In this article following two major points are discussed to understand the whole scenario.

(1) Trend and Initiative of the Budgetary Support and Institutional Borrowings –


The system of managing and financing infrastructural facilities has been changing significantly since the mid-eighties. The Eighth Plan (1992-97) envisaged cost recovery to be built into the financing system. This has further been reinforced during the Ninth Plan period (1997-2002) with a substantial reduction in budgetary allocations for infrastructure

development. A strong case has been made for making the public agencies accountable and financially viable. Most of the infrastructure projects are to be undertaken through institutional finance rather than budgetary support. The state-level organizations responsible for providing infrastructural services, metropolitan and other urban development agencies are expected to make capital investments on their own, besides covering the operational costs for their infrastructural services. The costs of borrowing have gone up significantly for all

these agencies over the years. This has come in their way of taking up socially desirable schemes but is financially less or non-remunerative. Projects for the provision of water, sewerage, sanitation facilities, etc., which generally have a long gestation period and require a substantial component of subsidy, have, thus, received a low priority in this changed policy perspective.

Housing and Urban Development Corporation (HUDCO), set up in the sixties by the Government of India to support urban development schemes, had tried to give an impetus to infrastructural projects by opening a special window in the late eighties. Availability of loans from this window, generally at less than the market rate, was expected to make state and city-level agencies, including the municipalities, borrow from Housing and Urban Development Corporation. This was more so for projects in cities and towns with less than a million populations since their capacity to draw upon internal resources was limited.

Housing and Urban Development Corporation finances even now up to 70 percent of the costs in public utility projects and social infrastructure. For economic and commercial infrastructure, the share ranges from 50 percent for private agencies to 80 percent for public agencies. The loan is to be repaid in quarterly installments within 10 to 15 years, except for the private agencies for whom the repayment period is shorter. The interest rates for the borrowings from Housing and Urban

Development Corporation varies from 15 percent for the utility infrastructure of the public agencies to 19.5 percent for a commercial infrastructure of the private sector. The range is much less than what used to be when opening the infrastructure window by Housing and Urban Development Corporation. This increase in the average rate of interest and reduction in the range is because its average cost of borrowing has gone up from about 7 percent to 14 percent during the last two and a half-decade.


Importantly, Housing and Urban Development Corporation loans were available for upgrading and improving the basic services in slums at a rate lower than the normal schemes in the early nineties. These were much cheaper than under similar schemes of the World Bank. However, such loans are no longer available. Also, earlier, the Corporation was charging differential interest rates from local bodies in towns and cities

depending upon their population size. For urban centers with less than half a million population, the rate was 14.5 percent; for cities with a population between half to one million, it was 17 percent; and for a huge number of cities, it was 18 percent. However, no special concessional rate was charged for the towns with less than a hundred or fifty thousand population that are in dire need of infrastructural improvement, as discussed above.

However, it is unfortunate that even this small bias in favor of smaller cities has now been given up. Further, Housing and Urban Development Corporation was financing up to 90 percent of the project cost in case of infrastructural schemes for ‘economically weaker sections,’ which, too, has been discontinued in recent years.

Housing and Urban Development Corporation was and continues to be the premier financial institution for disbursing loans under the Integrated Low-Cost Sanitation Scheme of the government. The loans and the subsidy components for different beneficiary categories under the scheme are released through the Corporation. Several funds available through this channel have gone down drastically in the nineties.

Given the stoppage of equity support from the government, increased cost of resource mobilization, and pressure from international agencies to make infrastructural financing commercially viable, Housing and Urban Development Corporation has responded by increasing the average rate of interest and bringing down the amounts advanced to the social sectors. Most significantly, there has been a reduction in the interest rate differentiation designed for achieving social equity.