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Budget- What the government needs to do for Smart Cities Mission

IPE Global | News | January 23, 2017 IST

Budget- What the government needs to do for Smart Cities Mission

Prime Minister Narendra Modi-led Smart Cities Mission, which aims to improve living experience in 100 cities by 2022, is yet to attract significant private investment.

 

Only 11 projects worth Rs.935.93 crore, out of 167 projects worth  Rs.12,000 crore under the public-private partnership (PPP) model, have taken off so far, according to urban development ministry data reported by The Economic Times. Another 21 PPP projects worth Rs.2,622.23 crore are stuck at various stages. Ahead of Union budget, InfraCircle probes what needs to be done to encourage private investment in the ambitious project. “The funds provided for the Smart Cities Mission are only for planning and piloting innovative ideas. The scaling up of these solutions and their implementation will require additional funds… In order to scale up these projects, partnership with private sector will be important and inevitable. However, the private sector will invest in these projects only if their profitability and sustainability is ensured. Government should, therefore, provide guidelines for PPPs that will ensure balanced risks and reward options. Providing incentives in taxes etc. without ensuring return of investment may be counterproductive,” said Vikas Kanungo, mGovernance expert at World Bank.

 

So far, Rs.8,463.71 crore has been allocated for information technology (IT) connectivity and ICT solutions, and about Rs.24,000 crore for urban transport along with Rs.7,000 crore for water projects. Experts are of the view that this budget should put in place a robust monitoring mechanism to ensure that the funds are used for development of innovative demand-centric services for citizens, rather than typical supply-centric monolithic solutions.

 

“Smart cities that use the fund to add value to available budgets for urban transport, water and energy projects should be rewarded and recognised by providing additional funding. There should be negative incentives in the Budget for not using the fund innovatively. Information technology should be used as a crosscutting integrated platform rather than developing separate ICT solution for each sector. Many cities that are considered the best smart cities globally have been able to do this by making sure that multiple agencies collaborate in developing integrated solutions,” Kanungo added.

 

 

A MASSIVE INVESTMENT

Anil Bansal, director urban infrastructure, IPE Global estimates total investment required in the mission at Rs.31 trillion or $454.83 billion. Almost 70% of the investment is needed for power, roads, and urban infrastructure development. But the funds earmarked by the Central and state governments won’t be adequate to meet these requirements.

 

“The cities will need to raise funds from other sources, such as private investments in the form of PPPs, municipal bonds, or soft loans from bilateral and multilateral agencies. Given the present state of finances of the urban local bodies (ULB), except for a few big ULBs, cities may face problems in attracting private investments or raising funds through borrowings,” said Bansal. Central and state budget allocations need to be in sync with the fund allocations approved by the Cabinet. The newly incorporated city SPVs would need to leverage Central and state funds including equity to access funds from external sources with a sustainable development agenda.

 

Traditionally, the financial health of ULBs, except a few in metropolitan cities, is not very robust. Sustainability-linked financing is also missing. To stimulate the municipal bonds market and set Sustainable Development Goals-linked financing, the Union ministry of finance and donors need to take up credit enhancement measures. Convergence is also a critical component and cities need to have access to funds from other government programs and missions. In 2016, it was observed that support under schemes like integrated power development scheme (IPDS) of ministry of power was not available to smart cities because of budgetary constraints. To ensure convergence, it is required that a separate line of budget be created within key ministries and departments to provide support to cities.

 

Experts are of the view that a national financing facility for sustainable cities at the national level be brought to raise funds from commercial borrowings and other agencies and financial institutions, and provide funds to city SPVs directly. These funds can then be backed up by a guarantee from the Union government. Further, experts said, the financing facility should be able to appraise projects and disburse funds directly to SPVs in a time bound manner.

 

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