiding any use of
pneumatic drills or heavy vehicles in the vicinity;
(ii) Complete work in these areas quickly;
(iii) Consult the custodians of important buildings, cultural and tourism authorities
and local communities in advance of the work to identify and address key issues, and
avoid working at sensitive times, such as religious and cultural festivals.
Capacity Building of Urban Local Bodies
The issues that need attention are as follows:
i. Lack of personnel with appropriate skill sets: The specific areas identified for
attention are socio-economic planning, environmental management, urban planning,
citizen participation, public relations, urban reforms, municipal accounting and
financial management, e-Governance, municipal service delivery including water
supply, solid waste management, sewerage and sanitation.
ii. Inadequate skill sets of personnel already deployed: Experience of training and
capacity building programmes show that many of the functionaries of the ULBs have

never received any training in their career. There are no programmes for facilitating
cross learning and exposure to best practices in innovative technologies etc. The
problem is indeed acute in smaller ULBs for whom hardly any programmes exist as of
now.

1. Unbalanced Emphasis on Construction Contracts by Authorities

a) There is extensive international experience and global good practice
that demonstrates the inefficiency of the traditional procurement
processes pursued by the State PWDs and the ULBs in India. Typically,
quotations are invited for EPC
(Engineering, Procurement and Construction) contracts and the tender is
awarded to the lowest quote (L1). A significant drawback of this approach
is the total absence of any O&M component.

b) A more prudent approach which is both cost effective in terms of total

life cycle cost and superior levels of service is available in terms of
"Performance Based
Maintenance Contracts" (PBMC). In this approach, instead of bidding a
lump sum amount, for example, building/rehabilitating a road, the L1
contractor would be required to both build and maintain the road for a
specified duration, say 7 years or so. Accordingly, payments to the
contractor are staggered over the 7 year period with an initial lumpy
payment linked to the completion of the road building/rehabilitation
project. Specific performance standards in terms of surface riding quality
and other qualitative and quantitative tests are specified. The
performance parameters over the duration of the PBMC are independently
monitored/audited by a third party.

2. Creating fiscal and financially self-sustaining Urban Local

Bodies (ULBs)
At the core of the urban mess in India is the fiscal and financial unsustainability of

ULBs which, paradoxically, is often at variance with the economic growth

and prosperity visible in their catchment areas.

3. Lack of Focus on Operation & Maintenance of Facilities and

Service Standards
a) As a corollary to the pure "construction mentality" of the ULBs is the
neglect or complete lack of emphasis to the operation and maintenance of
services and service standards. The ULB/Government procurement in
relation to urban infrastructure focuses more on construction of the facility
rather than on the long term operation and maintenance of the facility and
ensuring service of specified standards is provided. The Urban Authorities
generally seek to procure a constructed facility and look at operation and
maintenance as either to be undertaken by the authority itself or through
short term sub-contracts.

b) There is no conscious and discernable attempt by ULB/Government

Agencies to focus on operation and maintenance of urban infrastructure
facilities or ensure that the facilities achieve a specific minimum service
standard.

c) The traditional argument for poor quality of service and service

standards is the incapacity or unwillingness to pay. Given the relative
success in privatizing some ULB services in the larger metros, this
argument is beginning to wear thin and a more probable explanation lies
in a mindset incapable or unwilling to change.

4. Presence of Multiple Authorities Having Overlapping

Jurisdictions
Urban Infrastructure, more than any other sector, faces the drag of
multiple authorities having jurisdiction over different aspects of the same
infrastructure facility. For example, in a large urban infrastructure project it
is usual to require approval for the implementation of the relevant project,

depending on the city, of the municipality, the urban town and country
planning department, a development authority, State
Government public works department, state government irrigation
department, city police, city fire department and the State Government
(particularly where the levy of a user fee by the municipality may be
required). At times the same service may have multiple authorities having
jurisdiction over it, for example the supply of water may be governed by
the municipal corporation

5. Lack of Integrated Approach

In light of the multiple agencies involved, most urban infrastructure
projects are conceived as standalone projects without due planning or
impact assessment on how to best derive or gain efficiencies from such
projects. The simplest example of this is the perennial digging of city roads
by various agencies to lay utility infrastructure. The same road could, at
different times within a short span of time, be excavated upon by
telephone utility providers, city gas distribution providers, sewerage utility,
water supply utility, public transport corporation and electricity utility as a
result of which stretches of city roads may not be available for large
section of time continuously.

