By: Caroline Arkalji
Brazil and India are two large developing countries experiencing rapid urbanization. 87% of Brazil’s population is already living in urban areas and India’s urban population is projected to reach 40% by 2036 up from 31% in 2011. Both countries are grappling with challenges, including appeals for infrastructure, housing, transportation, and other essential services such as healthcare and education, all linked to questions of equity. Lower-income populations typically live further from urban areas, more distant from necessary services and opportunities. For the benefits of urbanization to be more inclusive, policies that promote the construction of sustainable infrastructure and equitable access to services will have to be in place.
Sustainable infrastructure and better access will, in turn, require considerable financing. With 70% of urban infrastructure for 2047 still to be built, India will need an estimated $840 billion by 2036, around $55 billion or 1.2% of GDP annually. However, between 2011 and 2018, capital spending on urban infrastructure averaged only 0.6% of GDP, well below the required level. Meanwhile, Brazil would need to invest 4% of its GDP annually for 20 years to modernize its transport infrastructure. In 2010, it spent 0.26% of GDP on this sector that has since dropped to less than 0.01%.
Currently, different financing entities invest in transportation projects throughout Brazil and India, varying from governments to state-owned enterprises, multilateral financial institutions, and private investors, including developers, infrastructure funds, banks, etc. Each entity can use different instruments to finance transportation, such as non-reimbursement funds, debts such as loans and bonds, and capital contributions. In this context, the role of innovative private financing structures cannot be overstated. Development banks and finance institutions can play a crucial role by creating financial tools that attract private investment, absorb risk, and increase equity financing to bridge emerging markets' sustainable mobility financial gap. However, financing for sustainable transportation often remains inaccessible and misaligned with broader goals, leading to systems that contribute to air pollution, climate change, and road traffic injuries.
There are some good examples of success stories in both India and Brazil. India is implementing various partnerships and government initiatives to tackle these issues and create a transportation framework prioritizing safety, sustainability, and healthier urban environments. For example, the Asian Development Bank (ADB) granted a $200 million loan to expand metro rail corridors and improve transport connectivity in Nagpur in July of this year. This will improve transport connectivity within Nagpur’s new and growing urban areas, provide safe and environmentally friendly public transportation for commuters, and improve residents' urban environment mobility, improving their access to essential services. Similarly, the FIA Foundation — an international charity — has joined the government to garner political and financial support for safe and sustainable mobility on national and global fronts.
In Brazil, the federal government signed a contract of BRL 10.4 billion directed to the Climate Fund, making funds available to promote resilient and sustainable urban development, transport logistics, public transportation and green mobility, and other green services and innovation. In addition, the Brazilian National Bank for Economic and Social Development (BNDES) has signed contracts with multilateral banks such as the China Development Bank (CDB) and the Asian Infrastructure Investment Bank (AIIB), totaling approximately BRL 9.1 billion (USD 1.7 billion) to finance sustainable projects including transportation and urban development.
Green and clean transport solutions are essential to supporting urbanization while tackling climate concerns. But they will require substantial investment. As large developing economies such as Brazil and India grow and urbanize, public-private collaborations must be strengthened further to overcome financing challenges and ensure profitable eco-friendly projects while driving social and environmental progress.
Caroline Arkalji is a Research Assistant for the Global Economics and Development and Energy and Climate Policy programs at ORF America.