Smartening Cities

Trends and outlook in the segment

The Smart Cities Mission (SCM), one of the most ambitious government programmes for urban renewal and transformation, was envisaged to be implemented through the bottom-up approach instead of the top-down approach followed for most government programmes.

The SCM was a slow starter. Planning and putting the implementation structure on ground took a lot of time. However, its implementation has picked up pace in the recent past. With the launch of the mission in 2015, it took about two years to select the 100 cities in a phased manner. Over 5,000 projects entailing an investment requirement of Rs 2.05 trillion have been identified under the SCM. As of October 11, 2019, tenders have been invited for projects worth Rs 1.48 trillion, work orders have been issued for Rs 1.05 trillion worth of projects and projects worth over Rs 225 billion stand completed. In particular, with respect to SCM-funded projects, projects worth Rs 140 billion are in the tendering stage, projects worth Rs 560 billion-Rs 570 billion are above tendering stage and Rs 350 billion worth of projects are currently being executed. Meanwhile, the mission cities have successfully completed work on projects worth Rs 70 billion.

Significant progress has been made with respect to the development of integrated command and control centres (ICCC), smart roads, smart water networks, solar rooftops and vibrant public spaces. In recent times, housing has emerged as one of the fastest moving sectors. So far, ICCCs have been developed in 26 cities with an investment of Rs 41.35 billion. In addition, 127 smart road projects (Rs 17.84 billion), 44 vibrant public space projects (Rs 7.61 billion), 51 smart water projects (Rs 21.36 billion) and 39 smart solar projects (Rs 2.04 billion) stand completed.

Progress on the ground is quite skewed. While some cities such as Bhubaneswar, Indore, Bhopal and Jabalpur have made remarkable headway, overall growth under the mission has been slow. Over 50 per cent of the projects have been completed in the cities located in Karnataka, Madhya Pradesh, Gujarat and Uttar

Pradesh. Overall, the cities that have shown considerable progress include Ahmedabad, Bhopal, Varanasi, Nagpur, Surat, Visakhapatnam, Vellore, Tiruppur, Vadodara and Ranchi.

With regard to private participation, the government’s aim was to finance 21 per cent of the SCM’s cost through public-private partnerships (PPPs). However, only about 15 per cent of the ongoing projects are being implemented under this model. So far, 65 PPP projects worth Rs 20 billion in 26 cities have been completed. Initially, the first few cities including Jabalpur, Pune and Bhopal incorporated land monetisation or real estate as a big component of their proposal for projects to be implemented on a PPP basis. Round I of the SCM involving 20 cities was based on the land monetisation model. Around 50 per cent of the projects under Round I were implemented through the PPP mode. The cities selected in the subsequent rounds, however, focused more on projects to be implemented on an engineering, procurement and construction basis. Hence, the overall structure and the type of bidders also evolved. The mission has undergone a great deal of course correction to become better structured.

Financing landscape

With regard to sources of financing, each city receives Rs 10 billion in funding, contributed equally by the central and state governments. Most of the urban local bodies (ULBs) continue to struggle to generate funds. This is expected to be addressed through raising funds from municipal bonds, value capture financing, tailored bonds, user charges and increased private participation. The success of the Pune, Greater Hyderabad, Bhopal, Amaravati, Ahmedabad and Indore municipal bond issuances indicates an appetite for financing well-managed municipal bodies.

However, given the number of projects to be implemented, these funds are inadequate and the states are therefore encouraged to raise the rest of the funds independently. They may raise funds through user charges, PPPs, borrowings from financial bodies, land monetisation, non-tax revenues, municipal bond issues and through convergence with other schemes. So far, nine cities have floated municipal bonds raising about Rs 34 billion till date. Meanwhile, arrangements are being made with multilateral and bilateral agencies such as the Japan International Cooperation Agency, the Asian Development Bank, the Asian Infrastructure Investment Bank, the United Kingdom Department for International Development, the World Bank, etc. for soft loans. Besides, there are 190 PPP projects worth about Rs 150 billion that are under implementation. Of these, 82 projects worth Rs 37.04 billion have been completed. The projects are spread across 41 cities and multiple sectors including affordable housing, solid waste management, rooftop solar projects, public bike sharing, mobility cards and public utilities.

Since the launch of the mission, the utilisation rate of funds sanctioned under the SCM budget has improved. By March 2020, the smart cities are expected to complete projects worth Rs 185.2 billion (a 326 per cent increase compared to the previous fiscal year). However, going by the current pace of projectcompletion, projects worth Rs 125 billion are expected to be finished (a 220 per cent increase over the previous fiscal year). This improvement notwithstanding, the smart cities have been taking steps to increase the pace of project execution. As a result of these efforts, for the first time since the mission was launched, the amount of funds utilised exceeded the funds unutilised.

Meanwhile, the government has also launched several new initiatives to not only ensure integrated urban development but also to take the mission to new heights. Key among these are the Climate Smart Cities Assessment Framework 2019, DataSmart Cities, National Urban Innovation Stack, City Investments to Innovate, and Integrate and Sustain Challenge.

Impediments on the way and future outlook

While implementation has picked up pace, the mission still faces several challenges. Though the country has performed very well in IT projects, it lacks technical capabilities at the design evaluation stage. Delays were reported in technical execution due to faulty planning and there have been issues with respect to specifications stated in the tender documents. Cities spent a lot of time in setting up special purpose vehicles and finding the right management consultants. The slow pace of implementation is attributable to the long project planning process, which on average takes 15-18 months. The majority of the smart cities involve a lot of retrofittment of legacy infrastructure, which is a key challenge.

That said, the government’s continued focus on the mission has lent confidence to various stakeholders. It is hoped that with the government focusing on measures to attract private investment as well as with the enhanced implementation experience, progress in the next few years will be more visible and significant. These projects, therefore, offer ample opportunity to project developers, financiers and technology and equipment providers.

Nonetheless, the SCM has achieved a level of maturity that allows the government to focus on accelerating its pace of implementation. With the mission’s closing date fast approaching, the cities need to pull the strings together. Despite the increase in the pace of implementation, the SCM still has a long way to go in developing the urban infrastructure of the selected cities. Going forward, the focus areas under the mission will be data, climate change, innovations and ease of living.

 

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