In this article, two major points are discussed to understand the scenario.
(1) Trend and Initiative of the Budgetary Support and Institutional Borrowings –
The management and financing of infrastructural facilities have changed significantly since the mid-eighties. The Eighth Plan (1992-97) envisaged cost recovery to be built into the financing system. This was further 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 public agencies accountable and financially viable. Most infrastructure projects must be undertaken through institutional finance rather than budgetary support. The state-level organizations responsible for providing infrastructural services and metropolitan and other urban development agencies are expected to make capital investments independently, besides covering the operational costs for their infrastructural services.
The borrowing costs have increased 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 up to 70 percent of public utility projects and social infrastructure costs. For economic and commercial infrastructure, the share ranges from 50 percent for private agencies to 80 percent for public agencies. The loan will be repaid quarterly within 10 to 15 years, except for the secret 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 the commercial infrastructure of the private sector. The range is much less than what used to be when opening the Housing and Urban Development Corporation. This increase in the average interest rate and reduction in the field is because its average cost of borrowing has gone up from about 7 percent to 14 percent during the last two and a half decades.
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 projects of the World Bank. However, such loans are no longer available.
Also, earlier, the Corporation charged differential interest rates from local bodies in towns and cities depending on their population size. The rate for urban centers with less than half a million population 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 in dire need of infrastructural improvement, as discussed above.
However, it is unfortunate that even this small bias in favor of smaller cities has been given up. Further, the Housing and Urban Development Corporation was financing up to 90 percent of the project cost in the 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, the Housing and Urban Development Corporation has responded by increasing the average interest ratet and bringing down the amount advanced to the social sectors. Most significantly, there has been a reduction in the interest rate differentiation designed for achieving social equity.
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