Urban areas to drive 70% of India's GDP growth by 2036: Report

Urban areas will contribute nearly 70% to India's GDP by 2036, a report says. The new Urban Challenge Fund aims to meet the Rs 80 trillion infra need by shifting ULBs from grant-based funding to market-linked financing and municipal bonds.

Urban areas are expected to contribute nearly 70 per cent of India's GDP growth by 2036, driven by rising investments in urban infrastructure and reforms in municipal financing, according to a report by Brickwork Ratings.

Massive Urban Infrastructure Investment Needed

The report titled "From grants to markets: How Urban Challenge Fund will reshape urban finance in India" highlighted that India would require around Rs 80 trillion in urban infrastructure investments by 2037, even as Urban Local Bodies (ULBs) currently rely minimally on debt markets. According to the report, "Urban areas' contribution to India's GDP by 2036" is projected at 70 per cent, underlining the growing importance of cities in India's economic expansion.

Urban Challenge Fund: A Policy Shift

The report noted that the newly introduced Urban Challenge Fund (UCF) marks a major policy shift from traditional grant-based urban financing to market-linked financing mechanisms. "UCF design logic: 'Reform-linked' and 'leverage-based'--cities only receive central money when they can attract private capital. Market borrowing is mandatory, not optional," the report stated.

It added that ULBs currently utilise only around 5 per cent of their funding requirements through debt markets, reflecting the low penetration of commercial financing in the urban sector.

The report further said the UCF would create a strong push for municipal bond issuances and structured urban borrowing, particularly among Tier II and Tier III cities.

Credit Ratings and Private Capital Mandatory

"ULBs must raise at least half of project costs through bonds, loans, or PPPs before accessing UCF grants--making credit ratings non-negotiable," the report said.

Municipal Bonds Gaining Traction

The report observed that while institutional lenders such as HUDCO and IIFCL continue to dominate urban financing, municipal bonds are emerging as an important financing route due to greater transparency, investor participation, and market discipline.

Targeting Smaller Cities

It also pointed out that around 4,223 smaller ULBs and cities are being targeted under the UCF framework, with nearly 80 per cent of them yet to access market debt.

Reforms to Boost Creditworthiness

The report said reforms linked to governance, digital systems, audited financials, and property tax improvements would strengthen the creditworthiness of ULBs and improve their access to long-term financing markets. (ANI)

(Except for the headline, this story has not been edited by Asianet Newsable English staff and is published from a syndicated feed.)