The Union Housing and Urban Affairs Ministry has extended for the second time the Smart Cities Mission (SCM) by a year till June 2024 as several cities are yet to complete their projects.

While some urban experts are of the view that the extension “makes perfect sense”, considering the hurdles that Covid-19 placed in the path of all infrastructure development and the disruptions that remained even after the worst was over, others say that the decision to extend was “kind of inevitable, given the slow rate of progress in several cities”.

According to ministry officials, the extension is being given not only to finish projects but also to complete the documentation, dissemination, and institutionalization of all best practices, templates, and innovations developed under the Mission so that they can be adopted for replication across the nation.

Out of 100 communities, the officials estimate that 50 have finished roughly 75% of their initiatives and are on schedule to finish the remaining tasks by June 2023. In minor cities, more than 66 percent of projects have been finished, and in metro areas, more than 80 percent.

”The extension makes perfect sense, considering the hurdles that Covid-19 placed in the path of all infrastructure development, and the disruptions that remained even after the worst was over. These issues were serious – supply chains and manpower availability were severely impacted, and Smart Cities Mission is a complex undertaking that requires seamless deployment of resources. Any continuity breaks in such resources have a cumulative impact that pushes up delivery timelines,” said Anuj Puri, Chairman, ANAROCK Group.

In spite of the numerous obstacles brought on by the pandemic and the subsequent war in Europe, the government clearly still intends to carry out its mission, he said. The extension serves as a confirmation of its commitment to achieving its goals, with the addition that “The fact that housing demand has picked up tremendously and continues to thrive is an additional impetus to this focus.” The demand is heavily weighted towards high-quality housing that ensures improved ease of living, and this is exactly what smart cities will deliver, Puri said.

“More than the halfway mark across most cities, an extension was imminent and will help in completing the unfinished projects,” said Vimal Nadar, Head of Research at Colliers.

What is the Smart Cities Mission?
On June 25, 2015, Prime Minister Narendra Modi unveiled the Smart Cities Mission. From 2016 to 2018, 100 communities were chosen in rounds, and they were required to finish their projects within five years after selection. Due to the delay in project completion brought on by the pandemic, the SCM was extended in 2021 until June 30, 2023. The program's goal is to support urban areas that use "smart solutions" to offer basic infrastructure, a healthy environment, and decent quality of life for their residents.

The central government would offer financial support totaling Rs 48,000 crore over five years, or an average of Rs 100 crore per city each year, in accordance with the SCM criteria. The state government or urban local authority shall contribute an equal amount on a matching basis.

Cities revamp old business areas, create new commercial hubs and public spaces, and modernize infrastructure like water supply and sewage lines as part of area-based development.

Even though the cities were chosen, it required at least 18 months following the selection process for the development work or project implementation to begin because the cities had to first create Special Purpose Vehicles (SPVs) and CEO appointments took time. The majority of cities are now in the development phase.

Was the extension inevitable?
However, some urban specialists assert that given the glacial rate of development, the extension was unavoidable.
“It was kind of inevitable, given the slow rate of progress in several cities. Cities have also frequently changed the projects for which the grant(s) were given, and even now, cities are considering new projects – some of which are because something that was originally planned did not work out. Rest because utilisation did not happen. And, while some cities have come close to bringing transformative changes, many have addressed this as "just another scheme to create regular projects,” said Digbiyoy Bhowmik, a freelance development consultant.

What does the report from the Standing Committee on Housing and Urban Affairs have to say about the Mission?
The Standing Committee on Housing and Urban Affairs noticed the "contrasting difference" in city performance in its report to the Lok Sabha on the Ministry's claim for funds (2023-2024).

“On the one hand, 32 smart cities have completed more than the number of projects planned for implementation under the SCM, in some cases even four times more than the actual target. On the other hand, the remaining 68 smart cities are yet to meet the project completion targets wherein the performance of some cities is quite dismal. Therefore, the total number of completed projects gives a misleading picture because it also takes into account the excess projects accomplished by 32 performing smart cities,” the report had said.

What is the completion status of the smart cities project?
According to data provided by the government, 5,700 projects totaling Rs 1.07 lakh crore (or 72% by number) had been finished by April 30. Nearly 75 percent of 50 cities' projects are finished, and the remaining tasks should be finished by June 2023. An official from the ministry of housing and urban affairs was quoted in the media as saying that more than 66 percent of projects in minor cities and more than 80 percent of projects in major cities have been finished.

