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The concept of smart cities in India emerged as a response to increased urbanisation and the need for transformed urban developments. Designed with a futuristic outlook using technology as a key enabler, the Ministry of Housing and Urban Affairs (MoHUA) has been involved in conceptualising, guiding, funding, promoting and monitoring the Smart Cities Mission (SCM) for the country since 2015. The mission aimed to promote cities that would provide core infrastructure to enhance the quality of life for citizens. Alongside, factors such as inclusivity, environmental sustainability and implementation of smart solutions were also included. It provided an approach to assess cities by considering the replicability of projects conceived in smaller areas within a city to other aspiring cities.
The mission, expected to be completed by 2020, has been extended to June 2024 due to delays in implementation owing to several factors, key amongst them being the Covid pandemic. This nearly decade-long journey has been a mix of achievements and challenges.
Progress achieved
The progress of this mission can be measured through the physical, financial and impactful results that each city has delivered. The success of the mission thus far can be evaluated based on the quantum of progress achieved or from the work yet to be completed. Whichever way one looks at it, the creation of city infrastructure across the entire spectrum of the urban sector, including water supply and sewerage, mobility, communication, technology and urban landscape, has ushered in a new development paradigm in the country. It also expands beyond the development of city infrastructure to encompass institutionalisation and governance structures within the urban sector, which was perhaps overlooked in earlier schemes. One such instance is the creation of Special Purpose Vehicles (SPVs) for implementing mission objectives and serving as facilitators between the centre and the state government.
Physical progress
The progress of the projects under the SCM is noteworthy, with 87 per cent of the total number of projects completed as of April 15, 2024, according to the National Weekly Report by SCM. The landscape of these smart cities has significantly changed, as over 8,000 projects have already been implemented so far and approximately 1,000 projects are expected to be completed soon.
Projects with IT interventions have seen significant progress, including the establishment of command and control centres, all of which have been completed. Additionally, projects with newer concepts and innovations in areas such as smart mobility and smart energy have been implemented. With 2,000 projects completed in these two categories, they constitute approximately one-fourth of the total number of projects completed. Most of the cities have developed “lung spaces”, leading to a revitalisation of public spaces through the completion of 1,200 projects. Further, approximately 13 per cent of projects are ongoing and yet to be completed.
Financial progress and fund utilisation
Given the capital-intensive nature of urban infrastructure development, project financing constitutes a crucial aspect of the overall mission. The funding construct involved a combination of central, state, local and private financing sources. Funding from the central government and a matching contribution from the state government constituted the largest part of the allocations to smart cities. Though funds were allocated for the entire mission period, there was an increase in fund flow for smart cities around the third and fourth year of the mission as the implementation of the projects commenced. Post the pandemic recovery period, the spending on smart cities by SPVs also increased. Projects worth Rs 1,410 billion have been completed while work orders for projects worth Rs 1,710 billion have been issued and funds of Rs 770 billion have been utilised as of April 5, 2024.
The fund release from the centre has been regular and timely. However, the release of funds from state governments has been inconsistent and sometimes inadequate. One reason for this could be the need to fund multiple cities within a state that typically has a constrained financial status. The financial health of many of the Urban Local Bodies (ULBs) within a state is in question, increasing the burden on the states. Transparency in the release of funds from the state to the SPVs is also required, as many cities are unaware of the timely commitment and are unable to fulfil their contractual obligations.
It is noteworthy to mention that at the local and state level, the SPVs have adopted several measures to increase the share of funding from other sources. Projects through the Public-Private Partnership (PPP) mode were attempted and several cities demonstrated successful PPPs. About 193 projects, with a project cost of over Rs 90 billion, have been taken up by several cities under the PPP route. Typically, projects that attract PPP, such as commercial infrastructure projects, have high financial viability, with project costs exceeding Rs 70 billion; real estate projects with over Rs 35 billion; and transport projects with about Rs 30 billion. In addition to financing, PPP projects offer an opportunity for the private sector to support cities in areas such as operational excellence, innovation, expertise, alternate service delivery models and technological interventions. Examples of these include performance-based management contracts, climate-smart cities, urban roads on Tender SURE (Specifications for Urban Roads Execution) principles, smart classrooms, smart lighting, energy efficient projects, renewable energy-based projects and smart placemaking.
Funding for smart city projects also came from the convergence of schemes from the ULBs, especially in areas such as water supply and sanitation, where funds from the Atal Mission Rejuvenation and Urban Transformation and Swachh Bharat Mission converged.
Despite these initiatives, wherever there were gaps in funding, some ULBs with good financial strength opted to raise funds through municipal bonds. Cities like Visakhapatnam, Pune, Hyderabad and Ahmedabad have issued bonds for large amounts. Given the creditworthiness of ULBs like Ahmedabad, the Rs one billion bond was quick to receive interest and was also oversubscribed. In order to continue to invest in capital expenditure, it is imperative for ULBs to improve their financial health, enabling them to raise money through bonds. They should also expand the types of bonds issued to include green bonds and energy conservation bonds.
Other funding sources for smart cities include bilateral and multilateral development agencies. What distinguishes these types of funding is the linking of performance to funding.
Timely progress
Completion of projects under SCM has seen delays in all the states. There could be several reasons for this, including the untimely release of state funds, flaws in project reports and designs, the lack of financial planning and the lack of capacity for execution. There have been instances where cities have overcome these challenges and emerged as the top performers. One such city is Surat, which tops the list in parameters such as completion, fund utilisation and overall criteria, followed by Agra, Ahmedabad, Varanasi, Bhopal, Tumakuru, Udaipur, Madurai, Kota and Shivamogga. The slower progress in other cities can be attributed to the lack of timely strategising to meet the sudden increase in substantial investments and the lack of capacity at the SPV level. While the MoHUA has made concerted efforts to introduce mechanisms to incentivise smart cities for performance, implement management information systems and build capacities, the results are yet to reach the expected levels of performance.
Future outlook
The SCM should be regarded as a transformation programme that has amalgamated elements of integrated development within a city. The role of the SPV in bringing together various agencies involved in building infrastructure, along with technological interventions, has been crucial. Within the available capacity, SPVs have played a significant role in achieving the objectives of the mission. The mission has also provided a platform for cities to adopt best practices, generate large quantum of city-level data and address the ongoing challenges in improving the quality of life for citizens. While these are commendable, the success of the mission will be recognised in the future if it ensures the sustainability of its outcomes. It must also extend the benefits to the remaining areas within the city and to cities that are not covered under this mission. To ensure sustainability, the mission needs to emphasise increasing funding availability through innovative measures such as data monetisation and asset monetisation, as well as extend cloud-based platforms to other non-participating cities, enabling them to benefit from the applications and solutions implemented.
The SCM has received global attention, given its scale and the opportunity it presents for transforming the urban sector. The mission has the potential to take India closer to becoming one of the smartest nations.
This article first appeared in Indian Infrastructure on 03 May 2024.