Smart City, Smart Cities Mission, SCM
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The Modi government has introduced the Urban Challenge Fund, with a plan to mobilise Rs 1 lakh-crore to develop “cities as growth hubs”. Will it succeed or will it go the way of Smart Cities Mission? Representational image

Urban Challenge Fund: Smart Cities Mission gets new coat of paint

New Budget proposal, much like its 'predecessor', has a funding model heavily dependent on market borrowings and private investments — not very promising


Since coming to power at the Centre in 2014, the Narendra Modi government has introduced multiple iterations of urban sustainability initiatives, each promising to transform cities into better places to live. However, these efforts have struggled to yield tangible results on the ground.

The latest in this series is the Urban Challenge Fund, announced in this year’s budget, with a plan to mobilise Rs 1 lakh-crore to develop “cities as growth hubs”.

Old wine in new bottle?

This initiative bears a striking resemblance to the 2015 Smart Cities Mission (SCM), raising concerns about whether it will suffer the same fate of stalled execution and fragmented implementation.

Finance minister Nirmala Sitharaman, in her Budget 2025 speech, outlined the fund’s objective to incentivise cities to raise capital through municipal bonds, public-private partnerships (PPPs) and loans.

The government will provide 25 per cent of the funds, with an allocation of Rs 10,000 crore proposed for 2025-26. Cities are expected to generate the remaining Rs 40,000 crore by leveraging financial markets and private sector participation.

Also read | Smart Cities vision derailed by poor execution, shifting priorities

Three types of projects

The fund will support three broad categories of projects: transforming cities into economic hubs, creatively redeveloping existing urban spaces, and improving water and sanitation infrastructure.

While the initiative appears well-intended, it follows a pattern of repackaging urban development programmes without addressing the core issue execution.

A decade after its launch, the SCM has yet to deliver its promised urban transformation. With the government shifting focus to the new ‘Ease of Living in Cities’ initiative, questions arise about whether the SCM is being quietly phased out due to its underwhelming impact.

States’ fiscal failure

The SCM, which aimed to integrate technology-driven solutions to enhance urban living, faced persistent challenges in project execution. Many cities failed to complete even half of their planned projects on time due to weak planning, bureaucratic inefficiencies and a lack of capacity to manage large-scale urban transformations.

Smaller cities struggled to utilise funds effectively, especially in the North-East, with several projects stuck at the work order stage. The inability of states to match the Union government’s financial contributions further exacerbated delays, creating a funding shortfall that slowed progress.

Also read | How the monsoon flushed away tall claims on Smart Cities project

A significant flaw of the SCM was its reliance on cities to raise additional revenue through municipal bonds, land monetisation and PPPs — despite evidence that most urban local bodies (ULBs) lack the financial autonomy and governance capabilities to do so.

Parliamentary committee report

The Standing Committee on Housing and Urban Affairs, chaired by MP Rajiv Ranjan, which submitted its report on the SCM on February 8, 2024, noted that the progress of SCM was slow in many small cities. Several smart cities could not plan and spend thousands of crores on projects.

About 21 per cent of the smart cities’ funds were expended via PPP. However, half the smart cities could not take any project under the PPP model.

Projects that have been taken up constitute only 6 per cent of the total PPP cost. The committee recommended that the government analyse the reasons behind low private investments and take remedial steps.

Poor public engagement

It pointed out that the concerned ministries' role should not be confined to the transfer of shares. Rather, it asked them to remain watchful to ensure the execution and completion of the projects by intervening to facilitate inputs and expertise.

It was also noted that ULBs are among the weakest globally in resource mobilisation. Predictably, this financial gap hindered implementation, leaving many smart city projects incomplete.

The mission also suffered from poor public engagement. Its top-down approach often overlooked local needs, creating a disconnect between the projects implemented and the real challenges urban residents face. Allegations of corruption and mismanagement further eroded trust in the initiative, reinforcing scepticism about its effectiveness.

No rebranding, please

With the introduction of the Urban Challenge Fund, the Centre is again proposing a financing model that depends heavily on market borrowings and private investments despite these mechanisms failing to deliver under the SCM.

While the ambition to build sustainable, economically vibrant cities remains crucial, the frequent reinvention of similar schemes without addressing systemic execution failures risks turning urban renewal into a series of rhetorical exercises rather than a meaningful transformation.

If this new initiative is to succeed where its predecessors have faltered, it must go beyond mere rebranding and focus on equipping cities with the financial and administrative capabilities needed to implement projects effectively. Otherwise, it risks becoming yet another version of the same unfulfilled promise.
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