The Ministry of Housing and Urban Affairs formulates policies, coordinates activities of various agencies (at the state and municipal level), and monitors programmes in the area of urban development.  It also provides states and urban local bodies (ULBs) with financial assistance through various centrally supported schemes.  In 2017, the Ministry of Housing and Poverty Alleviation, and the Ministry of Urban Development were combined to form the Ministry of Housing and Urban Affairs.  

This note looks at the expenditure incurred by the Ministry, the status of the various schemes implemented, and the issues faced with investment required for urban planning.  

Overview of Finances

Allocation in Budget 2020-21 ^[1]

The total expenditure on the Ministry of Housing and Urban Affairs for 2020-21 is estimated at Rs 50,040 crore.  This is 18% higher than the revised estimates for 2019-20.  In 2020-21, while revenue expenditure of the Ministry is estimated at Rs 28,891 crore (58%), capital expenditure is estimated at Rs 21,149 crore (42%).  Since 2014-15, the Ministry’s revenue expenditure has been higher than its capital expenditure.  

Table 1: Budget allocations for the Ministry of Housing and Urban Affairs (in Rs crore)

	2018-19 Actuals	2019-20 RE	2020-21 BE	% change 2020-21 BE/ 2019-20 RE
Revenue	24,838	23,069	28,891	25%
Capital	15,773	19,197	21,149	10%
Total	40,062	42,267	50,040	18%

Notes: BE – Budget Estimate; RE – Revised Estimate. 

Sources: Notes on Demands for Grants, 2019-20, Ministry of Housing and Urban Affairs; PRS.  

Policy proposals in the 2020-21 Budget [2]

In her budget speech, the Finance Minister made the following announcements regarding the housing and urban development sector:

• Extension of tax exemption for affordable housing:  Currently, an exemption is provided on profits or gains arising out of building affordable houses if the project was approved by March 31, 2020.  Further, an additional tax deduction of up to Rs 1,50,000 is provided on interest paid on loans for self-occupied house owners if the loan was sanctioned by March 31, 2020.  The deadline in both cases has been extended to March 31, 2021. 

• Concession to real estate sector: Currently, for transactions involving immovable property where the consideration is less than the circle rate by more than 5%, the difference is counted as income both in the hands of the purchaser and the seller.  The Budget proposes to increase this limit to 10%. 
   
• New smart cities: Five new smart cities will be developed in collaboration with states through the PPP mode. 

Expenditure trends

Between 2009 and 2020, the expenditure of the Ministry has increased at an average annual rate of 20%.  The maximum year-on-year increase (91%) was seen in 2014-15, followed by 2016-17 (83%).  This increase could be attributed to the introduction of the new schemes – Smart Cities Mission and AMRUT in 2014-15, and Pradhan Mantri Awas Yojana in 2016-17.  

Figure 1: Trend in expenditure (Rs crore)

 

Note: For the years 2009-10 till 2018-19, the figures are a combination of the erstwhile Ministry of Housing and Urban Poverty Alleviation, and the Ministry of Urban Development. Values for 2019-20 and 2020-21 are revised and budget estimates respectively.
Sources: Ministry of Housing and Urban Affairs budget documents 2009-10 to 2020-21; PRS.

The Standing Committee on Urban Development, (2017) had noted that the budgetary allocations to the Ministry were lower than the Ministry’s demand. [3]   Although there was a 36% increase in the budget estimate for 2018-19 over the budget estimate for 2016-17, it was short of what the Ministry had projected.  Fox example, in 2017-18, while the erstwhile Ministry of Urban Development projected an expenditure of Rs 68,410 crore, it was allocated Rs 34,212 crore in that year’s budget.3  The Standing Committee on Urban Development (2018) had also noted that with the schemes picking up momentum, the allocation towards them should be increased for better implementation. 

The Standing Committee on Urban Development (2019) noted that since 2017 this gap between the demand and the budgetary allocations has progressively reduced. [4]   This gap has been reduced through Extra Budgetary Resources (EBR).  However, the actual expenditure by the Ministry has been consistently lower than the budget estimates (see Figure 2).  

