Countries and Regions

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p. 10 of 20 BACK | NEXT I. Country Performance Assessment II. Country Operational Strategy III. Sector Strategies A. Infrastructure B. Social Infrastructure and Environment C. ADB’s State-level Operations D. Governance Dimensions of ADB Operations E. Gender Dimensions of ADB Operations F. Private Sector Operations IV. Regional Cooperation V. Donor Activities and Aid Coordination VI. Cofinancing and Catalyzing External Resources VII. ADB’s Operational Program VIII. Economic and Sector Work Program IX. Local Cost Financing

Country Assistance Plans - India : III. Sector Strategies

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B. Social Infrastructure and Environment

1. Urban Development

57. The rapid urbanization in India and under-investment in urban infrastructure and municipal services have resulted in serious environmental and health problems in India's cities. Urban households, particularly the poor, have limited access to potable water and adequate sewerage, drainage, sanitation, and waste disposal facilities. To ameliorate the incidence of urban poverty and to prevent further environmental degradation, the Government is giving increasing priority to the urban infrastructure development and to strengthening of local governments. The 74th Constitutional Amendment, passed in 1992, embodies a commitment to devolve greater authority and responsibility for urban management from the states to municipalities. To effect this devolution, municipal finances and management need to be strengthened to build adequate local capacity. Through two national assistance programs, the Mega City Project covering the five cities of Bangalore, Calcutta, Chennai, Hyderabad, and Mumbai, and the Integrated Development of Small and Medium Towns Scheme, the Government is evolving intergovernmental partnerships and is attempting to use its budgetary resources to leverage institutional finance and market funds. Moreover, under the Mega City Project, revolving funds linked to cost recovery from infrastructure investments have been established. In March 1999, the Parliament approved the repeal of the Urban Land (Ceiling and Regulation) Act of 1976. This will remove a major constraint on urban development and housing.

58. Consistent with the Government's strategy, ADB's involvement in urban development through its lending (i.e. Karnataka Urban Infrastructure Development Project, Rajasthan Urban Infrastructure Development Project, and Karnataka Urban Development and Coastal Environmental Management Project) and TA (i.e., Urban Sector Profile and Capacity Building for Improved Infrastructure Development in Selected Municipalities in Karnataka) has been aimed at encouraging more balanced urban regional development through growth centers near already over-stretched metropolitan areas and addressing urban poverty and environmental concerns. Additional ADB support in the urban sector, through the Urban and Environmental Infrastructure Facility Project, has been geared to enhancing private sector participation in urban development and highlighting the demonstration effect of public-private partnerships for improvement of water supply, urban transport facilities, and solid waste management. Preventing further environmental degradation and alleviating pressure from rapid urbanization are becoming increasingly important parts of ADB's urban sector program. As indicated in ADB's Urban Sector Strategy for India, effective implementation of urban development projects requires appropriate policy and institutional reform measures to ensure sustainability. In this regard, support needs to be directed to implementing changes in land acquisition, strengthening municipal finances, and improving the technical and administrative capacity of urban sector agencies and state and local governments. Sustainability also requires that urban infrastructure development projects focus greater attention on the need to adequately operate and maintain existing assets and to mobilize financial resources through user charges and the capital market. ADB TAs on Resource Mobilization for Local Governments in Karnataka and on Strengthening Local Government in Madhya Pradesh have promoted a number of policy reform measures and initiatives aimed at improving the financial condition and autonomy of municipal bodies. ADB has also taken a lead role in developing innovative forms of financing for urban infrastructure by both the public and private sectors.

59. Building on the experience gained in designing the projects in Karnataka and Rajasthan, and as effective means for alleviating urban poverty, support for integrated urban development and environmental improvement projects have become a key component of ADB's strategy in the urban sector. The Calcutta Environmental Improvement Project, processed in 2000, focuses on addressing the drainage, wastewater, and solid waste problems facing the Calcutta area. The program also includes the Urban Poverty Reduction Project in Madhya Pradesh as standby in 2003. TA for the preparation of urban development projects in two of ADB's focal states are included in the medium-term TA program. Further advisory support is provided through TA on Community Empowerment in Local Government to strengthen participation at municipal level, and through a multi-year cluster TA on Institutional and Regulatory Frameworks for Urban Services to assist in tariff reform for urban water/sewerage system, strengthening municipal resource generation and improving financial governance of local bodies, and promoting public-private partnerships for municipal service delivery.

2. Housing

60. Rapid population growth, increased urbanization, relatively low investment in housing, and widespread poverty have created a serious shelter problem in India, contributing to the proliferation of slums, increased demands for urban infrastructure and services, and a declining quality of life particularly for low-income households. Moreover, the majority of the population, especially the urban poor living in slums, lack access to housing finance from the formal sector. Additional key factors that have aggravated the housing situation include institutional deficiencies, especially among state and local housing agencies, and regulatory constraints to new housing development and investment such as the Urban Land Ceiling Act and the Rent Control Act. There is thus an urgent need to address the institutional and regulatory aspects, as well as strengthen and expand the capacity of financing institutions, including community-based organizations, to respond to the need for housing finance particularly for poor families.

