Modi's dream of 'smart cities' takes wings, but watch out for turbulence

The announcement of 20 smart cities by the ministry of urban development is the first step in the fructification of the grand design of creating world class cities in the country.

The plan to have 100 smart cities was an objective laid out last year by the Narendra Modi government and the venture was to have taken off in FY16 but the budgetary allocation was limited to Rs 143 core against the budgeted amount of Rs 7016 crore in 2014-15 which was revised to Rs 924 crore. This means that the money would probably start being allocated from next year onwards and the Union Budget for FY17 would make such provisions.

Mumbai did not make the cut in the list

Mumbai does not figure in the list

The novel feature of choosing these 20 cities is that it has been meritocratic, as states had to apply for their cities which were then in turn selected on the basis of replies to a questionnaire containing 43 issues.

Those cities which scored well have qualified in round 1. This is a prudent resource allocation process though the fact that three big states i.e. UP, Bengal and Bihar do not feature in this list would strike the reader. This may be politically less pleasing but given that an objective criterion has been used, there can be really no dispute on the selection process.

The interesting part is that there are three from MP (Jabalpur, Indore and Bhopal) and 2 each from Maharashtra (Pune and Sholapur), Gujarat (Ahmedabad and Surat), Rajasthan (Jaipur and Udaipur), AP (Kakinada and Vizag), Karnataka (Davangere and Balgavi) and TN (Coimbatore and Chennai). The others are Ludhiana (Punjab), Guwhati (Assam), Kochi (Kerala), Delhi and Bhubaneshwar (Odisha).

It is interesting that a large share of the qualifying cities is those from states ruled by the NDA alliance or is on the Election list. However, given that the process followed has been transparent, this should not be treated as more than a coincidence considering that these states are also the ones which are performing well on various economic parameters.

The ministry has indicated also that the balance 80 cities will have to compete and improve their functioning to ensure that they feature in the subsequent rounds with the second one poised to cover 40 of them. This will make them buck up to meet the eligibility criterion.

Now let us look at the project. A smart city is to resemble a modern city anywhere in the world with top class infrastructure which includes water supply, roads, housing, transport, IT and governance. Presently there is a lacunae in this area and hence this requirement.

The idea is that there will be joint funding coming from both the Centre and states with around Rs 1 lakh crore projected for 100 cities over the next 5 years. The central government has unveiled its plan to allot around Rs 48-50,000 crore which comes to about Rs 10,000 crore per year or Rs 100 crore per city.

Is the amount enough? One cannot tell given the different levels of development in various cities and states. Today the state of municipal finances is mixed. While the metro cities are surplus in cash as they have access to various revenues due to high levels of development, the same cannot be said about the smaller ones.

Even with the state putting in a comparable amount of Rs 100 cr, the municipals have to get their act of raising funds and this is one reason why the government through SEBI has already brought out the guidelines for growing the municipal bond market. Without this effort, it is unlikely that these cities would be able to grow in the desired manner.

Ideally there should be a stick too for such cities in terms of devolution from the Centre to states and the latter to local governments to ensure that the money is used effectively and efficiently. There should be regular monitoring of these cities to ensure that certain metrics are met on an ongoing basis to ensure good governance.

This brings to the fore two areas of skepticism. The first is the performance of these cities given these allocations. As some of them are smaller with municipal councils the accounting practices are not on par with those of say Mumbai or Chennai.

This can become an issue when it comes to implementation. Besides their initial levels of development would be different; and hence the effort put in by say Chennai, for example, to incrementally show a ‘delta’ in performance will be easier than for say Kakinada or Balgavi.

The second is probably more important. In the past we have had the JNNURM scheme which was similar in nature and while a number of 100 were not targeted, a similar effort was put in by the state, Centre and local governments to fortify infrastructure in cities.

The scheme gradually dwindled in importance due to a variety of reasons with a large proportion of the projects being incomplete (around 70% in some states) thus entering the failure zone. The same can happen again.

The other is in the realm of the government finances. Presently the Centre is gung-ho about spending Rs 10,000 cr a year for these cities. Will there be compromises in case there are fiscal pressures? This holds more for states which are already going to be burdened by the UDAY (DISCOM scheme) programme for bailing out the distribution companies.

Will they have resources to also finance cities or will they give up along the way? These are questions which can be answered only with time.

The smart city concept is a laudable scheme much on the lines of JNNURM to address issues of cities where the financial issue is addressed by both the centre and states. Hopefully the momentum will be maintained along the way given the different levels of push required in these chosen cities. Further, the focus should also be on project completion and not just starting new projects.

For example, constructing fresh flyovers is compelling but city corporations should ensure that the quality of existing roads remains good or else there will be uneven growth and development which is a malaise today in most cities.

Therefore, the starting point should be on perfecting the existing structures before going in for new projects – a challenge for us given our proclivity to show more enthusiasm towards new rather than existing projects.

The author is chief economist, CARE Ratings. Views are personal