How is the Smart Cities Mission being financed?
Finance for SCM may come from a variety of sources, according to a budget brief from the Centre for Policy Research. The federal government will cover 22.5 percent of the project's total costs. Another 22.5 percent of the funding will come from the states and urban local bodies (ULBs). AMRUT, Swachh Bharat Mission (SBM), National Heritage City Development and Augmentation Yojana (HRIDAY), Digital India, Skill Development, Housing for All, etc. are just a few of the initiatives that will be funded in part (21%) by convergence.

Further, 21 per cent is to come through Public Private Partnerships (PPPs), 4 per cent from loans and debts, 1 per cent from own source revenue of ULBs, and 8 per cent from other sources. An important innovation under the scheme is the creation of an SPV responsible for implementation at the city level. SPVs are responsible for planning, appraisal, approval, and release of funds as well as to manage, operate, monitor and evaluate the development projects undertaken by the city, it said.

These SPVs are limited companies that have been registered under the Companies Act of 2013, and their ownership is split 50:50 between the UT and the ULB.

However, not all central government funds have been given to SPVs by the states. A total of Rs 32,666 crore (92%) of the Center's funds were given to SPVs as of December 23, 2022. State variances exist, though. All of the funds have been allocated to states like Telangana, Kerala, and Jharkhand. In contrast, the North Eastern Region states of Meghalaya (84%), Assam (83%) Assam (80%) Manipur (80%) Nagaland (77%) and Tripura (73%) had lesser central government funding transferred to SPVs as a percentage of the total center's revenues.

How does the SPV structure in Smart Cities Mission work?
According to experts, the Mission's SPV structure appears to have grown more difficult over time.

In the beginning, according to Bhowmik, it was intended for the SPV to have custody of the money it planned to borrow from other schemes in addition to the SCM, but for obvious reasons, this wasn't actually realized. Additionally, he continued, not a single SPV received complete financial autonomy, despite numerous retorts from the government. This is well-established in company law.

Once the funds are used up, it will be interesting to see what happens to the Smart City SPVs. Companies are often built to survive forever, but that would require a constant flow of income to sustain them (the SPVs were established under the 2013 Companies Act, even though, strictly speaking, they are not government corporations). Now that has not occurred, and unless the company's shareholders, the state government and the municipal body, can secure additional funding and contracts, there may be no choice but to dissolve the business, he warned.

There is also the problem where assets created by the SPV are being 'transferred' to another agency or department. “From a company perspective, this is as good as writing off what is otherwise a productive asset. In essence, this is a classic case of asset-liability mismatch. Somehow, I do not think any state got the hang of what a 'company' is supposed to do and just treated this as another expendable asset that was created for compliance and can be happily done away with once its purpose is served,” he added. According to Pratap Padode, founder and executive director of FIRST Construction Council and Smart Cities Council India, the SCM was unable to get additional PPP projects. A total of 232 PPPs worth Rs 150.06 billion have been signed in 53 smart cities. Second, rather than outcomes, the Mission has prioritised project execution. Third, there has been no plan for the future of the 100 SPVs established, and the future of their CEOs is uncertain, according to Padode.

How does the SCM compare with Jawaharlal Nehru Urban Renewal Mission (JNNURM)?
On December 3, 2005, the Jawaharlal Nehru Urban Renewal Mission (JNNURM) was inaugurated for a seven-year term (up to March 2011). The mission's duration was then extended for another two years by the former central government, from April 2012 to March 2014. It called for a total investment of more than $20 billion over a seven-year period.

According to the Comptroller and Auditor General's report, the majority of JNNURM projects were not finished. Only 231 of the 1,298 projects sanctioned for urban infrastructure were completed. Similarly, only 22 of the 1,517 housing developments completed were completed. Padode revealed that the national government released less than half of a total allotment of Rs 660.84 billion.

In the case of SCM, despite the fact that the investment value of Rs 1.3 lakh crore has been achieved, the amount released by the government is Rs 710 billion, which is marginally higher than the allocation of Rs 660.84 billion in JNNURM, but the project completion ratio has greatly improved over JNNURM, as around 5,700 projects worth Rs 1070 billion have been completed by April 30, 2023, according to Padode.

See also:
Smart Cities Mission gets second extension until June 2024
22 smart cities should be operational by April