Many cities are not able to generate surpluses of Rs 50 crore to make their project contribution for each of the five years of the mission.“The cities selected under the mission have bifurcated their budget into two categories: area-based development and pan-city development,” says NSN Murthy, Partner & Leader-Smart Cities, PwC India. “Usually, the ratio of the bifurcation is 60:40, where 60 per cent of the budget is allocated towards area-based development and 40 per cent is for pan-city development.”Government budgets are traditionally the major source of finance for envisaged projects. The majority of projects under implementation or at the completed stage have been funded through the smart city fund created by SPVs with both the state and Centre’s contribution. However, cities are facing gaps in implementation as the provision of adequate financing as funding disbursement is based on physical progress of the project. Some projects envisaged by cities are also built on non-feasible funding models. “Cities need to shift from traditional sources of funds and look at more innovative models,” iterates Murthy. “Innovative financing models built on monetisation of assets, rights and data will help create additional streams of revenue.”For his part, Abhay Kantak, Director, CRISIL Infrastructure Advisory, says, “The SPV generally caters to a smaller section of the city’s population. Elected officials have their own misgivings in releasing money to projects that are not likely to have a city-wide impact, or at least in their electoral wards. The borrowing programme is likely to face similar opposition and, hence, may not be expedient politically.”Borrowing does face a challenge of ability in reality. “Cities are not able to generate surpluses that will allow them to service the interest and principal repayment obligations,” says Kantak. “The projects to be funded are not revenue generating to help meet debt service obligations.” He adds that cities are also not able to expedite projects with the first tranche of funding available under the mission. So the question of financing being a constraint is not true for the moment.That said, cities have to simultaneously address the twin challenges of bridging the financing deficit as well as the institutional deficit, which elongates the development and implementation cycle. Just increasing financing capacity will not be sufficient; the absorptive capacity of local governments will need to be significantly increased for a truly transformative impact.“Some cities have gone for municipal bonds while others have opted for debt components,” says Anindya Mallick, Partner, Deloitte India.“There is also value capture finance, for which a separate study has been facilitated by the ministry at the city level. Some cities are also contemplating tax incremental funding. Cities are considering on the various other measures they can adopt, one of which is land monetisation – once the city does its area-based development and improves infrastructure, the land value goes up and it can be monetised.”Meanwhile, Ravinder Reddy, Partner, Grant Thornton India, shares, “Most smart city plans (SCPs) have been prepared by clear identification of the sources of the same. For example, if a project in affordable housing has been identified, the plan would clearly earmark the mode under which this shall be implemented with a clear funding pattern. Thus, there are no major challenges we have come across for projects.” He adds that once projects start operating, there will be avenues to raise funds to make SPVs more resourceful by looking at monetisation. “The CCC is a classic case wherein once these centres are operational, SPVs can look at monetisation through analytics, optimisation of existing ICT infrastructure, digital advertising, etc.”Further, there can be potential fund-raising activities based on the quantum of infrastructure built, revenue streams and accessing asset-backed funding options.