6. Lack of Capacity in Urban Bodies to develop and implement PPP

based projects
The experience of the urban bodies is confined to works contracts and
managing contractors and sub-contractors. The technical capability to
develop and implement turnkey PPP projects where the revenue streams
for the Project are what would sustain the Project and provide payment to
the PPP developer are not concepts that are well entrenched.

Recommendations
In light of the multiple level of issues that are involved in attempting to
address the requirements of urban infrastructure sector in India, the
recommendations of this committee are divided into two broad categories:
A. Measures that can be implemented in the short term, and
B. Measures that require a greater time horizon

Measures that can be implemented in the short term

Short term solutions which, prime facie, do not entail any change in
legislation and can be implemented within a short span of time with
minimal intervention to existing systems:

1. Creation of a framework for capacity building in ULBs:

Appointment of
Transaction Advisors
a) It is recommended that in respect of ULBs receiving project assistance
from the Central Government, the appointment of Transaction Advisors
(TA) should be actively encouraged or made mandatory for the duration of
the Central Government assistance. To simplify matters, it is further
recommended:

i. The Central Government maintains a panel of TAs akin to the panel

maintained by the Department of Economic Affairs (DEA) for viability gap
funding. The size of the TA panel would need to be commensurate with the
number of ULBs.

ii. The TAs should be funded by the Central Government as part of the
Central Government Project, on a flat market fee basis. In other words,
transparent norms should be evolved whereby the TA fee structure is a
fixed percentage of project cost linked to project milestones etc.

iii. The role of the TA should be:

To prepare a financial road map for the ULB such that the ULB
achieves some measure of self sustenance. This is unlike the
current City Development Plan(CDP) which is more often than not
used by ULBs to become eligible for JNNURM assistance and is,

thereafter, forgotten
The TA would undertake all project development work including
feasibility, DPRs etc. for upgrading infrastructure projects and other

services
To provide the requisite oversight for project implementation
including Project Management and Consultancy (PMC) skills

2. Shift from Construction Contracts to Performance Based

Maintenance Contracts
a) Presently, the focus of overwhelming majority of works commissioned
by government authorities is only ensuring construction of the identified
work/facility. The contracts issues are essentially based on established
standard works contracts that are structured only to provide a framework
for completion of construction of the relevant works with the obligations of
the contractor coming to an end after a short defects liability period.

b) It is recommended that government authorities be directed to shift the

focus of their contracts for new facilities from merely construction works
contracts to performance based maintenance contracts under which the
scope and obligations of the contractor would be to:
i. Undertake the construction of the relevant facility,
ii. Undertake the maintenance of the facility for a minimum number of
years
(Usually five or more years) and
iii. Link disbursement of monies evenly over the period of the
construction/maintenance, etc.

c) The performance based maintenance contracts shift the risk of defects

liability to the contractor comprehensively and also dissuades contractors
from attempting to undertake construction of lesser quality as they are
aware that the liability of defective construction or failure of constructed
facilities will be their own.

d) In this regard, it is important that Municipalities should have well

defined Standard Model Concession Agreements (MCA) for urban
infrastructure services on the lines of MCA for roads sector. The standard
MCA can have specific templates for different urban sectors like water,
solid waste, sewage etc.

The following needs to be considered:

i. Government should clearly define the infrastructure areas available for
the private sector.
ii. A mechanism to quantify environmental impact of projects needs to be
mandatory. Energy efficiency should be given importance while planning
new projects.
iii. The Govt. should allocate a specific sum under the JNNURM for O&M in
projects.
iv. For ensuring adherence to contractual obligations, a part of the project
outlay should be escrowed for payment to private players subject to
meeting milestones and third party verification. This is particularly
relevant given the general risk aversion of private players to the credit
worthiness of ULBs.
v. In Public Private Partnership (PPP) projects, availability of land and
environment clearance of the project should be in place before inviting
private sector companies to bid for the project.

