The Comptroller and Auditor General report tabled in the Tamil Nadu Assembly found Special Purpose Vehicles set up under the Smart Cities Mission had become funding conduits, with public funds diverted to municipal works outside Area-Based Development zones. The audit reported multi-crore commercial ventures such as multi-level car parks and modernised markets were idle or abandoned and failed to generate projected revenues.

The report said the SPVs lacked the operational independence required by mission guidelines, with paid-up capital restricted to one million (Rs 1.00 mn) instead of the mandatory two billion (Rs 2.00 bn). It added that full-time chief executive officers were not appointed in six of the seven sampled cities, leaving municipal commissioners with conflicting roles and SPVs functioning without autonomy.

Across sampled cities, 70 projects involving six point five five billion (Rs 6.55 bn) were executed outside approved Area-Based Development zones. Furthermore, 44 unplanned projects worth 6.24 bn (Rs 6.24 bn) were taken up, with 21 executed outside ABD limits.

In Tirunelveli the SPV dropped a planned Rs 82.50 mn electric vehicle project and diverted Rs 165.00 mn to procure street sweepers and jet-rodding machines. Administrative and office funds were redirected to clear power dues, settle staff salaries and purchase vehicles, the audit found.

The audit found that key commercial assets intended to fund SPVs had not started; multi-level car parks and commercial complexes across four cities costing Rs 1.16 bn remained unusable because lifts, automation and access ramps were incomplete. A Madurai tourism plaza costing Rs 26.20 mn remained idle and in Salem only 39 of the 202 shops in the redeveloped Old Bus Stand constructed at an outlay of Rs 1.05 bn were leased.

The CAG also red-flagged that Rs 577.20 mn in revenue from completed smart city assets was retained by municipal corporations rather than credited to the SPVs, eroding their long-term financial viability. The audit warned that without stronger operational autonomy and strict adherence to mission funding norms the SPVs were unlikely to secure the financial sustainability needed to meet Smart Cities Mission objectives.