Financial Institutions Reform and Expansion – Debt Market (FIRE-D) Project began in 1994, following the Government of India’s initial liberalization of the economy, as USAID’s response to the need for improved urban infrastructure service delivery. The objectives of the project were to support the development of an infrastructure finance system and improve delivery of urban environmental services (i.e., water, sewage, and solid waste). During the first several years, FIRE-D technical assistance achieved significant, on-the-ground results, especially in creating an enabling environment for improved service delivery and in demonstrating the value of improved approaches through pilot projects at state and municipal levels. There is now widespread acceptance of the principle of commercial viability in the delivery of urban infrastructure services, an improved policy framework, a structure for municipalities to access domestic capital markets through municipal bonds, municipal accounting reforms, City Development Strategies (CDS), and utility reforms.
The project has been broken into three phases. FIRE I began with intensive policy advocacy, creating the first municipal bond (without a state guarantee) in India, and designing several large-scale water and sanitation projects, some with private sector participation. FIRE I efforts were on the local and national level. Some of the large projects ran into difficulties and long delays in implementation. Adjusting course due to lessons learned in the first phase, FIRE II added work with the states. The project continued to help its partners develop enabling policy and infrastructure financing programs and build state and municipal management capacity. FIRE II also began to promote accounting reforms and shifted focus from financing large new projects to rehabilitating existing infrastructure. The first broad result was demonstrating elements of a comprehensive approach to improving water and sanitation delivery on all three levels of government. For example, local pilot projects that helped municipal utilities improve efficiency and increase revenues in water service delivery ranged from conducting water and energy audits to issuing performance-based management contracts to private firms. A second broad result was disseminating these new policies and pilots widely to policy-makers through workshops, publications including Project Notes, sponsored research such as that of the Times Research Foundation on the model municipal law, and a website. The journey from awareness to implementation is a long one, however.
In general, FIRE I and II’s efforts were broad – spread over many cities and states, but not too deep in any one site and somewhat ad-hoc. Based on this assessment, FIRE III is designed to focus efforts on fewer states and targeted municipalities in each and take a comprehensive approach. FIRE III is putting all the critical elements together in selected states and cities to significantly increase the number of urban residents with access to clean drinking water and sanitation services. This phase is arguably the most important since it helps ensure the sustainability of the effort and replication of successful initiatives on a wider scale. Increasing the number of beneficiaries gains support for the new policies and programs, not only of donors, who must justify their spending by measurable results, but also of urban residents. Popular support enables state and municipal politicians to implement some-times painful changes that increase municipal revenues, such as enforcement of collection of property taxes, which enable them to allocate their resources to improve urban services on a self-sustaining basis. FIRE has termed this a “virtuous circle” that reverses the vicious cycle now seen in too many cities with increasing population, under-collection of taxes and water tariffs, poor services, and decaying infrastructure.
FIRE III aims to increase municipal investment in environmental infrastructure and to increase the number of men and women with access to clean water and sanitation services in selected cities. These are interrelated processes. Achieving the first is a necessary, if not sufficient, condition of achieving the second, more important goal. The way the investments are made can directly affect the number – and location and economic class – of beneficiaries. Thus, the FIRE Project in the third phase is providing greater emphasis on increasing the numbers of poor urban residents with access to water and sanitation services. FIRE III concentrates its efforts in seven states: Madhya Pradesh, Karnataka, Maharashtra, Rajasthan, Agra, Orissa and West Bengal and the city of Delhi. Common elements in each state are to target selected municipalities and coordinate with other donors and state-level partners to finance and implement specific water and sanitation projects, including supply, distribution, and efficiency improvements.
Other specific tasks in each state include:
•Supporting special creditworthiness and urban management activities, including improvements in water tariff and property tax assessments and collections;
•Tapping new financing mechanisms for the state, such as pooled financing with DCA credit;
•Building the capacity of a state financial intermediary, such as an Urban Infrastructure Fund, to help cities develop, finance, and implement water and sanitation projects;
•Supporting the state government agency responsible for urban development to implement the urban reforms and municipal capacity building policy and programs;
•Supporting cities’ adoption of accrual-based accounting;
•Supporting citizen participation and pro-poor projects, including slum improvement;
•Implementing provisions of the Model Municipal Law and supporting implementation of the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) as a reform based scheme for financing urban infrastructure.