Cities Redeveloped: Experience under the SCM and unresolved challenges

Experience under the SCM and unresolved challenges

The Smart Cities Mission (SCM) was launched by the government in June 2015 to upgrade infrastructure facilities in cities and improve the quality of life of citizens through the deployment of information technology and innovative solutions. A smart city was envisaged as one which would not only have basic amenities such as continuous water and power supply in place but also have shorter commute distances, efficient mobility solutions, scientific waste management and higher technology penetration rates.

A total of 100 cities were selected under the mission for the implementation of a gamut of smart initiatives. So far, the cities have achieved different levels of progress. Though some cities in the states of Madhya Pradesh (such as Bhopal and Indore) and Maharashtra (such as Pune and Nagpur) have shown remarkable progress, overall growth under the mission has been sluggish.

At the India Infrastructure Forum 2019, a panel of experts discussed the successful initiatives under the SCM, challenges being faced in implementation and steps that can be taken to improve the pace of programme execution.

Setting an example: Smart city initiatives in Bhopal

The Bhopal smart city project has made considerable progress and various initiatives have been taken under the mission for the overall transformation of the city. Bhopal is one of the 20 “lighthouse” cities that can serve as a role model for other cities in the country. It has successfully leveraged technology and incorporated innovative solutions to improve quality of life.

Bhopal has implemented an integrated traffic management system which provides information on a real-time basis and helps the authorities to proactively manage traffic and improve traffic discipline through effective enforcement. The system has been deployed in only some areas but will cover the entire city in a few years. An integrated control and command centre (ICCC) has also been established. The ICCC will enable the state administration to monitor and administer multiple civic utilities and citizen services across seven cities in the state. A mobile app – Bhopal Plus – has also been launched for providing online citizen services and facilitating interaction between the government and the citizens.

Steps have also been taken to improve mobility and reduce pollution in the city for sustainable development. Public bike sharing services have been rolled out to provide low-cost and environment-friendly options to citizens. The bus rapid transit (BRT) system, the metro rail system and public bus facilities will be integrated to improve connectivity and reduce travel time. There is also a comprehensive transit- oriented development policy to discourage the use of private vehicles and promote public transport. The city has also developed green and blue master plans for meeting environmental standards and improving sustainability.

Development models under the mission

Cities under the SCM have adopted different area-based development (ABD) models depending upon the needs of the city, participation of citizens and availability of resources. While some cities have chosen the redevelopment model which involves replacement of existing structures by newly built infrastructure, others have taken the retrofitting route where existing structures are improved. The cities can also take up greenfield developments which are extensions to the city that need to be built from scratch and require huge capital investments. A few cities have also taken up a mix of these models.

Sources of financing

Under the SCM, each city receives Rs 10 billion in funding, contributed equally by the central and state governments. However, this is inadequate given the number of initiatives to be implemented. States are therefore encouraged to raise the rest of the funds independently and incubate the investments. The states may raise funds through user charges, public-private partnerships (PPPs), borrowings from financial bodies and municipal bond issues and get funds on account of convergence with other schemes.

In Madhya Pradesh, for initiatives under the SCM that did not have any user charges or direct revenue generation such as improvements in the traffic management system and installation of supervisory control and data acquisition systems to improve water supply, sunk funds were earmarked for the projects. Projects that had healthy returns and could be easily taken up by the private sector were funded through PPPs with a provision for viable gap funding.

In Bhopal, a pan-city project for the installation of smart poles and intelligent street lighting is being implemented on a PPP basis. Bharti Infratel is implementing the project at a cost of Rs 6.9 billion. Similarly, waste management projects and public bike sharing systems have also been implemented on a PPP basis.

Projects that have long gestation periods (such as the redevelopment of the smart city area in Bhopal) cannot be privatised due to huge investments and realisation of returns over a long time period. Such projects have been financed through borrowings from domestic or international institutions. Further, there are plans for Bhopal to monetise land under ABD to generate more funds. The creditworthiness and financial capacity of urban local bodies (ULBs) play an important role in efficient fund mobilisation from the private sector.

