'Smart Cities' to 'Livable Urban Spaces', Modi govt pivots as original mission stumbles

A decade after its inception under Prime Minister Narendra Modi, the Smart Cities Mission (SCM) has been overshadowed by a new and more expansive initiative, 'The Ease of Living in Cities.'

Despite the substantial funding and high hopes tied to SCM, its inability to fully deliver on its promises has led to this strategic pivot. In the Bharatiya Janata Party's (BJP) 2024 election manifesto, the emphasis has shifted towards creating more water-secure cities and establishing new satellite townships under the revamped mission. This shift raises questions about the future of the original Smart Cities Mission, which aimed to revolutionise urban India through sustainable development and smart technology integration but struggled with project completions and effective fund utilisation.

Poor execution

The SCM was ambitious in transforming urban landscapes to improve quality of life through innovative infrastructure and technology solutions. Even though the project was unveiled immediately after the new government under PM Modi, it suffered from poor execution strategy. Numerous cities under the SCM failed to complete even half of their planned projects on time. Reports indicate a lack of capacity in planning and managing large-scale budgets, particularly in smaller or Northeastern cities, with many projects stalled at the work order stage.

Financial discrepancies were also evident, as state contributions did not match those of the Union government, creating a funding shortfall that impeded progress. Moreover, the Standing Committee on Housing and Urban Affairs pointed out in February 2024 that the SCM’s progress was unsatisfactory in many aspects, suggesting that the government reevaluate its strategies and improve oversight to ensure the completion of ongoing projects.

According to a report in PRS Legislative Research, in August 2015, the Ministry of Urban Development selected 100 cities to participate in the competition. These cities were required to develop their smart city plans (SCPs) and compete against each other. The SCPs were evaluated on the basis of the solutions; the processes followed the feasibility and cost-effectiveness of the plans, and citizen engagement.

Each city had to formulate its own concept, vision, mission, and plan for a Smart City appropriate to its local context and resources. The Ministry of Urban Development provided technical assistance to cities through consultancy firms to help them prepare these strategic documents.

SPV between states and Centre

Prachee Mishra wrote in her blog for PRS Legislative Research that the mission was to be implemented at the city level by a Special Purpose Vehicle (SPV). The SPV’s role was to plan, approve, release funds, implement, manage, monitor, and evaluate the Smart City development projects.

The Mission was to be operated as a Centrally Sponsored Scheme. The central government would provide financial support of up to Rs 48,000 crore over five years, an average of Rs 500 crore per city. The states and ULBs (urban local bodies) would contribute an equal amount. Since funding from the government would meet only a part of the funding required, the rest was to be raised from other sources, including (i) states/ULBs' own resources from a collection of user fees, land monetisation, etc., (ii) innovative finance mechanisms such as municipal bonds, (iii) leverage borrowings from financial institutions (such as banks), and (iv) the private sector through Public Private Partnerships (PPPs).

The total cost of projects proposed under the various SCPs of the winner cities was Rs 1.9 lakh crore. About 42 per cent of this amount would come from central and state funding, 23 per cent through private investments and PPPs, and 19 per cent through convergence with other schemes (such as HRIDAY, AMRUT, and Swachh Bharat-Urban). The cities would generate the remaining through the levy of local taxes and user fees.

According to an India Spend report, while states utilised most of the Union government funds, they did not match the Union government’s share of funds. Between the years 2015 and 2022, the states’ cumulative contribution to the SCM was Rs 32,149.14 crore against the Union government’s contribution of Rs 36,561.16 crore — a deficit of Rs 4,481.82 crore, the report said.

Slow progress

The Standing Committee on Housing and Urban Affairs, chaired by Rajiv Ranjan, submitted its report on the Smart Cities Mission on February 8, 2024. It noted that SCM progress is slow in many small cities, including those in Norteastern states.

Many smart cities did not have the capacity to plan and spend thousands of crores on projects. Despite providing 90 per cent of Mission funds from the Centre, eight out of the 15 bottom-ranking cities in terms of mission progress are from the Northeast. As of December 2023, 47 per cent of projects are at the work order stage in the 20 bottom-ranking cities.

Here are some of the findings from the report:

1. Public-Private Partnerships: About 21 per cent of the smart cities’ funds were expended via PPP. However, half of the smart cities could not take on any project under the PPP model. Projects that have been taken up constitute only 6 per cent of the total PPP cost. The Committee recommends that the government analyse the reasons behind low private investments and take remedial steps to address them.

2. Completion of projects: The Committee noted that 400 projects under SCM may take time beyond December 2023. The mission has been extended up to June 2024. The ministry stated that beyond this, the states will bear the responsibility and cost of incomplete projects on their own. The Committee recommended that the ministry’s role should not be confined to the transfer of shares and asked them to remain watchful to ensure the execution and completion of the projects by intervening to facilitate inputs and expertise.

Perhaps one of the major setbacks that the SCM ended up with was that the onus on raising additional funds rested with the states. Under the Mission, cities have to generate additional revenue through various sources, including market borrowings, PPPs, and land monetisation. The High Powered Expert Committee on Indian Urban Infrastructure and Services (HPEC) had observed that ULBs in India are among the weakest in the world, both in terms of capacity to raise resources and financial autonomy.

Even though ULBs have been getting higher allocations from the Centre and states, and their tax devolution has increased, their tax bases are narrow. Further, owing to their poor governance and financial situation, ULBs find it difficult to access external financing, wrote Mishra. For example, the Bhubaneswar Smart City Plan has a total project cost of Rs 4,537 crore (over five years), while the city’s annual budget for 2014-15 was Rs 469 crore.

The mission's lack of local expertise in managing and executing high-tech and innovative urban projects contributed to this sluggish progress. Reliance on external consultants and international technology solutions increased project costs and contributed to delays.

Poor engagement

A significant shortcoming of the Smart City Mission is its lack of engagement with the community, who are the key beneficiaries of any urban development initiative. The SCM's tendency to favour top-down decision-making often overlooks city residents' real interests and needs. This leads to projects that, despite being well-meaning, do not fully align with what the residents actually require. Moreover, the process of selecting projects and allocating funds lacks transparency, which has led to accusations of corruption and mismanagement. These issues have severely damaged the reputation of the SCM and diminished its perceived value to the city's inhabitants.