Figure 2: Deviation in actual expenditure from budgeted expenditure (2009-19)

 

Note: For the years 2009-10 till 2019-20, the figures are a combination of the erstwhile Ministry of Housing and Urban Poverty Alleviation, and Ministry of Urban Development.  Values for 2019-20 are revised estimates.

Sources: Ministry of Housing and Urban Affairs budget documents 2009-10 to 2020-21; PRS.

Major schemes and issues

The Ministry implements several centrally sponsored schemes, and few central sector schemes.  These include: (i) Atal Mission for Rejuvenation and Urban Transformation (AMRUT), (ii) 100 Smart Cities Mission, (iii) Pradhan mantra Awas Yojana – Urban (PMAY-U), (iv) Swachh Bharat Mission – Urban (SBM-U), and (v) Deendayal Antyodaya Yojana-National Urban Livelihood Mission (DAY-NULM).  The Ministry also develops and manages metro rail projects across the country.  

Of the expenditure allocated to the Ministry in 2020-21, the highest allocation is towards metro projects at 40% of the total budget.  The allocation towards the key schemes is shown in Table 2 and Figure 3.

Figure 3: Budgetary allocation for Ministry of Housing and Urban Affairs (2020-21)

Sources: Notes on Demand for Grants 2020-21, Ministry of Housing and Urban Affairs; PRS.  

Table 2: Allocations in the Ministry (Rs crore)

	2018-19 Actual	2019-20 RE	2020-21 BE	% change 2020-21 BE/ 2019-20 RE
Metro	14,470	18,890	20,000	6%
PMAY (Urban)	6,135	6,853	8,000	17%
AMRUT	6,183	6,392	7,300	14%
Smart Cities	5,902	3,450	6,450	87%
SBM (Urban)	2,462	1,300	2,300	77%
DAY-NULM	498	750	795	6%
Projects in North-Eastern Region	369	371	150	-60%
Others	4,594	4,260	5,045	18%
Total	40,612	42,267	50,040	18%

Notes: BE – Budget Estimate; RE – Revised Estimate. 

Sources: Notes on Demand for Grants 2020-21, Ministry of Housing and Urban Affairs; PRS.  

Metro Projects

Fund allocation:  The Ministry of Housing and Urban Affairs is responsible for urban transport which includes metro projects.  Investments in these projects are made in various forms including grants, equity investments, debt, and pass-through assistance for externally aided projects.  

As of December 20, 2018, there are 27 ongoing metro rail that have been set up as a 50:50 joint venture between the central government and respective state governments.   These have a total approximate completion cost of Rs 3,36,954 crore.  534 km of metro line are operational, while 677 km are under implementation. ^[5]

In 2020-21, Rs 20,000 crore has been allocated towards metro projects. This is a 6% increase over the revised estimates of 2019-20.  Allocation towards metro projects includes allocation towards the National Capital Region Transport Corporation.  The table below shows the trends in allocations and expenditure towards metro projects.

Table 3: Allocation towards metro projects (in Rs crore)

Year	Budgeted	Actuals	% utilised
2014-15	8,026	5,998	75%
2015-16	8,260	9,300	113%
2016-17	10,000	15,327	153%
2017-18	18,000	13,978	78%
2018-19	15,000	14,470	96%
2019-20	19,152	18,890	99%
2020-21	20,000

*Revised estimates. 

Sources: Ministry of Housing and Urban Affairs Budget documents 2014-15 to 2020-21; PRS.

In 2020-21, the capital expenditure on metro projects is estimated to be 93% of the Ministry’s total capital expenditure.  The Standing Committee on Urban Development (2017) noted that a high allocation towards metro projects leads to inadequate funds for other projects.3  It recommended financing metro projects through other options such as international cooperation.  The Standing Committee on Urban Development (2019) had recommended that state/UT governments must be consulted to find ways to reduce the huge outlay on metro works to enable other schemes to receive adequate funding.4 

The Committee also noted that the investment on metro projects has almost doubled from Rs 10,000 crore in 2016-17 to Rs 19,152 crore in 2019-20.4  However, it had also acknowledged that measures had been taken to bring down costs.   These include offering consultancy services to metro projects in Dhaka and Istanbul, as well as exporting ‘Make in India’ products to projects in Brisbane and Johannesburg.  It suggested adopting similar steps to reduce the dependency of metro projects on the union budget.4