3. Provide for Creation of Regional Self Sustaining Infrastructure

Funds
a) The State Governments/Government of India should provide for the
creation of specific regional, self-sustaining, professionally managed
infrastructure funds that would receive contributions from the Government
of India, State Governments, and the participating municipalities and then
leverage the seed amounts through bonds and other instruments for
creating a self-sustaining fund.

b) The creation of such funds would not require any amendment to the
existing legal regime and the same can be undertaken through executive
directions and contractual documentation.

4. Monetization of Land and Land Based Revenues

a) A review of the applicable legal framework has indicated that most
state municipal laws already provide an adequate legal basis for
imposition of land based revenues such as development charges,
betterment levies, improvement charges, cess, and other levies linked to
benefits that land owners or land developers derive from implementation
of planning schemes.
However, such levies when levied generally go into the fund of the
relevant authority and are, at times, not used optimally.
b) Adequate directions and systems can be established under the existing
laws through rules and regulations that could enable creation of funds or
use of funds for identified purposes already authorized by the existing
laws. The increasing population and related development activities, have
given rise to competing demands for urban land. Available land on the
other hand, is limited and unevenly distributed - physically,
administratively and economically. As a result, economic potentials of such
available lands vary creating imbalances and inequalities through the
manner in which these lands are managed, further complicating the
situation of an ever-increasing land scarcity and related conflicts among
land users.

c) Broadly, two approaches to managing new urban growth in India are

currently in practice:
i. Land Acquisition
ii. Land Readjustment & Pooling
In "land acquisition" method, the public planning authorities and
development agencies acquire large portions of land and then re-plan
them in a desirable or appropriate manner.
In "land readjustment and pooling" method, public planning agencies and
development authorities, instead of acquiring land, bring together or "pool
together" a group of owners and then re-plan the area by readjusting or
reshaping every land parcel in a manner such that it is given a regular
shape and access and in the process a portion of land parcel is
appropriated to provide for roads, infrastructure, and public amenities
The built form presented by a city is hence a direct manifestation of the
type of land management model practiced by that city, since the decisionmaking process and the pace at which development takes place is
different for both. In most of the Indian cities, development is based on
land acquisition for which the urban local bodies do not have adequate
budgets and also it has its own administrative complexities. Most of the
cities do not have local area plans (e.g. TP Schemes or Sectors) beyond
the Master Plans and hence further land acquisition at micro level does not
take place in line with the land use envisaged in master plan leading to
haphazard development.
Thus, land being the key issue and a key resource, use of local area plans
like TP
Schemes, Floor Space Index (FSI) bank, Transfer of Development Rights as
land value capture tool is a potential approach.
There are mainly two approaches:
i. Additional Development Rights (ADR): In case of redevelopment of the
area or expected rapid development due to introduction of major
infrastructure for example transit corridor, the concept of ADR can be

applied. The base FSI of the newly developed area or redeveloped area is
fixed based on the zoning or development plan of the city. Premium FSI
can then be provided over and above the base FSI through legal
provisions/provisions in Development Control Regulations of the local
authority. The local body provides basic infrastructure like access, water,
drainage, waste collection, etc for the plot for Gross FSI (Base FSI +
premium FSI) for which betterment charges may be levied. The base FSI is
available to the owner of the plot whereas premium FSI has to be
purchased from the ULB by the owner or developer at market prices.
Again, bigger plots or plots with frontage on wider roads can be given
higher ADR. This will encourage and facilitate plot amalgamation and lead
to optimization of use of land and development will be proportional to
intensity of land use and carrying capacity of infrastructure.

ii. Transfer of Development Rights (TDR): In case of land acquisition for

creation of public infrastructure, the owner of land can be issued
development rights in form of FSI which can be used in the predefined
destination zone which may or may not be at the same location as the
original plot. This mechanism is popularly known as TDR (Transfer of
Development Rights).

