Urban Infrastructure Development Fund from Vajirao & Reddy Institute

URBAN INFRASTRUCTURE DEVELOPMENT FUND

Key Details:

• The Government of India recently introduced the Urban Infrastructure Development Fund (UIDF) to address the pressing need for urban infrastructure development in Tier-2 and Tier-3 cities across the country.
• This initiative has been launched using the priority sector lending shortfall, which will help create a sustainable funding mechanism for urban infrastructure projects, particularly in smaller urban areas that often lack the necessary resources.

OBJECTIVES OF UIDF

• Urban Infrastructure Development: UIDF will assist in the creation of critical urban infrastructure in Tier-2 and Tier-3 cities, such as:
  • Sewerage and Solid Waste Management
  • Water Supply and Sanitation
  • Construction and Improvement of Drains and Storm Water Drains
• Supplementing State Government Efforts: The fund aims to support and supplement the efforts of State Governments, Union Territories (UTs), and Urban Local Bodies in improving urban infrastructure.
• This includes projects undertaken by public/state agencies, municipal corporations, and local bodies.
• Providing Predictable Financing: The fund will offer a stable and predictable source of financing, which is crucial for long-term infrastructure planning and implementation.

KEY FEATURES

• Management and Oversight:
  • The fund will be managed by the National Housing Bank (NHB), an All-India Financial Institution (AIFI) wholly owned by the Government of India.
• Initial Corpus:
  • The initial corpus of the UIDF is set at ?10,000 crore.
• Funding Sources:
  • UIDF has been established using the priority sector lending shortfall, which refers to the difference between the mandatory lending targets set by the Reserve Bank of India (RBI) for commercial banks and their actual lending performance to priority sectors like housing and infrastructure.
• Target Areas:
  • The fund will cover 459 Tier-2 cities and 580 Tier-3 cities.
  • These cities typically face greater challenges in urban infrastructure development compared to larger urban areas.
• Encouragement for States:
  • States will be encouraged to utilize resources from 15th Finance Commission grants and other existing schemes.
  • States and UTs will be encouraged to adopt appropriate user charges for urban services when accessing UIDF.
• Loan Terms and Conditions:
  • Interest Rate: The interest rate on loans under the UIDF is set at Bank Rate minus 1.5%.
  • Repayment Period: Loans are to be repaid in five equal annual installments within a seven-year period, with a moratorium period of two years.
  • Quarterly Interest Payments: Interest will be payable on a quarterly basis.
• Alignment with Rural Infrastructure Development Fund (RIDF):
  • UIDF has been established on the lines of the Rural Infrastructure Development Fund (RIDF), which was created to finance infrastructure development in rural areas.

ABOUT NHB

• The National Housing Bank (NHB) is a key financial institution established under the National Housing Bank Act, 1987.
• It is wholly owned by the Government of India and was created to promote the development of the housing finance sector in the country.
• NHB plays a crucial role in supporting the financial infrastructure required for housing and urban development.

CONCLUSION The establishment of the Urban Infrastructure Development Fund (UIDF) represents a significant step by the government to address the urban infrastructure challenges in Tier-2 and Tier-3 cities. By leveraging the priority sector lending shortfall, this fund will provide much-needed financial support for the development of essential urban services.   Note: Connect with Vajirao & Reddy Institute to keep yourself updated with latest UPSC Current Affairs in English. Note: We upload Current Affairs Except Sunday.