Planning of metro systems:  The National Transport Development Policy Committee (NTDPC) report had observed that high speed mass transit systems such as metro rail do not always reduce door-to-door travel time, which is the most relevant indicator for users. [6]  Underground or elevated transport systems do not save time as compared to cars/ two-wheelers, when trip distances are short, because time is lost in walking from ground level to the platform level.  Metro rail systems are efficient only when the average trip distance is greater than 12 km.  Indian cities, because of their mixed land use patterns and higher density development, have shorter trip lengths, and hence are better suited for non-motorized travel.  

The NTDPC had recommended that the decision to implement metro rail projects should also consider the high cost factor.   Rail-based metro systems should be considered after examining the opportunity cost of investing in expensive fixed infrastructure.  For example, Phase I of Delhi metro cost Rs 191 billion for 65 km, whereas the Golden Quadrilateral highway project connecting four major cities in India through highways cost Rs 300 billion for 5,846 km.  Further, the Delhi metro, including its three phases, will cater to 15% of the total commuter trips within the city.6 

The NTDPC had recommended that metro rail projects should initially be limited to cities with population more than five million.   Further, the cities should be able to cover all costs through user charges or fiscal costs.  The NTDPC had also recommended that Indian cities should focus on improving their existing bus systems, adding bus rapid transit (BRT) systems, and improving non-motorised transport. 

Last mile connectivity:  The Standing Committee on Urban Development (2019) highlighted the need to promote door to door connectivity of the Delhi Metro.  It had suggested that cab aggregator services could employ auto rickshaws and cycle rickshaws to remedy this.4  

Urban Rejuvenation Mission: AMRUT and Smart Cities Mission 

The AMRUT Mission was launched in June 2015. [7]  The Mission seeks to provide basic services (such as water supply, sewerage, and urban transport) in cities, especially to the poorer households.  It is a Centrally Sponsored Scheme with a total central assistance of Rs 50,000 crore for five years (2015-20).  

In 2020-21, the AMRUT Mission has been allocated Rs 7,300 crore.  This is 14% more than the revised estimates of 2019-20.  

The Ministry seeks to spend Rs 50,000 crore on AMRUT by 2019-20.   As per the government’s proposal, the Ministry should have spent the entire amount by this year.  However, so far the Ministry has allocated Rs 33,599 crore (67% of the proposed amount), and spent Rs 25,077 crore (50% of the proposed amount).  The following table (Table 6) compares the actual expenditure against the proposed allocation towards AMRUT.

Table 4: Allocation compared to actual expenditure ( Rs crore)

Year	Proposed Allocation	Budget	Actual	% change (actuals/ budget)
2015-16	5,000	3,919	2,702	69%
2016-17	15,000	4,080	4,864	119%
2017-18	15,000	5,000	4,936	99%
2018-19	9,000	6,000	6,183	103%
2019-20	6,000	7,300	6,392*	88%
2020-21	-	7,300
Total	50,000	33,599	25,077

*Revised Estimate.

Sources: Standing Committee on Urban Development (2017); Ministry of Housing and Urban Affairs Demand for Grants for the years 2015-16 to 2020-21; PRS.  

The Smart Cities Mission aims to develop cities that provide core infrastructure and apply ‘smart’ solutions to give its citizens a decent quality of life to its citizens, and a sustainable environment. [8]  100 cities have been selected under the Mission, which were selected based on a Smart City challenge.  The cities were evaluated based on their Smart City Plans which consisted of a pan city development strategy and an area based development strategy. 

The mission is being operated as a Centrally Sponsored Scheme.  The central government was to provide financial of up to Rs 48,000 crore over five years (2015-20), that is, an average of Rs. 100 crore per city per year.⁸  The states and ULBs will have to contribute an equal amount, and generate the additional amount as required through other sources such as borrowings, municipal bonds.⁸  

The Smart Cities Mission has been allocated Rs 6,450 crore in 2020-21, which is 87% higher than the revised estimates of 2018-19.  