5. Development and Implementation of Greater Regional Projects

a) In order to mitigate the political risks associated with urban
infrastructure projects, State Governments can develop regional
infrastructure projects that benefit more than one municipality. This would
take the authority to grant concession and thereby authority to terminate
or suspend such projects out of the jurisdiction of a single municipality and
place it with the State Governments and the State Government could issue
policy directives requiring prior approval of the State Government before
any municipality/local authority can exit a regional project.

b) A policy framework for Regional Projects could be formulated by the

State

Governments without the need for any change in existing law or

regulations and can also be implemented contractually and through
government policy directions.
MEASURES THAT REQUIRE GREATER TIME HORIZON
1. Review of Planning Norms
The planning norms and guidelines currently in use in India have been
mainly borrowed from the western context and need important
modifications. The norms for provision of social infrastructure, amenities
and open spaces are too high and are practically not affordable by the
local planning and implementation authorities due to high land values,
acquisition costs and development pressure on land. As a result these
remain on paper and seldom get implemented. Provision of social
infrastructure and amenities can be optimized by encouraging utility
complexes rather than one plot for each amenity. This will lead to effective
utilization of scarce and expensive land resource. Also, adoption of proper
land development tool (e.g. T P Scheme) can facilitate private provision of
some of the amenities. The planning norms should be efficient for large
cities and small towns due to land price variation and availability of land.
Integrated large scale development should be encouraged to internally
provide social facilities open spaces to reduce burden on the civic
authorities.

2. Re-evaluating and Amending the Framework Regulating Urban

Finance
a) The State laws governing municipalities clearly stipulate the financial
resources available to a municipality. Broadly stated, the financial
resources available to municipalities under the applicable State laws can
be classified as:
i. Property Tax: This is the tax on ownership of land or buildings or
immovable property within the municipal jurisdiction. Property tax is based
on the valuation of the property. Each State municipal law provides for a
mechanism to calculate the value of properties for the purposes of
property tax;

ii. Other Taxes Imposed by Municipality: In addition to the ability to impose

property tax, State municipal laws do empower municipalities to impose
other specified categories of taxes, generally after obtaining the prior
approval of the State Government, etc. These other taxes can include:

Water tax for supply of water to a premise;

General sanitary cess for the construction and maintenance of

public latrines and removal and disposal of garbage;

General lighting tax in areas where public street lighting has been

developed by the municipality;

General fire tax for conduct and management of fire services;
Drainage tax in areas where drainage systems have been

established;
Tax on persons exercising any profession or carrying on any trade;
Entertainment tax on theatres and other public amusements;
Tax on outdoor advertisements; and

iii. Fees: Municipalities are authorized to levy fees in respect of certain

services that it provides such as:

License fees from persons who take shops in a municipal market;

Fees for registration of cattle;
Tolls on bridges and roads within the municipality;
Revenue share/fees from outdoor advertisements;
Parking fees; and
Fees from licenses and permits issued by the municipality

iv. Additional Stamp Duty: Certain State municipal laws provide for the
State
Government to notify levy of additional stamp duty in relation to execution
of documents that it may identify, if such documents are executed within
the municipal jurisdiction. Such additional stamp duty levy is then
provided to the municipality;

v. Revenue Share from certain taxes as per the recommendation of the

State Finance Commission State municipal law provides for the creation of
a State Finance Commission that provides recommendations on sharing of

receipts of certain State taxes between the State Government and

municipalities;

vi. State Grants: The State may from time to time, provide grants to
municipalities to support the functioning of the municipalities. It should be
noted that in light of the general poor financial conditions of smaller
municipalities, State grants is the main source of revenue for most of the
smaller municipalities. It has been observed that the payment of salaries
constitutes nearly 40% to 80% of the ULBs revenues.