Other cities such as Varanasi, Bengaluru and Eluru are also implementing smart city projects on a PPP basis. While the project in Varanasi was implemented on an engineering, procurement and construction basis, the project for installation of smart lights in Bengaluru is being carried out on a build-operate-transfer basis. The Eluru smart city project is a hybrid annuity model that involves multiple interventions such as road and junction improvements, traffic management and sewage management.

Smart city projects are also being funded through convergence schemes such as the Atal Mission for Rejuvenation and Urban Transformation (AMRUT) and the Swachh Bharat Mission (SBM) and funds from municipal bodies. The Bhopal Smart City Development Corporation is implementing projects worth Rs 35 billion while Indore is working on projects worth Rs 50 billion.

Major challenges

Though many cities have made progress under the SCM, some issues are being faced during project implementation. Projects for pan-city development and ABD are also often part of other urban missions such as AMRUT and the SBM. The SCM’s convergence with other schemes has resulted in coordination issues among different departments.

Under the SCM, each of the 100 selected cities was given Rs 10 billion for project implementation irrespective of their spending capacity. For larger cities (New Delhi, Pune, Bhopal, etc.) the funding was not enough to take up the initiatives planned under the mission. In contrast, smaller cities (such as Aligarh) do not have the capacity to spend that much money. If the grants were allocated through a structured approach depending upon the size and the capacity of the city, the extra funds could have been better leveraged and viable gap funding could have been provided for cities with significant project outlays. Many cities under the project do not have their basic infrastructure facilities in place. Therefore, it is important for the cities to focus on their core infrastructure first before taking up ambitious projects.

Further, the role of PPPs in successfully implementing projects under the SCM needs to be re-evaluated. There are some sectors such as waste management and transportation where PPPs have done well. But in sectors where it is difficult to generate revenues due to the inability to levy user charges, private participation remains limited. Multiple interventions under one project and the involvement of multiple stakeholders (state governments, ULBs, etc.) deter private players from making investments.

Besides PPP projects, the cities were encouraged to mobilise investments through the issue of municipal bonds. However, the municipal bond market still remains largely untapped as only a few cities such as Pune, Bhopal, Hyderabad and Indore have gone ahead with issuances. Also, domestic interest rates have gone up which increases the cost of issuing bonds for ULBs. Unless, the cities are given an interest subsidy of 2 per cent, the bond market will not be viable for the ULBs. Municipal bonds are not secured and do not come with a government guarantee, and this discourages investment in the bond market. Only municipalities that have credit ratings of AA+ or AA are able to attract funds. Other cities still have a long way to go before they can improve their credit ratings.

Next steps

The creation of smart cities that provide a good quality of life to their citizens and ones which are not only future ready but also sustainable is a continuous process that takes time. However, various steps can be taken to overcome the challenges and ensure successful and speedy implementation of projects under way.

Apart from the introduction of new technologies and practices, it is important to improve the capacities of the cities to plan and execute the projects in a decentralised manner. The capacity building measures should involve urban planners, infrastructure engineers, PPP experts, architects, etc. to equip the smart city special purpose vehicles to take up ambitious projects under the mission. Comprehensive training should be imparted to those who are responsible for project implementation. The collaboration of academia, industry and government along with active participation of citizens will help in improving the implementation of projects and attracting better investments.

It is also essential to reconsider the financing mechanism under the mission. The 100 cities selected should be categorised in a manner that cities which require more funds are allocated greater amounts than smaller cities with lower requirements. The smaller cities should focus on providing core infrastructure facilities before they expand to other projects.

Another vital step is to develop the right indicators to measure the success of the projects. Currently, the success of the initiative is being determined by the level of spending. This leads to rushed spending and hampers proper project planning. Identification of indicators to help in evaluating the projects on which the funds have been spent, and the evolution of cities in terms of decision-making powers and capability of attracting investments will help in the successful and timely implementation of projects.