Smart city making in India: Union budget 2020 and the way forward

The commitment towards local economic development, sustainable development, ease of living, etc. must be showcased by inviting reputed countries of the world to partner in the execution of smart cities.


While presenting her first full union budget 2020-21, Finance Minister Nirmala Sitharaman proposed the setting up of five new smart cities in India to attract investment, drive economic growth, and improve the quality of life for people — thereby setting the virtuous circle of growth and development. Unlike the cities under the Smart Cities Mission (SCM) selected under city challenge modeled as light house with area based (very small part of city) development and pan city solutions, these five new smart cities will be full-fledged new development like GIFT City, Special Economic Zones, etc. SCM has been allocated INR 6,450 crore in 2019-20, which is 5% higher than the revised estimates of 2018-19.

Other important announcement closely related to the objective of urban prosperity during this year’s budget was the creation of National Infrastructure Pipeline (NIP). NIP has a proposed investment outlay of INR 103 lakh crore over the next five years. Out of this, INR 16 lakh crore will be utilised for the development of the urban sector, which will also focus on the development of impending industrial corridorsinfrastructure projects and schemes like BharatmalaSagarmala across the country as their impact imperative on the smart cities.

closer look at the physical and financial progress of the SCM reveals some disappointing trends:

• Non-completion of approved projects: As of 25 July 2019, out of the INR 2.1 lakh crore worth of approved projects, only 18 per cent of smart city projects have been completed; work orders have been issued for 37% projects; tenders have been issued for 16% projects and 29% of proposed projects are still at the ‘detailed project report’ stage (see).

• 54% of the completed projects are from only four states — Karnataka, Madhya Pradesh, Gujarat and Uttar Pradesh. 34 smart cities have not evidenced even a single completed project.

• Despite the above, the Ministry of Housing and Urban Affairs (MoHUA) and the SCM have not left any stone unturned to highlight the cosmetic achievements of the Mission. New measures keep being announced, like the pairing sister cities based on best and worst 20 performing cities, establishment of a India Urban ObservatorySCM 2.0 to cover all the 4,302 cities, etc. Such exercises become futile, as it cannot cover up the sad state of affairs. For instance, the Ease of Living index report that MoHUA started for all smart cities in 2018 could not be furnished in 2019 despite floating tenders for the same for more than six times.

With the continued and renewed focus on smart cities, it is imperative to understand the major constraints plaguing the ambitious SCM project since its inception.

• Given the local capacity problem at the city level, leading private consultant firms are being engaged as consultants and as project monitoring consultants by the Special Purpose Vehicles (SPVs) for the preparation of the concept plan and execution of the smart city projects.

• Further, their aim is to create a sustainable revenue model to attract private investment, but, turns out to be abysmally low. The SCM guidelines state that the ‘rights and obligations’ of the city will be transferred to the SPVs without specifying the exact terms of the relationship and hierarchy between them. The SPVs, headed by a CEO and regulated by the Companies Act 2013, consists largely of bureaucrats with only a small representation of elected representatives, or any experts, professionals, private sector, distinguished citizens, etc., and becoming bureaucratic and technocratic — contrary to the ethos of decentralisation, democratisation, and empowerment of city governments.

• Financing of the SCM has remained contentious. It is surprising that even though smart city proposals and attendant financial plans have been developed by renowned consultants in advance, most cities are struggling to generate the required funds. There is a clear pattern of not only heavy dependence on public funds for financing the mission, but also a movement away from market-oriented sources of funding [like public-private partnerships (PPP) and loans], especially in smaller cities. This points towards limited impact of SCM for cities in acting as light houses and in developing their capacity to become smart. Even the cities with the largest budgets (Bhubaneshwar, Jaipur, Indore, Raipur, Raipur, Faridabad and Thane) do not have detailed information about the source of funding for their projects (see). With the banking system currently under stress with bad debts, the SCM might not receive the necessary investments from the private sector, at least, in the short term.

• In practice, underutilisation of the existing limited taxing power and various instruments (ex. undervaluation of properties, poor coverage and collection of property tax, non-imposition of user fees, etc.), state governments’ reluctance in devolving local taxes (ex. profession tax, entertainment tax, etc.), and adhoc transfer of funds from central and state government have severely constrained the fiscal flexibility needed by the cities for supporting and implementing schemes like the SCM. With the introduction of the Goods and Services Tax (GST) in 2017, several taxes have been subsumed under the GST and further restricted the financial autonomy of the city governments.

• Of late, PPPs, loans and some innovative sources of fundraising — municipal bonds and the debt market, REITS/INVITS, credit rating, and land monetisation have been vouched by the MoHUA. But the cities have been wary of these innovative routes as the potential of revenue generation are very marginal and the pre-requisite due diligence procedures are very complex.

The solutions to the above problems are well-known and have been recommended time and again by experts and citizens. Some of these are:

i. Need for the city governments to acquire much greater capability in raising resources from conventional sources, ex. property tax, user fees, etc.

ii. This would make them attractive before the potential private investors.

iii. City governance needs to be urgently fixed. Corruption, lackadaisical bureaucratic attitude cannot fulfil the needs of the 21st century new India.

To conclude, into its fifth year of implementation, the SCM has turned out to be inherently ‘unsmart’, which has not been able to achieve inclusive growth and sustainable development. It has been unable to provide conducive environment to the cities for their empowerment and in turn has not been able to overcome trust issues for investments and participation with openness and free will. Spirited leadership as evidenced in many schemes like Swachh Bharat Mission, Jan Dhan Yojana, Mudra, PMAY, etc. must be demonstrated in the SCM as well. The commitment towards local economic development, sustainable development, ease of living, etc. must be showcased by inviting reputed countries of the world to partner in the execution of smart cities and tackle the persisting challenges associated with it in India. The vision of becoming a Vishwa Guru can be attained if India leads by example and harness international partnerships for shared prosperity, universal values and cooperation.

Article Published On ORF

यह लेख हिन्दी में ओ आर फ हिन्दी(ORF Hindi) पर प्रकाशित हुआ हैं।


  • Rohit Mehta

    Rohit Mehta is an Indian blogger, author and entrepreneur. He owns a tech blog named Digital Gabbar which is Available in English & Hindi. Rohit has been in the digital marketing and IT sector for over 10 years.

    View all posts