Not such a smart move after all

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Not such a smart move after all

Friday, 13 March 2020 | Soumyadip C/Arjun Kumar

The Smart City Mission needs to change its course of action if it aims to achieve inclusive growth and sustainable development. For this we need to draw lessons from failures and build upon the mission’s successes

While presenting the Union Budget 2020-21, Finance Minister (FM) Nirmala Sitharaman proposed setting up five new smart cities to attract investment and drive economic growth. Unlike the metropolises under the Smart Cities Mission (SCM) modelled as light house with area-based and pan city development, the new smart cities will embrace full-fledged new development like GIFT city, Special Economic Zones and so on.

However, a closer look at the progress of the SCM reveals some disappointing trends. As of July 25, 2019, of the total approved projects of under Rs 3 lakh crore, only 18 per cent have been completed; work orders have been issued for 37 per cent projects; tenders have been issued for 16 per cent and 29 per cent of proposed projects are still at the “detailed project report” stage. Moreover, the SCM’s progress has been lopsided as 54 per cent of the completed projects have come from just four States — Karnataka, Madhya Pradesh, Gujarat and Uttar Pradesh. At the city level, 10 cities (New Delhi, Belagavi, Surat, Indore, Varanasi, Raipur, Tumakuru, Vadodara, Ajmer and Ahmedabad) account for 48 per cent of the completed projects. And 34 smart cities do not have evidence of even a single completed project.

Even the holistic improvement of the cities seems to be unrealistic as, on average, the Area Based Development projects account for up to 80 per cent of the funds but don’t benefit even five to 10 per cent of the city’s population. However, the Ministry of Housing and Urban Affairs (MoHUA) and the SCM never leave any stone unturned to highlight cosmetic achievements and announce new measures like pairing sister towns on the basis of best and worst 20 performing cities or establishing a Smart City Observatory. To many observers, the SCM’s initiatives have become futile. 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 over six times. Moreover, it was also reported that a SCM 2.0 will be launched in 2020 that would cover all the 4,302 cities in India. Hence, given the Centre’s continued and renewed focus on smart cities, it is imperative to understand the constraints plaguing the SCM since its inception.

Given the capacity problem at the city level, leading private firms are being engaged as consultants and as Project Monitoring Units (PMUs) 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, this 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, consist largely of bureaucrats with only a small representation of elected representatives or any experts. The major decision-making powers rests with the SPV and its board of directors. Hence, many of their policy choices are guided by centrally-formulated guidelines. Quite contrary to the ethos of decentralisation and empowerment of city Governments, the SPV-led process of implementing the SCM becomes more bureaucratic and technocratic. Even though it is pragmatic to allow the SPVs to work on smart proposals, that should be in consonance with and not to the exclusion of elected representatives of city Governments.

Public participation has been virtually limited to consultations online on social media or websites with public responses in the form of multiple choice answers. This, in turn, increases the risk of making these proposals more elitist, leaving behind the voices and needs of poor and marginalised citizens. In fact, there is evidence showing preference for costlier infrastructure over the basic needs of majority urban residents. Nearly 40 per cent of transportation projects are focussed on roads and parking lots, while only 20 per cent of the budget is focussed on public transportation and only two per cent on buses.

Regarding the financing of SCM, studies have indicated a clear pattern of not only heavy dependence on public funds for financing the mission, but there has been a movement away from market-oriented sources of funding like public-private partnerships (PPPs)  and loans, especially in smaller cities.

The FM’s proposal to develop five new smart cities highlights collaboration with States in a PPP mode. However, the contribution of such PPP projects in value terms as well as the sourcing of revenue from municipal bonds continues to be ambiguous. In the absence of robust economic, legal, financial and project viability, the municipal projects are rarely perceived to be commercially viable. For this, funds can be arranged through PPPs or by accessing the capital market. 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.

Nonetheless, some cities have made significant progress in terms of implementation of PPP (Nagpur, Vadodara) while some other cities have taken specific measures (e.g. appointment of transactional advisors) for generating revenue from municipal bonds. Pune, Hyderabad, Indore, Bhopal and Amaravati have successfully launched municipal bonds to finance some of their urban development projects. Emphasis has also been placed on land monetisation as another important source for financing the SCM.

However, since land is a State subject, city Governments cannot exercise their control over it and thus lack the autonomy to use land independently to increase their revenues. Further, the use of land especially in the SCM era has prompted concerns about forced evictions in many cities and raised concerns on the inclusive ideals of the SCM. Solutions to the above problems are well-known and have been recommended by experts many times. The real issues constraining the functioning of cities are age-old in which the SCM has been stuck. City Governments will have to acquire greater capability in raising resources from conventional sources (e.g., property tax, user fee and so on). This would make them attractive for potential private investors.

With the global urban population poised to grow in the coming decades, Indian cities will be enormously responsible for “global growth and well-being.”

Simply trusting specific sectors like manufacturing or services for growth seems outdated for the 21st century, unless the governance of cities is fixed.

In essence, into its fifth year of implementation, the SCM has turned out to be inherently unsmart. It needs to change its course of action if it aims to achieve inclusive growth and sustainable development. For this we need to draw lessons from failures and build upon the SCM’s successes.

The Government must demonstrate its commitment towards local economic development, sustainable development and ease of living by inviting experienced countries to partner in the execution of the SCM and tackle the persisting challenges associated with it in India.

(Soumyadip is Visiting Senior Fellow at IMPRI and Kumar is Director, IMPRI)

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