Table 5: Allocation towards Smart Cities Mission (in Rs crore) 

Year	Budgeted	Actuals	% utilised
2015-16	2,020	1,484	73%
2016-17	3,215	4,412	137%
2017-18	4,000	4,526	113%
2018-19	6,169	5,902	96%
2019-20	6,450	3,450*	53%
2020-21	6,450

*Revised estimates. 

Sources: Budget documents 2015-16 to 2020-21; PRS.

Till 2018, the actual allocation towards this scheme has been equal to or higher than the budget estimate, indicating over-spending.  In 2019-20 the revised expenditure is almost half of the budgetary allocation.  While the Ministry sought to allocate Rs 48,000 crore towards the scheme by 2019-20, so far Rs 21,150 crore has been allocated (44% of the planned expenditure).  

So far, all the 100 selected Smart cities have formed their Special Purpose Vehicles (SPVs) and appointed Project Management Consultants (PMCs). [9]  Table 4 provides the status of the smart city projects. [10]

Table 6: Status of smart city projects (as on November, 2019)

Project status	Number of projects	Cost of projects  (in Rs crore)
Total Proposed	5,151	2,05,018
Tendered	4,178	1,49,512
Work orders issued	3,376	1,05,458
Completed	1,296	23,170

Sources: Lok Sabha questions; PRS.

Pradhan Mantri Awas Yojana - Urban (PMAY-U)

The housing shortage is expected to reach 200 lakh by 2022. [11]  It was estimated that about 56% of this shortage falls in the Economically Weaker Sections (EWS), 40% in the Lower Income Group (LIG) category, and the rest 4% in the middle and higher income groups.  The Ministry estimates the demand for housing at around 100 lakh. [12]

PMAY-U is an affordable housing scheme being implemented from 2015 to 2022.  It seeks to help the central government achieve its target of ‘housing for all target’ by 2022.  So far 4,424 cities have been covered under PMAY-U.13  

The scheme comprises four components: (i) in situ rehabilitation of existing slum dwellers (using the existing land under slums to provide houses to slum dwellers) through private participation, (ii) credit linked subsidy scheme (CLSS) for EWS, LIG, and middle income group (MIG), (iii) affordable housing in partnership, and (iv) subsidy for beneficiary-led individual house construction.  The Ministry provides central assistance to ULBs for the implementation of the scheme through the respective state governments.  

Allocation:  The budgetary allocation towards the scheme for 2020-21 is Rs 8,000 crore.  This is a 17% increase over the revised estimates for 2019-20.  The funding towards the scheme comes from the Central Road and Infrastructure Fund.  

From the total allocation for PMAY-U in 2020-21, the maximum (63%) will go towards interest payment against loans raised through extra budgetary sources (EBR) for the scheme.  The credit linked subsidy scheme component received 17% of the total allocation for PMAY-U, while 16% was allocated for central assistance to states.

Table 7: PMAY-U – Key components

	2018-19 Actual	2019-20 RE	2020-21 BE	% change 2020-21 BE/ 2019-20 RE
Interest Payment against loan raised through EBR	-	3,000	5,000	67%
Central assistance to states/ UTs	4,192	2,681	1,301	-51%
CLSS-I for EWS/LIG	1,300	600	900	50%
CLSS-II for MIG	600	400	500	25%
Others	43	172	299	74%
Total	6,135	6,853	8,000	17%

Notes: BE – Budget Estimate; RE – Revised Estimate. 

Sources: Notes on Demand for Grants 2020-21, Ministry of Housing and Urban Affairs; PRS.   

House construction:  Till December 27, 2019, 103 lakh houses have been approved. [13]  Of this, 31% houses have been constructed.   Note that these numbers also include some houses sanctioned under the earlier scheme - Jawaharlal Nehru National Urban Renewal Mission.  

Table 8: Progress under PMAY-U

House construction
Houses sanctioned	103.32 lakh
Of which, under construction	61.55 lakh	60% of the approved houses
Of which completed	32.16 lakh	31% of the approved houses
Central assistance (in Rs crore)
Central assistance sanctioned	1,60,000
Of which central assistance released	63,709	40% of the sanctioned assistance

Note: The total houses approved includes some houses that were sanctioned under the earlier Jawaharlal Nehru National Urban Renewal Mission.  

