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India Needs Rs 80 Lakh Crore for Urban Infrastructure by 2037: Report

India requires nearly Rs 80 lakh crore in urban infrastructure investment by 2037 to support rapid urbanisation. Urban areas are expected to contribute 70% of GDP by 2036, making sustainable city financing a national priority. The Urban Challenge Fund, a Rs 1 lakh crore scheme, aims to shift cities from grants to market-based funding through municipal bonds and PPPs. The report notes limited municipal bond development, with only 17 cities issuing bonds since FY18.

Key Points: India Needs Rs 80 Lakh Crore Urban Infra Investment by 2037

  • India needs Rs 80 lakh crore for urban infra by 2037
  • Urban areas to contribute 70% of GDP by 2036
  • Urban Challenge Fund aims to shift cities to market-based funding
  • Municipal bond market remains underdeveloped with only 17 city issuances
2 min read

India requires Rs 80 lakh crore investment in urban infra by 2037: Report

India requires Rs 80 lakh crore in urban infrastructure by 2037, with a new Urban Challenge Fund driving market-based financing for cities.

"Since FY18, only 17 cities have issued municipal bonds, amounting to INR 45.4 billion, highlighting the large untapped financing opportunity in the sector - Manu Sehgal"

New Delhi, May 15

India will require nearly Rs 80 lakh crore in urban infrastructure investment by 2037 to support rapid urbanisation and economic growth, according to a report by Brickwork Ratings.

The report highlighted urban areas are expected to contribute nearly 70 per cent of India's GDP by 2036, making sustainable financing for cities a national priority.

It said the Urban Challenge Fund, a Rs 1 lakh crore central government-backed scheme, is aimed at changing the urban financing model by moving cities from grant-based support to market-based funding. It said the scheme could help generate nearly Rs 4 lakh crore in urban investment over five years.

Under the fund, urban local bodies will have to raise at least 50 per cent of project financing through municipal bonds, bank loans or public-private partnerships before central support is released. The Centre will contribute 25 per cent of project costs, while the remaining share will come from states or urban local bodies.

The report noted this financing model is expected to strengthen financial discipline and transparency, while also improving the creditworthiness of cities. It added that credit ratings will become critical for cities, particularly Tier-II and Tier-III urban centres, to access market financing.

It also highlighted the limited development of municipal bond markets, stating, "Since FY18, only 17 cities have issued municipal bonds, amounting to INR 45.4 billion, highlighting the large untapped financing opportunity in the sector," said Manu Sehgal, CEO, Brickwork Ratings.

Further, investor confidence in municipal bonds has significantly improved, reflected in the drop in yield spreads from ~480 bps (FY20) to ~155 bps (FY26) versus the RBI Repo Rate. It indicates material drop in risk premium over the RBI benchmark.

The report added that smaller urban centres, including 4,223 urban local bodies and north-eastern towns, currently have little access to market debt and may benefit from the fund's Rs 5,000 crore Credit Repayment Guarantee Scheme.

- ANI

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Reader Comments

P
Priya S
This is a good step, but I hope the benefits reach Tier-II and Tier-III cities too, not just metros. đź‘Ź The urban challenge fund sounds promising, but we need better roads, water supply, and waste management in smaller towns first. Why always focus on big cities?
M
Michael C
Impressive initiative. The drop in yield spreads from 480 bps to 155 bps shows growing investor confidence. However, I wonder how many of the 4,223 smaller urban bodies actually have the technical capacity to raise bonds. Capacity building will be key for those northeast towns.
D
Divya L
Finally, a move away from grant-based funding! Market-based financing will bring accountability. But what about the common people? We need affordable housing and better public transport, not just fancy bonds. Hope this translates into real improvements on ground level.
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Ravi K
80 lakh crore sounds like a dream, but we need to check if our ULBs can handle such large projects. Many city corporations are struggling with basic services. Before jumping into bond markets, let's fix the municipal governance first. Babus need to be more accountable!
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Sarah B
The concept of a credit guarantee scheme is smart for smaller towns. But I'm concerned about the 50% financing requirement from ULBs – many don’t have that capacity. It could leave poorer cities behind. Need a phased approach with technical assistance.

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