The Maharashtra government has to spent only Rs 1,500 crore (Rs 15 billion) a year over the next 10 years to transform Mumbai into a world-class city by 2013.
The rest, according to consulting firm McKinsey, could be financed through long-term loans which can be financed through user charges and increased tax collections.
McKinsey, in its 'Vision Mumbai' report, has pegged the total cost of the project at Rs 2,00,000 crore (Rs 2,000 billion).
Spelling out the roadmap for transforming Mumbai into a world-class city in the report, which was submitted to the state government on Monday, McKinsey said: "We estimate that this Rs 1,500 crore per year contributed from the state exchequer will attract private investments in housing, power, telecom and other key economic growth sectors such as manufacturing and services to the tune of Rs 1,50,000 crore (Rs 1,500 billion) over the next 10 years."
According to the report, of the total investment of Rs 2,00,000 crore (Rs 2,000 billion), around Rs 1,00,000-1,50,000 crore (Rs 1,000-1,500 billion) will come through private investments in housing, power, telecom and other investments in manufacturing.
Of the public investment component of Rs 50,000 crore (Rs 500 billion), while Rs 5,000 crore (Rs 50 billion) is already available with the state government, Rs 30,000 crore (Rs 300 billion) could be raised through loans and grants in a public-private partnership to be paid back through user charges, tolls and increased tax collection.
The balance Rs 15,000 crore (Rs 150 billion) will be the estimated government equity (Rs 1,500 crore per annum).
The report also emphasises that while Mumbai's economy is capable of funding this expenditure, it is important that the money is 'ring-fenced' in an exclusive Mumbai Infrastructure Fund (MIF).
"This would be similar to what the National Highway Development Programme did on getting a dedicated annuity of Rs 4,000-6,000 crore (Rs 40-60 billion) every year from their Re 1 cess on petrol and diesel, and funding the Rs 60,000 crore (Rs 600 billion) national highway programme with it," the report said.
The state government could raise its component (Rs 1,500 crore annually) through property tax collections, increase in water user charges, redirecting fuel cess, increase stamp duty collections through reduction in duty rates and new development, improving contracting procedures, reduce administrative expenditure, convert leasehold land to freehold and utilise other government land assets.
This, the report states, will raise funds in the range of Rs 1,800-2,100 crore (Rs 18-21 billion), of which Rs 1,500 crore is required for the MIF.
"One a long term basis, the government needs to rebalance the financing sources for Mumbai such that they are dependent less on stamp duty and octroi, and more on income from property taxes, user charges and an escrowed share of the state's sales tax collections. This is in line with what most major cities follow and will boost economic activity and promote efficiency," the report says.
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