Importance of Urban Development Spending

31 Oct 2020

In India, around 55 per cent of the population lives in urban areas. This is estimated to rise by 1.5 times in the next 25 years. If managed well, urbanization can contribute to sustainable growth, through creating a sustainable model where people are close to work, by increasing productivity, as well as by allowing innovation and new ideas to emerge through smart cities and better infrastructure. Rapid urbanization in developing countries along with continued urbanization in advanced economies, will be the biggest driver of infrastructure spending over the next few decades. The increase in spending on infrastructure will transform the low- and middle-income countries into emerging or developing nations, and the fast-developing countries into developed nations. The current situation is gloomy as the entire world is suffering from the COVID-19 pandemic, but the long-term outlook is certainly going to be positive, therefore spending on the infrastructure development will boost the economy and revive the positive sentiments.

Anticipating the rise in urbanisation in the coming years, the Central government in India in 2015 launched three major urban flagship schemes: Smart Cities Mission, Atal Mission for Rejuvenation and Urban Transformation (AMRUT) and the Pradhan Mantri Awas Yojana-Urban or Prime Minister’s urban housing scheme. To support and make use of these schemes, the government is earmarking and spending huge money on urban development. In fact, in the last six years, government spending on urban development has increased by 64 per cent.

Along with these schemes, sustained infrastructure investment in railroads, highways, bridges, ports, airports, water, power, energy and telecommunications, creating massive opportunities for multinational contractors and their international and local suppliers is required. All the companies present in India need to align with the government policies for urban development and should be fully geared to collaborate with the policymakers, the customers and the society to build a sustainable urban infrastructure that promotes greener, safer and smarter living. India, a largely agricultural economy, now along with the continued focus on agriculture, is also swiftly transforming into an IT-based industrial and commercial hub with the government’s thrust on ‘Digital India’ and ‘Make in India’ policies.

As urbanisation is the buzz word across the globe, the Indian government came out with the Smart Cities Mission to transform 100 cities by 2022. With an outlay of Rs 48,000 crore, the Centre was to invest Rs 500 crore per city and this will also help get the economy back to normal especially given the current pandemic. If an economy wants to revive its growth from a recession, it must start from government-driven expenditure. By building future-ready, intelligent and sustainable infrastructure it could help restart capital goods production, provide employment and revive private sector confidence.

Generating employment opportunities through large scale investments in some of the sectors will have a multiplier effect on the economy. It is not just in the context of post-pandemic economics, but in the overall developmental planning of the country, that these expenditures are necessary as they entail certain essential public goods. In December 2019, Rs 111 trillion National Infrastructure Pipeline (NIP) built on Infrastructure Vision 2025 was announced. This NIP, as the umbrella programme, integrated multisector infrastructural projects to improve the overall quality of life. NIP will play a major role to revive the economy post COVID-19.

It is expected that the COVID-19 cases will start moving towards the downward trajectory in the third quarter of the current financial year. If that happens with the current limited scope of stimulus measures, growth could resume in the fourth quarter of FY 2020-21. The Indian government moved fast to counter the impact, announcing a fiscal stimulus of US$22.6 billion, while the Reserve Bank of India slashed the repo rate by 75 basis points and announced liquidity support of over US$49.8 billion on an aggregate basis. However, a far more assertive approach may be required given the magnitude of the lost economic output.

Over the short to medium term, putting in place a strong framework for bankable projects, investment monitoring from the commitment to actual completion and achieving steady-state operations for infrastructure projects will be critical. This unprecedented crisis has also presented us with an opportunity to revisit how we conceive, design, regulate, build and operate physical infrastructure in our country. As part of the urban development, we should start focusing more on highly publicised projects that mainly serve the middle and upper classes. Also, the Smart Cities Mission has quicker, tangible output compared to other schemes. With all these schemes and missions in place, I strongly believe that with post-COVID re-prioritisation and strong implementation, building future-ready infrastructure holds the key to reviving the economy and getting back on the growth agenda.

I am sure the World will soon become an even better place to live than the pre-Covid days as we have, as a society, learnt a lot of positives from Covid, which we hopefully will apply for the betterment of the society and the world.

The article written by Mr. Amit Gossain, Co-Chair, CII Urban Development & Smart Cities Council and Managing Director, KONE Elevator, India & South Asia, appeared in the September 2020 issue of CII Economy Matters. Click here to read the full issue.

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