To make the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) scheme more effective in modernising the country's urban transport infrastructure, the government has decided to additionally offer loans through Housing and Urban Development Corporation (Hudco) for cash-strapped state transport corporations (STCs) looking to buy new buses. While state-owned Hudco is expected to charge an interest rate of about 11% per annum, STCs have also been asked to take the public-private partnership route to arrange for their share of funds.

“We have written to the state corporations to take loans from Hudco, which provides soft loans at a reasonable rate of interest. We have also asked them to make their depots available for commercial exploration, the model which has been successfully implemented by the Delhi Metro,” an urban development ministry official told FE.

The decision to arrange financing comes after many STCs last year failed to acquire new buses because they could not arrange their share of the payment, despite part of the funds being made under JNNURM. Some STCs, who eventually bought a few buses, were unable to complete payments to auto companies - pending payments to the auto makers from STCs now stand at Rs 200 crore. The move is seen as a significant boost for auto makers like Tata Motors and Ashok Leyland as well, they hope to see a jump in bus sales this fiscal after industry volumes in FY13 dipped almost 7% at 46,553 units.

“To push sales of buses and give a boost to the auto industry, the central government has decided to arrange financing for STCs to pay for the buses order under the JNNURM scheme. This is because last year the state governments and STCs had a huge problem in arranging the additional funds to pay for the buses that JNNURM did not provide. There were instances where new buses were left in the depot for months and not picked up by STCs because they could not pay and did not even have the facilities to maintain them,” an auto industry source said.

In the Budget announcements in February, finance minister P Chidambaram announced an increase of the allocation for the JNNURM scheme to Rs 14,883 crore for the current fiscal, from Rs 7,383 crore in FY13. Out of the total JNNURM fund allocation for this fiscal, Rs 4,900 crore has been earmarked for buying 10,000 buses. Between 2009 and 2012, 15,000 buses have been sanctioned under the same scheme by STCs in over 60 mission cities. Tata Motors has got orders for over 5,000 low-floor buses followed by Ashok Leyland (over 4000) and Volvo-Eicher.

“We have asked Hudco to prioritise such projects as the state corporations haven't been able to use the centre's share of funds allocated under JNNURM. States corporations have to work out a viable financial model to make urban transport component of the mission a success,” the urban development ministry official further said.

The UD ministry has also suggested that STCs let the auto companies operate their workshops within the bus depots. Additionally, bids have also been invited from foreign players for bus purchases in FY14.