Sources: PMAY-U MIS; PRS.

With the target of the scheme at 100 lakh houses by 2022, and 32 lakh houses been constructed so far, it is unclear how the central government will construct the remaining houses (almost 69% of the target) in two years. 

The Standing Committee on Urban Development (2019) noted that the estimated demand for housing projects under PMAY-U was Rs 1,80,000 crore, as on October 28, 2019.⁴  The total central assistance sanctioned was Rs 1,42,000 crore, out of which Rs 57,896 crore had been released.  It recommended the unhindered availability of funds be ensured to achieve the goal of ‘Housing for All’ by 2022.

Rental housing: As per the 2011 census, 27.5% of urban residents lived in rented houses.  According to the Report of the Group of Secretaries (2017), a rental housing scheme could further complement PMAY-U in achieving the housing target. [14]   The Ministry proposed a Draft National Urban Housing Policy in October 2015. [15]  It seeks to promote the sustainable development of house ownership with a view to ensuring an equitable supply of rental housing at affordable prices.  The Ministry also released the Draft Model Tenancy Act, 2019 in July 2019 to provide for the regulation and speedy adjudication of matters related to rental housing, and repeal the existing state rent control laws. [16]

Lending by housing finance companies- Both housing finance companies (HFCs), and public sector banks offer low cost funding for housing.  HFCs have an 80% share in the implementation of CLSS component of PMAY-U.¹⁴   However, they face constraints such as inability to access long term funds.14

The Union Cabinet had approved the creation of a National Urban Housing Fund (NUHF) worth Rs 60,000 crore in February 2018. [17]  The NUHF aims to raise funds in the next four years (till 2022) to ensure a sustained flow of central release under PMAY-U to enable construction of houses.  As of July 17, 2019, Rs 28,000 crore has been released to States\UTs under the NUHF. [18]

Swachh Bharat Mission – Urban (SBM-U)

Swachh Bharat Mission (SBM), launched in October 2014, aims to eliminate open defecation and achieve 100% scientific management of municipal solid waste in all 4,041 statutory towns by October 2, 2019. ^{[19], [20]}  

In 2020-21, Rs 2,300 crore has been allocated towards the scheme.  This is 77% higher than the revised estimates of 2019-20.  In 2019-20, the expenditure is estimated to fall short of the budget estimate by 51%.

The total estimated cost of implementation of SBM-U is Rs 62,009 crore.  Of this, the share of the central government is Rs 14,623 crore, and states’ assistance will amount to Rs 4,874 crore.  The remainder is to be financed via various sources such as the private sector, Swachh Bharat Kosh, market borrowing, and external assistance.  As on February 11 2020, the central government has released Rs 5,641 crore. [21]   

Toilet construction:  Table 8 shows the number of toilets constructed as on February 11, 2020, as compared to the targets set for October 2019. [22]  

Table 9: Achievements under SBM- Urban (as on February 11, 2020)

	Target	Completed	% Achieved
Individual Household Latrines	66,42,222	61,31,239	92%
Community and Public Toilets	5,07,589	5,79,819	114%

Sources: Swachh Bharat Mission Urban - Dashboard; PRS.

Other issues to consider 

Additional investment required

The pace of urbanisation is increasing in the country.  As per the 2011 census, around 31% of the country’s population resided in urban areas. [23]  By 2031, around 600 million (43%) people is expected to live in urban areas, an increase of over 200 million in 20 years.  Given the pace of urbanisation, large capital investments are needed for infrastructure projects which includes support from central and state governments in the form of capital grants.  

With the current rate of urbanisation, the High Powered Expert Committee (HPEC) for Estimating the Investment Requirements for Urban Infrastructure Services (2011) had estimated a requirement of Rs 39 lakh crore (at 2009-10) prices for the period from 2012-2031. ^[24]   As per their framework, the investment in urban infrastructure should increase from 0.7% of GDP in 2011-12 to 1.1% of GDP by 2031-32.  In 2020-21, the estimated expenditure by the Ministry of Housing and Urban Affairs is 0.22% of the GDP.  