b) The common underlying link between all these sources is the

overwhelming lack of flexibility to a municipal authority to control its
finances and implement measures such as increasing borrowing or user
charges or taxes, without the consent and approval of the State
Government. The underlying principle regulating municipal finance is that
all the revenue goes into the common municipal fund and then is used
only in accordance with the annual budget passed by the municipal
corporation. However, in cases of emergency, the state government can
permit use of funds otherwise not provided in the annual budget.

c) Generally, municipalities are allowed to borrow only for the purposes of:
i. Construction of permanent works authorized under the relevant
municipal law; or
ii. Land acquisition; or
iii. Repayment of loans validly taken by the municipality; or
iv. Slum clearance and construction of tenements; or
v. Defraying any costs incurred in the implementation of the relevant
municipal law. Some laws provide a general authorization to raise loans for
carrying out the purposes of the relevant law under which the relevant
municipal bodies are created

d) This framework requires modification and is in dire need for being

updated in order to enable urban authorities to raise resources and take
advantage of private capital and private participation.

e) Presently, a number of state municipal laws do not provide flexibility for

private sector involvement in infrastructure development. The major legal
anomaly is the requirement that all revenues be notified and deposited
into the common fund of the municipality/authority. Most state
municipal/urban laws only contemplate private sector participation as
contractors for undertaking specific works and do not support vesting of
rights for development, operation, maintenance and revenue collection
and appropriation independently of the municipal authority.

The lacuna, drawbacks and limitations of the extant means and sources of
finance have been detailed in the preceding section.
a) It is the considered view of the Committee that unless and until there is
a major augmentation in the resource base of the ULBs, little or no
meaningful improvement in the quality of urban infrastructure and
services is possible. There is enough empirical evidence garnered from
multi-lateral studies that even a modest or token user fee can have a
multiplier effect in terms of improvement/augmentation of services. As has
been briefly mentioned elsewhere in this report, it is not the capacity or
unwillingness to pay but the unwillingness to charge that is a major
deterrent.

b) Notwithstanding the above, there are specific issues and measures that
need to be addressed to enable financing of urban infrastructure projects.
There is a crucial need to access long term funding.
i. Typically, projects in urban sector have construction periods ranging
from 2-5 years
ii. Initial resistance towards paying user charges
iii. Accordingly paybacks vary from 15 to 30 years

iv. Hence the financial structure for these projects necessitates a

substantial component of long tenor financing
v. Therefore, a strong need to create layered payment structures to permit
debt servicing requirements staggered over time and manageable within
bounds set by project cash flows

c) In the immediate and foreseeable future, if, consistent with international

practice, the capital markets are to play an active role in India's urban
story, two broad issues need to be addressed to galvanize capital market
access for ULBs:
i. The highly restrictive covenants that severely restrict capital market
exposure by banks/financial institutions;
ii. The absence of adequate security structures given the credit worthiness
of
ULBs

d) A more liberal RBI dispensation in respect of (I) above is necessary even

to kick start the corporate debt market, let alone the municipal bond
market.

e) In respect of imperfect security structures, currently, the only security

available is a contract on ULBs cash flows. Given the inherent limitations
and fragile nature of ULB finances this is a major estoppel for fresh asset
creation. A guarantee facility provided by the Insurance Companies has
been successfully employed in the US. A possible template could be
crafted based on the Credit Guarantee Insurance
Corporation of India.

f) Apart from SEBI and RBI regulatory issues which would allow
banks/Financial

Institutions to participate in a Municipal Bond Market or a Municipal Fund,

there are other critical issues:
i. Borrowing costs: Given precarious finances, most ULBs are not in a
position to service debt at commercial terms despite huge capital
subsidies (80% to 50%) under JNNURM and UIDSSMT. An interest subsidy
on the analogy of the Textile sector which provides 5% subsidy to SMEs in
a phased manner can be mooted linked to reform milestones/asset
creation.
ii. Leverage: Ideally, the State Governments could leverage the JNNURM
grants on a 2:1 or 3:1 basis such that the incremental debt service is
matched by fresh income streams for the ULBs.