FM Sitharaman says public funding remains essential, seeks more German investment in Indian urban infrastructure

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India is looking to deepen cooperation with Germany to finance sustainable urban infrastructure and attract greater private investment, while emphasising that private capital cannot replace public funding for basic services and inclusion, Finance Minister Nirmala Sitharaman said on October 16.

With India’s urban population projected to reach 951 million by 2050 and investment needs for resilient, low-carbon urban infrastructure and services estimated at more than $2.4 trillion, Sitharaman said the country needs to strengthen municipal finances, prepare bankable projects and use public resources to mobilise additional capital.

Speaking at an urban infrastructure event in Bangkok, she said greater participation by German institutional investors could be explored in commercially viable urban infrastructure, including sustainable mobility and energy-efficient projects. A pipeline of nearly 1 billion euros in Indo-German urban financing offers scope to deepen cooperation, she added.

“India values Germany’s long-standing partnership in sustainable urban development under the Indo-German Financial Cooperation Framework,” Sitharaman said.

The KfW-supported cooperation has facilitated approximately 2 billion euros, or around Rs 20,000 crore, in past and ongoing financing for climate-resilient urban infrastructure, including water supply and sanitation, wastewater and solid waste management, river and water body rejuvenation, and stormwater management and flood mitigation.

“With a pipeline of nearly 1 billion euros, there is considerable scope to deepen cooperation in line with India’s priorities,” she said.

Future cooperation could focus on project preparation, credit enhancement for smaller cities and strengthening municipal utility governance. Greater German institutional investment in commercially viable urban infrastructure could also be explored, she added.

The speech did not announce a new financing agreement or fresh investment commitment.

Building investment-ready cities

Sitharaman said India was undergoing a major urban transition, with the World Bank’s 2025 assessment projecting an urban population of 951 million by 2050, compared with around 480 million in 2020. Investment needs for new, resilient and low-carbon urban infrastructure and services are estimated to exceed $2.4 trillion by 2050.

To meet this demand, cities need stronger finances and institutions to attract investors, she said.

“Investment readiness of a city depends on credible accounts, stronger own-source revenues, prepared projects and capable institutions,” Sitharaman said.

Robust property-tax administration, efficient revenue collection and transparent financial reporting would help cities establish the financial track record needed to access suitable financing. Predictable revenues to cover operations and maintenance, supported by appropriate user charges and targeted subsidies to protect affordability, are also essential.

Cities must develop bankable projects with technically sound designs, realistic demand assessments, life-cycle cost estimates and credible procurement and implementation arrangements.

India’s steps to mobilise urban investment

The government has established a public investment framework through national programmes implemented with state governments and urban local bodies, including the Atal Mission for Rejuvenation and Urban Transformation (AMRUT), the Smart Cities Mission and the Swachh Bharat Mission.

The next phase must combine public investment with market-linked, reform-driven financing to expand the pool of capital available for urban infrastructure, Sitharaman said.

Public investment remains essential for basic services and inclusion, while market finance can supplement government resources, address project viability gaps and support better project delivery.

“The objective is not to replace public funding, but to use it to address viability gaps, support reforms and mobilise appropriate additional capital that will be required,” she said.

Key initiatives and financing mechanisms highlighted in the speech include:

Urban Challenge Fund: The fund provides for Rs 1 lakh crore in central assistance and aims to catalyse Rs 4 lakh crore in additional urban investment. Cities compete for support through a challenge-based process, backed by project appraisals and commitments to reforms in governance, planning and municipal finance.

City Economic Regions: The Union Budget 2026–27 proposed Rs 5,000 crore per City Economic Region over five years through challenge-based and reform-cum-results-based financing. The approach seeks to coordinate planning across wider economic regions, improve land use and reduce duplication of infrastructure.

Credit guarantees for smaller cities: A Rs 5,000 crore credit repayment guarantee sub-scheme is intended to help eligible urban local bodies with populations below one lakh in states and Union Territories, as well as urban bodies in northeastern and hilly regions, access finance.

Pooled municipal financing: Sitharaman cited the Tamil Nadu Water and Sanitation Pooled Fund as a model under which 13 urban local bodies raised funds through a pooled bond for water and sanitation infrastructure, supported by credit enhancement and repayment safeguards. Pooling borrowing requirements can help smaller municipalities attract investors by creating a larger financing opportunity.

Infrastructure investment funds: The National Investment and Infrastructure Fund provides a platform for mobilising long-term institutional capital. The speech also referred to NIIF Infrastructure Fund II, with a target corpus of around Rs 30,000 crore, covering emerging areas such as urban infrastructure and electric mobility.

Municipal bonds and performance-based contracts: Municipal bonds can help cities access capital markets, while performance-based contracts and hybrid annuity arrangements can link payments for water and sanitation services to outcomes such as regular water supply, reduced leakages and effective wastewater treatment.

Sitharaman said the Centre, states and cities would continue to play key roles in implementing projects and managing revenues. National institutions can help prepare projects and structure financing, while development partners can provide expertise, financing and risk-sharing. Private investors can contribute capital, technology and operating expertise where contracts, payment arrangements and risk allocation are credible.

India’s approach, she said, combines public investment, stronger municipal finances, development finance and private capital to build “investable and financially sustainable cities”.