The Ministry of Finance had noted that budgetary outlays alone will not be enough to service the growing demands on local governments for improving their infrastructure. [25]   Alternate sources of financing are required to meet the funding gap.²⁵  The flagship schemes of the Ministry (such as Smart Cities Mission, Swachh Bharat Mission) seek to meet their financing requirements through a mix of sources such as borrowings, municipal bond financing, and PPPs.

The Standing Committee on Urban Development (2019) noted an urgent need for huge resource mobilisation in a phased by 2024 and afterwards by 2030.  This was needed to ensure that Housing and Urban Affairs schemes have adequate funding, as well as to realise the goal of successfully strengthening the country’s economy.4 

Financial capacity of cities

The Constitution (74^th Amendment) Act, 1992 devolved certain functions relating to urban development to ULBs, including the power to collect certain taxes.  These function include urban planning, planning for economic and social development, and urban poverty alleviation.  The new schemes under the Ministry, seek to decentralise the planning process to the city and state level, by giving them more decision making powers.  This implies that a significant share of the funding needs to be raised by the cities themselves.

However, there is an imbalance between the functions and finances of ULBs. [26]  The ULBs in India are amongst the weakest in the world both in terms of capacity to raise resources and financial autonomy.24  The share of own revenue for ULBs has declined from 63% in 2002-03 to 53% in 2007-08, and to 44% in 2015-16. [27]^, [28]  Several states have not devolved enough taxation powers to local bodies.   Further, local governments collect only a small fraction of their potential tax revenue.  

While the central and state governments provide the ULBs with funds, these devolved funds are largely tied in nature, to either specific sectors or schemes.  This constrains the spending flexibility of ULBs.  

Such a situation may pose problems when implementing the new schemes, where the ULBs have to raise a significant share of the revenue.  For example, the Bhubaneswar Smart City Plan has a total project cost of Rs 4,537 crore (over five years), while the city’s annual budget for 2014-15 was Rs 469 crore. [29]^, [30]  

PPPs have been an important instrument to finance and develop infrastructure projects.  However, projects in many sectors require support from ULBs in the form of additional financial resources.  Inability to service such funding requirements constrains project implementation.²⁵  

In such cases, ULBs can access capital markets through issuance of municipal bonds.  Municipal bonds are marketable debt instruments issued by ULBs, the funds raised may be used for capital projects, refinancing of existing loans, and meeting working capital requirements.  The Securities and Exchange Board of India regulations (2015) regarding municipal bonds provide that, to issue such bonds, municipalities must: (i) not have negative net worth in any of the three preceding financial years, and (ii) not have defaulted in any loan repayments in the last one year. [31]  Therefore, a city’s performance in the bond market depends on its fiscal performance.   Some financing mechanisms, such as municipal bonds, have been around in India for the last two decades, but cities haven’t been able to make much use of them. 

In order to improve the finances of the ULBs, the HPEC had recommended that state governments should share a pre-specified percentage of their revenues from all taxes on goods and services with ULBs, and this should be mandated constitutionally.24   Further, ULBs should be provided with formula-based transfers, and grants-in-aid.24  The ULBs could raise their own revenue by tapping into land-based financing sources, and improving non-tax revenues (such as water and sewerage charges, and parking fee).24 

Technical capacity of the ULBs

Until recently, it has been observed in the urban sector that while the central government allocated funds, it did not play a role in the implementation of the projects.  On the other hand, while ULBs and states implemented the projects, they did not raise the funds.   The new schemes seek to empower ULBs to raise their own revenue.  Both the national missions, AMRUT and Smart Cities, have a component for capacity building of ULBs.  

The HPEC had observed that municipal administration has suffered due to (i) presence of untrained and unskilled manpower, and (ii) shortage of qualified technical staff and managerial supervisors.24  It had recommended improving the technical capacity of ULBs.  This can be achieved by providing technical assistance to state governments, and ULBs in planning, financing, monitoring, and operation of urban programmes.