In FY2010, Bihar's gross state domestic product (GSDP) ranked 14th among all states in India; its per capita GSDP of Rs17,959 at current prices was the lowest. Bihar's GSDP largely depends on economic activities in urban areas; thus the importance of urban services for economic growth has been increasing. In FY2011, tertiary sectors contributed 61% of the GSDP, secondary sectors 18%, and primary sectors 21%. Therefore, an increase in productivity in urban areas is key to stimulating Bihar's GSDP.
Improving the urban environment and quality of life will lead to better health for the urban population and, hence, to an increase in labor productivity. Urban service in the four towns is poor. The deterioration of key urban services (water supply, sewerage, and solid waste management [SWM]) may jeopardize the potential of the towns to continuously play their role as engines of economic growth in Bihar. Poor urban services negatively impact labor productivity an increase in cases of water- and vector-borne diseases will prevent affected members of the working age population from engaging in income-generating activities. The consequences of poor urban services greatly constrain women from engaging in much-needed additional and alternative sources of income as they are responsible for household water collection, waste disposal, family hygiene, and care of the sick.
The core problem for the ability of towns to sustain key urban services is the inadequate size and condition of infrastructure. This is mainly attributed to inadequate new investment and O&M, stemming from four main problems:
(i) User charges. With no user charges, ULBs cannot recover O&M cost. Inability to capture (a) accrued revenues and expenditures; and (b) apportioned common expenses makes the calculation of appropriate user charges difficult, even if ULBs are willing to levy user charges.
(ii) Accounting practice. In the absence of a dedicated account specific for each urban service, ULBs cannot accumulate internal reserves for major investments. As a result, they rely on grants from various national and state schemes. Uncertainty of the availability of financial resources makes planning for the future difficult.
(iii) Public administration. The absence of a municipal civil service system means that ULBs have difficulty accumulating skills. Most staff are contracted with multiple assignments, often not having the qualifications and rarely devoted to specialized tasks.
(iv) Human resources. Too few staff are recruited to sustain the water supply, sewerage, and SWM services at the national target. Along with difficulty attracting qualified personnel, ULBs have difficulty preparing a long-term plan and project proposals to attract financiers.
Urban service delivery. India's Eleventh Five-Year Plan (April 2007-March 2012) sets out 27 national targets, covering economic and social goals, including (i) ensure clean drinking water is available to all by 2009, with no slippages by the end of the plan; and (ii) treat all urban wastewater by 2011/2012 to result in clean river water. The plan recognizes infrastructure bottlenecks and lack of long-term funds for infrastructure investment as binding constraints for achieving the goals. The plan calls for public sector investment to meet infrastructure requirements where private participation is less likely.
Road map for achieving service targets. To achieve the national and state targets for water supply, sewerage, and SWM services in the four towns, the Bihar state government, with assistance from the Asian Development Bank (ADB) through the project preparatory technical assistance (TA), formulated a plan that matches short- and long-term goals with specific solutions to help meet the targets a road map for 2010 2021. The key findings are as follows:
(i) The physical investment for water supply, sewerage, and SWM will cost about Rs35 billion by 2021, and will incur annual O&M cost of about Rs414 million upon full completion.
(ii) To create a sustainable environment for physical investment, the ULBs, in collaboration with the state government, need to (a) formulate and adopt user charge and subsidy policies; (b) establish an administrative body for recommending user charges; (c) migrate to an accrual-based, double-entry accounting system; (d) establish accounts dedicated to each urban service operation; (e) install automated billing systems for the user charge; (f) increase O&M staff numbers; and (g) train O&M staff in the ULBs.
(iii) The nonphysical investment for construction management, systemic improvements in operations, and capacity building will require Rs2,270 million.
Government and state government efforts. Various ongoing and planned investment projects of the national and state governments, valued at about Rs3,500 million, cannot meet the physical investment requirements of the road map.
Ongoing external assistance in Bihar. Since 2010, the state government has been undertaking various urban municipal governance reforms with assistance from the Support Program for Urban Reforms (SPUR), financed by the Department for International Development of the United Kingdom. SPUR is a 61 million ($95 million equivalent) program to support urban governance and planning, municipal financial management, municipal infrastructure management, local economic development, and poverty reduction in 28 ULBs, which include the four towns. SPUR focuses on capacity building covering most of the reform requirements of the road map.
ADB strategy and focus. The country partnership strategy and ADB assistance program for 2009-2012 were designed to support the Government of India's efforts to address the binding constraints in the plan through four strategic pillars. One of the pillars emphasizes the continuation of ADB assistance to infrastructure development in various sectors, including the urban sector. The country operations business plan for India, 2012-2014 places more focus on less-developed states, and allocates an MFF of up to $200 million for the investment program.
Through the investment program, ADB will support a part of the funding shortfall for water supply and sewerage infrastructure improvement proposed in the road map. The aim is to develop a complete system in a town by complementing the ongoing investment of the national and state governments. The investment program will also increase the efficiency and cost-effectiveness of O&M by outsourcing operations through design-build-operate (DBO) contractual arrangements, and support ongoing efforts to address user charges, subsidies, and accounting specific to water supply and sewerage operations.
A series of project loans through an MFF is the most suitable lending modality, as it will enhance continuity and predictability. Long-term engagement of consultants and DBO contractors will be financed through multiple loans. Greater predictability of financing availability under the MFF will enable the four towns to prepare the MFF tranches and investment in accordance with the road map beyond ADB's country programing period. It will provide a clear financial envelope in advance, and allow them to graduate from a traditional mode of planning preparing a project after budget is sanctioned. Greater continuity and predictability will enable the state government to plan and execute investment in a holistic manner.