Financing of Urban Services in India: A Case for Appropriate Pricing and Cost Recovery

The paper makes an attempt to examine financing of urban services within the broader macro-economic liberalisation and decentralisation context in India. It estimates the resource gap between the present flow of funds and financial requirements for urban civic services on the basis of the existing un-met demand and projected population growth trends. While making a case for appropriate pricing and cost recovery for generating more resources for financing urban services, the paper focuses on the changing attitude towards full-cost recovery, existing practices of pricing and cost recovery of urban services, provides empirical evidence of poor cost recovery from four Indian cities and identifies key institutional, conceptual and managerial issues that need to be addressed. Finally, the paper presents the emerging directions for policy reforms and action for meeting the growing needs for urban infrastructure and services, which includes some measures for fiscal reforms to increase the flow of finances for urban infrastructure and services, strengthening the resource base of local agencies and capacity building of local agencies.