Sources and Mechanisms of Funding for Slum Improvement Schemes at the Urban Local Body (ULB) Level in India

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1. Government Budgetary Allocations

  • Central Government Funding:
    • Schemes like PMAY-Urban (Pradhan Mantri Awas Yojana – Urban) provide direct funding to ULBs for slum redevelopment and affordable housing.
    • Atal Mission for Rejuvenation and Urban Transformation (AMRUT) includes provisions for basic services to slums.
    • Funds are often transferred through State Urban Development Departments to ULBs based on project proposals.
  • State Government Support:
    • States have their own housing boards and urban development policies. For example, Maharashtra’s Slum Rehabilitation Authority (SRA) model.
    • States often co-finance central schemes (e.g., PMAY-Urban follows a 60:40 Centre:State funding ratio for most states, 90:10 for NE and special category states).
  • ULB Own Revenues:
    • Property tax
    • User charges (for water, sanitation, etc.)
    • Development charges and betterment levies
    • Land monetization (leasing or selling municipal land)

2. Grants and Transfers

  • Finance Commission Grants:
    • The 15th Finance Commission allocates grants directly to urban local bodies, including a part for improving urban services (indirectly benefiting slums).
  • State Finance Commission Recommendations:
    • State governments allocate funds to ULBs based on their Finance Commission reports.

3. Loans and Credit Mechanisms

  • HUDCO (Housing and Urban Development Corporation Ltd):
    • Provides long-term, low-interest loans to ULBs for slum housing and basic services.
  • World Bank, ADB, and Multilateral Agencies:
    • Fund large urban development programs (e.g., Tamil Nadu Urban Development Fund).
    • ULBs can access these funds indirectly through state governments.
  • Pooled Finance Development Fund (PFDF):
    • Helps smaller ULBs access bond markets through pooled municipal bonds for infrastructure projects, including slum improvement.

4. Public-Private Partnerships (PPP)

  • Slum redevelopment projects are increasingly being implemented through PPP models, where:
    • Developers get rights to commercially exploit parts of land in exchange for rehabilitating slum dwellers.
    • Example: Mumbai’s SRA projects.
  • Viability Gap Funding (VGF):
    • Central government provides VGF to make projects commercially viable for private developers.

5. Community Participation and Beneficiary Contributions

  • Sweat Equity:
    • In situ slum redevelopment often uses community labor as a contribution to project costs.
  • Beneficiary Payments:
    • Minimal contributions are taken from slum dwellers in housing schemes (e.g., under PMAY-Urban, a nominal beneficiary share is required).
  • Self-Help Groups (SHGs) and Microfinance:
    • Used for incremental housing improvements and basic infrastructure upgradation.

6. Corporate Social Responsibility (CSR) Funds

  • Companies are mandated (under the Companies Act, 2013) to invest 2% of their profits into CSR activities.
  • Some CSR initiatives fund housing, sanitation, and education projects in slums.

7. Innovative Financing Mechanisms

  • Land Value Capture (LVC):
    • ULBs capture a share of the increase in land value resulting from infrastructure improvements.
    • Tools include betterment charges, transfer of development rights (TDR), impact fees.
  • Municipal Bonds:
    • Cities like Pune have raised funds through municipal bonds for water supply and sanitation, indirectly impacting slum areas.

In short, funding at ULB level for slum improvement is a mix of public funding (both Union and State), ULB internal resources, loans, PPPs, community contributions, and innovative financing models like municipal bonds and land value capture.