61. Although India had traditionally assigned a relatively low priority to housing finance in policy formulation compared to other sectors, the passage of the National Housing Policy (NHP) in 1994 marked a significant transition in the Government's position on housing policy by stressing the importance of housing as an integral part of the national strategy for poverty reduction and employment in the context of overall economic development. The NHP advocated increased participation by the private sector and emphasized that the role of government agencies was to create conditions for the expansion of housing supply through the removal of legal and regulatory constraints and to support appropriate infrastructure investments. It also aimed at increasing access of poorer households to housing and other basic services (water supply and sanitation), and mobilizing additional financial resources by establishing linkages between the formal sector, non-government organizations, and community-based financing institutions. In accordance with the increased priority on housing, the Government formulated the National Housing and Habitat Policy (1998) to further promote the creation of an enabling environment and to encourage the non-government sector to take up housing development and infrastructure investment, including through public-private partnerships. To facilitate mobilization of funding for housing development, the Government has recently declared the housing sector as an infrastructure sector, thereby enabling access to tax benefits on investments. The Government is also supporting the implementation of mortgage securitization as well as the trading and investment in securitized papers. Moreover, several measures have been implemented to further policy reforms, including the repeal of the Urban Land Ceiling Act and the preparation of model legislation to enable states to amend their rent control acts.

62. The ADB is integrating social development concerns into its overall strategic focus, with particular emphasis on poverty reduction, inter alia by supporting the development of sustainable mechanisms for the financing and delivery of social services including housing, and the provision of housing finance. Particular emphasis is directed towards removing legal and regulatory impediments to developing a sustainable housing sector; promoting cost recovery and community-participation for slum improvement and low-income housing subprojects; strengthening financial management capacity of housing finance institutions; supporting market-based lending to low-income households; and expanding the national housing finance system. Although ADB's involvement in India's housing sector has been relatively recent, it is playing a leading role in supporting the Government's policy and institutional reform agenda. Support has so far been provided through the Karnataka Urban Infrastructure Development Project (low-income housing finance component), approved in 1995 for targeted lending for low-income housing and slum improvement schemes, and the Housing Finance Project, approved in 1997 for lending through formal and informal housing finance institutions and for expanding the national housing finance system through leveraging injections of equity and debt capital and the development of instruments for asset securitization. Additional support for capacity building and the institutional strengthening requirements of India's rapidly changing housing sector were provided through TAs on Strengthening Housing Finance Institutions and for Restructuring State-Level Housing Finance Institutions. Implementation of the Housing Finance Project was progressing well and, in view of the large absorptive capacity, the loan was disbursed substantially ahead of schedule. Given the large demand for housing finance, the strong poverty impact particularly of project components such as home-workplace scheme and link to community-based organizations, and the continuing reforms within the sector, a Housing Finance II Project was approved in September 2000. Further support is envisaged over the medium term.

3. Environment

63. Recognizing the adverse impact of environmental degradation on sustainable economic development, the Government has formulated an Environment Action Plan outlining its environmental priorities and adopted measures to arrest further natural resource degradation. However, weak enforcement of environmental legislation, almost exclusive reliance on a command and control regime, and resource constraints has prevented effective implementation of the policy. While there is a need to further strengthen the capacity of the Ministry of Environment and Forests and the Central Pollution Control Board at the national level as well as the capabilities of various line agencies to deal effectively with environmental issues, the capacity to implement environmental policies is particularly weak at the state and local levels.

64. Initially, ADB's support to environmental management and improvement focused on capacity building within line ministries and executing agencies to identify, prevent, and mitigate environmental impacts of infrastructure projects. More recently, ADB has also provided TA to strengthen environmental legislation and enforcement including environmental impact assessment and pollution control. Increasingly, direct support for the environment is becoming an important component of ADB's overall lending operations in India. While this is most obvious in ADB's urban development projects, most of the projects in the energy sector, as well as ADB's support for improvement in energy efficiency, also have significant environmental dimensions. To further strengthen environmental management, policies are now being addressed more directly through ADB's operations at the state level. For example, the Madhya Pradesh Public Resource Management Program Loan, approved in 1999, stipulates specific measures to support environmentally sustainable economic growth and industrial development. The state's environment policy will actively promote market-based instruments for natural resource and environmental management.

65. Given the Government's commitment to addressing the environmental concerns, and its willingness to selectively utilize OCR financing, ADB lending for environment is expected to increase over the medium term. ADB's expanded operations in this field will be guided by the Environmental Profile that was completed in 1999. In addition to energy efficiency projects (para. 42) and projects within the urban development sector that address environmental issues (paras. 58-59), ADB is taking a lead role in the project for Environmental Improvement and Sustainable Development of the Agra-Mathura-Ferozabad Trapezium, being prepared under ADB TA and expected to be approved in 2001. While efforts to strengthen the capacity of national institutions in the area of environmental management will continue, ADB support will also be directed to improve state level capacity, particularly in Gujarat and Madhya Pradesh, two of ADB's focal states, as well as Karnataka and Rajasthan, where ADB is already involved in comprehensive urban development projects. To this end, the TA program includes a cluster advisory technical assistance (ADTA) for Capacity Building for Environment Management at State Level (approved in March 2000 for implementation during 2000-2002), and comprising various capacity building components including (i) institutional strengthening for environmental impact assessment capacity at state level; (ii) strengthening environmental management planning, regulation, and investment in Gujarat and Madhya Pradesh; and (iii) capacity building for cleaner production and utilization of the clean development mechanisms.

66. ADB is continuing its efforts towards evolving possibilities for support of biodiversity conservation in the Indian Sundarbans as part of natural resource management, and addressing environmental degradation in its focal state of Madhya Pradesh. These initiatives, however, may require more concessional funding than is presently available from ADB's lending window alone, and would benefit from suitable co-financing. This would provide opportunities to broaden the poverty reduction impact of ADB's interventions over the longer term. As a first step, the Program includes a TA on Conservation of Indian Sundarbans and Poverty Reduction to assist in developing a conservation and strategic development framework for Sundarbans, identifying livelihood improvement of the poorer segments, and assessing funding requirements.

4. Clean Development Mechanisms (CDMs) are part of the new financing mechanisms for greenhouse gas abatement technology investments in developing countries introduced under the Kyoto Protocol (1997) of the United Nations Framework Convention on Climate Change.

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