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Financial Access for Small Cities

An IFMR Finance Foundation Initiative

          1. Introduction:

India is rapidly urbanizing and the rate of urbanization is expected to climb steeply over the next few decades, resulting in an urban population of 590 million by 2030*, as compared to 377 million in 2011. For urbanisation in India to be more inclusive and sustainable, it is imperative that growth, both economic and demographic, is more equitably distributed. Therefore, any meaningful long-term urban vision for India would be incomplete without planning for small and medium cities – the cities of tomorrow.

However, one of the challenges that confront small and medium cities is the ability to plan for their long-term infrastructure needs and critically, to develop sustainable financing mechanisms for these investments. In this context, the “Financial Access for Small Cities” initiative seeks to answer critical questions confronting small cities as they prepare for urbanisation and their need to finance long-term public infrastructure investments.

2. Rationale:

The need to focus on the cities of tomorrow is driven by three primary imperatives: migration patterns, regional growth concerns and sustainable expansion of cities.

The current trend of rural migration to the larger urban centres and the consequent population explosion has caused these cities to become overcrowded and congested, with poor standards of social and environmental infrastructure provision. The 1595 municipalities and 2108 Nagar panchayats that constitute the universe of small and medium cities in India can be the natural sinks to absorb a substantial quantum of migration, thus easing the pressure on larger cities.

A related concern is the absence of balanced regional economic growth. Larger cities have become the magnets of economic dynamism in India, and there is a growing disquiet about the increasing regional imbalances in development. The need for greater regional equity can only be achieved by planning for the economic development and infrastructure provision in small and medium cities around the country.
Therefore, concerted development of small & medium cities should be pivot around which the urbanization of India occurs.

3. Objective:

The “Financial Access for Small Cities” initiative is focused on the following questions:

  • What are the long-term infrastructure investments that a small city will need to make today in order to be prepared for increasing urbanisation, and how can these investments be sustainably financed?
  • How can citizens be made an integral part of the financing processes so that they see themselves as partners, with rights in and responsibilities for the city’s future growth? What are the incentives that can be built into financing mechanisms that create increased accountability from the local government and greater responsibility from citizens?

4. Description:

We are working with the town of Srirangapatna in Karnataka on developing a process with citizens and local government aimed at evolving a long-term (25 year) vision for the city, based on which we will identify and sustainably finance long-term infrastructure needs. The process for identifying long-term vision for the city will be driven by a deep engagement with local citizens. This engagement with local citizens will be underpinned by the generation of high-quality data about the current state of the city.

The first phase of the project will therefore be focused on local data generation. The data required as input to the citizen engagement process –– will be collected through a mix of existing city-level public data and our own data generation processes on the ground. In our case, this process will involve the development of simple but detailed spatial maps of the city’s infrastructure (land use, slums, water supply, public toilets and sewerage network, garbage dumps, housing). This mapping data will need to be complemented by the generation of ground-level information on demographic, socio-economic , and business & commercial profiles of the city. We intend to collect public infrastructure data through a cadastral data-collection process; use household surveys to get a deeper understanding of household socio-economics and business surveys to understand the nature, size and supply-chain linkages of local businesses and commercial activity (including informal businesses and commercial activity).

This data and our analysis of the data will form the basis for a series of discussions with citizens on the future of their city. The consultation or visioning process will involve the local government, citizens, businesses and other stakeholders, through a series of charettes and other methods, to collaboratively create a common vision for the future of the city. The visioning process will be critical in truly involving citizens as stakeholders in the future of their own city.

The output of this visioning exercise with local stakeholders will be used to draw out the long-term public infrastructures required to translate the vision into reality. We will develop an analytical framework that can translate the broad long-term vision for the city into individual infrastructure projects. Once the infrastructures are identified, we will work with the local government in determining the priority for infrastructures. This will be based on the principle that local government should currently invest the minimum required to prepare the city for future growth, without over-investing in infrastructure. As growth patterns begin to emerge, further investments can be made in a phased manner.

The next step will be to develop sustainable financing models for the identified “minimum” infrastructure investments – with an appropriate mix of private finance, citizen taxes and fees and government grants. It will be critical to get citizen buy-in for these projects because sustainability of many of these projects will hinge on the willingness and ability of citizens to pay for these services. We will therefore focus on building the right incentives into the financing mechanisms so that all parties – the local government, private parties and citizens – are incentivised to behave in ways that ensure the long-term viability and maintenance of the infrastructure created. These incentive structures and feedback mechanisms will be critical to building accountability from local government and greater responsibility from citizens in the long-term.

Finally, we will work with the local government in realising the identified investments.

5. Outputs:

We will specifically aim to create a series of modules based on our work that other cities can replicate for their long-term infrastructure planning and financing:

  • Rapid Diagnostic Assessment toolkit: This is a series of survey data and mapping processes that will allow a small town to quickly understand what infrastructure it has and what key gaps in service delivery currently exist. The data so collected will serve as the basis for the visioning exercise.
  • Community Engagement Process toolkit: The visioning process will be a guide for the city, citizens, businesses and other stakeholders, through a series of charettes and other methods, to collaboratively create a common vision for the future of their city.
  • Infrastructure Prioritisation toolkit: This will lay out the framework for translating the vision for the city into discrete infrastructure projects, and also the process for prioritisation of the infrastructures to identify the immediate long-term investment needs.
  • Suite of Financing Options: This will present a series of financing options for small cities and their appropriate uses. We will design sustainable financing models incorporating citizen participation in the financing (through taxes, fees, land etc.) with appropriate incentive structures and feedback mechanisms that build in accountability from local government over the long-term.

* – From McKinsey Global Institute’s report, “India’s urban awakening: Building inclusive cities, sustaining economic growth”