Model Answer has been uploaded
Question. The policies and indicators introduced by the government, in recent times, to finance urban development in India are key in addressing the existing challenges. Discuss with special reference to municipal bonds.
प्रश्न. हाल में ही, भारत में शहरी विकास को वित्त देने के लिए सरकार द्वारा आरंभ की गई नीतियां और संकेतक मौजूदा चुनौतियों को दूर करने में महत्वपूर्ण हैं। नगरपालिका बंधपत्रों (म्यूनिसपल बॉण्ड) के विशेष संदर्भ के साथ चर्चा करें।
Approach to answer
🖌 Highlight the need for focusing on urban development by stating the increasing trend of urban population. / शहरी आबादी के बढ़ते चलन को बताते हुए शहरी विकास पर ध्यान देने की आवश्यकता पर प्रकाश डाले।
🖌 Enumerate some of the poulcies introduced by the government to address these challenges. / इन चुनौतियों को दूर करने के लिए सरकार द्वारा शुरू की गई कुछ नीतियों की गणना करें।
🖌 Discuss how municipal bonds can help overcome the challenges to urban financing in India. / चर्चा करें कि कैसे नगरपालिका बांड भारत में शहरी वित्तपोषण के लिए चुनौतियों को दूर करने में मदद कर सकते हैं।
🖌 Suggest some steps / कुछ सुझाव दें
Mock Answer
India’s urban population has grown by 32% from 2001 to 2011 as compared to 18% growth in total population of the country. Further, it is expected to grow up to 600 million by 2031. So with increasing urban population, the need for providing better infrastructure and services in cities is increasing.
As a result, Government has introduced several schemes such as AMRUT, Smart Cities Mission, HRIDAY, Pradhan Mantri Awas Yojana (Urban) and Swachh Bharat Mission (Urban). These require significant capital spending by ULBs but financing face some challenges such as:
- Lack of fiscal and technical capacity of local government bodies to raise more finances.
- Funding from market requires surety about returns from projects undertaken. In absence of clear policy of defined and stable user charges, markets will not be willing to lend.
- Poor governance and financial situation makes it more difficult to access external financing.
- Most municipalities in the country spend majority of their revenues on operational expenses like salaries, bills, etc leaving little for the development.
- Value Capture Financing (VCF): It is a principle that states that people benefiting from public investments in infrastructure should pay for it. It helps in capturing a part of the increment in the value of land due to such investments, and use it to fund new infrastructure projects. For example, land value tax, fee for changing land use, betterment levy etc.
- Credit rating of cities: based on assets and liabilities of the cities, revenue streams, resources available for capital investments, accounting practices, and other governance practices. It will enable them to raise funds from the market.
- Other data indicators around cities such as the Swachh Bharat rankings, and the City Liveability Index etc. seek to foster a sense of competition across cities, and also help them map their performances year on year.
- Municipal bonds: These are bonds issued by urban local bodies (municipal corporations or entities owned by municipal bodies) to raise money for financing specific projects such as infrastructure projects.
- Municipal bonds have been around in India for the last two decades, but cities haven’t been able to make much use of them, largely because of poor governance.
- Disclosure of information by ULBs on their financial performance at regular intervals.
- Audit of accounts to increase transparency.
- Financial autonomy to the ULBs in project execution and overall improvement in urban governance.
- Decentralized planning with clear planning over the period of time.
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