by THO
New Delhi:
Despite the Centre’s continued push for higher capital expenditure on infrastructure and emphasis on urban development, the Urban Infrastructure Development Fund (UIDF) introduced in the 2023-24 Budget for 459 tier-2 and 580 tier-3 cities has seen tepid demand. Of the ₹10,000 crore allocated under the scheme each year, over the two fiscals, less than ₹7,000 crore has been sanctioned, according to National Housing Bank (NHB) officials, who spoke on condition of anonymity.
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Under the scheme, states can avail of loans at a discounted rate of 1.5% from the prevailing bank rate for roadworks, water and sanitation, area planning and development projects, among others. Even among the ₹6,850 crore sanctioned as of December 15, close to half of it will be used to fund states’ share of projects under central government’s AMRUT 2.0 and SBM 2.0, an NHB official managing these funds said.
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The Union ministry of housing and urban affairs (MoHUA) allowed such projects under the scheme to address the low appetite from states, HT has learnt. It is to be noted that among the projects worth ₹6,850 crore, detailed project reports—based on which funds are sanctioned—for projects worth ₹1,050 crore are yet to be submitted. Even states such as Maharashtra and Gujarat, which are usually at the forefront of absorbing funds from MoHUA, have been slow to this scheme.
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Most states are yet to reach their normative allocation and at least four major states—Uttar Pradesh, West Bengal, Odisha and Madhya Pradesh—are yet to be sanctioned a rupee under UIDF, a second NHB official said. This is despite the NHB relaxing norms to include educational and health infrastructure, on suggestions from MoHUA and the finance ministry.
Officials said around 40% of the projects sanctioned so far are under the WASH (water, sanitation and hygiene) sector, while others are roadworks, such as flyovers, underpasses, electric and gas crematoriums, multilevel parking, libraries and anganwadis. Among the standouts, Puducherry is using these funds for heritage conservation. Many cities in Tamil Nadu are using these funds for round-the-clock water supply, the first NHB official said.
Domain experts said the scheme’s success or lack of it is symptomatic of the state of Indian cities, especially tier-2 and tier-3 ones. They said the situation will remain the same as long as urban development activities remain centralised and the critical task of strengthening the internal capacity of the urban local bodies (ULBs) and empowering local governance as envisaged under the 74th Constitution Amendment Act is bypassed.
Ravikant Joshi, an urban finance specialist and consultant with various multilateral and national organisations, reiterated that the current scenario of slow offtake from the UIDF is a structural and systemic issue of missing long-term urban infrastructure and capacity investment planning. He said that with low project management and capital absorption capacity, most cities struggle to utilise their own funds and capital grants for development. He said that until the broader issue of financial independence of tier-2 and tier-3 cities is sorted, these loans have to be serviced by the states and passed down to cities as grants.
Tathagata Chatterji, an urban governance expert and professor at Xavier Institute of Management, Bhubaneswar, said, “As metro cities are overburdened, the need for improving the smaller towns cannot be overemphasised and UIDF can play a significant role.”
He, however, questioned how projects built under UIDF will be operated and maintained as the revenue generation capacity of these cities is currently weak. “Another critical point is equity. Bankable projects, a requisite for UIDF projects, which aim for quick economic returns, may overlook the needs of marginalised sections of the society, such as slum upgrading,” he said.
Srikanth Viswanathan, CEO of non-profit Janaagraha, said in the current scenario, the central government aid to 4,500-odd smaller cities should be largely untied so that cities have the flexibility to utilise funds according to their needs. “Funds for these cities should be tied only to basic conditions like creating a City Action Plan through citizen participation, and publishing budgets and audited accounts, and not to reforms dependent on state governments,” he said.
Will the UIDF be discontinued?
Officials at NHB were upbeat about the scheme’s prospects and said that even the rural infrastructure development fund (RIDF), introduced in 1995-96—based on which UIDF is modelled—had a sluggish take-off. The allocation for RIDF has increased from ₹2,000 crore in the first year to ₹40,475 crore in 2023-24.
“We at NHB have done more than 40 outreach programmes across the country and increased our footprint by opening 18 new offices. We are also hand-holding smaller states, especially those in the northeast,” the first official said.
The official said the finance ministry and the top management at NHB are visiting states. “It is only after our MD’s visit that states, such as Maharashtra and Gujarat, participated. Now, Jamnagar is one of the cities with the highest allocations under UIDF.”
The official said that urban development departments at the state level, which have to consolidate the projects, are slowly adapting to the scheme and learning to coordinate better with their finance departments. “Another aspect is that states were ready with their budgets by March but our first allocation is only around August. So, from next year, we expect things to be better.”
Even now, a few states, such as Telangana, Rajasthan, Himachal Pradesh and Tripura, have utilised substantially more than their normative allocation after MoHUA relaxed the cap on funds for each state based on their urban population in July 2024, the official said.
