The urban local bodies have traditionally been slow in project implementation. The fundamental reason is that they do not have a predictable revenue stream for financial planning. If you are unsure about the money you are going to get as income in the future, you cannot do any multi-year investment planning and hence the project implementation capacity never gets developed, explains Abhay Kantak, Director, CRISIL Infrastructure Advisory
The Smart Cities Mission was launched in 2015. Where are we after five years? The entire Smart Cities Mission was launched in a very staggered manner. The first batch of 20 cities was announced in January 2016. In the first year, a lot of time was spent in the creation of special purpose vehicles (SPVs) and contracting out preliminary consultants. At that time, the concept of an SPV was completely new to urban local governments, hence, it took some time to take off. The idea was to fast-track implementation but that can only be properly assessed in the long-term. In the short or medium-term the start-up time is going to be somewhat on the higher side. That's the reason why the 20 cities have not been able to accelerate their investment spends. That is the first part.
The second part is that this is a novel programme and you have to answer questions like how you conceptualised your smart city. It is only after the selection process got over that the detailed project report (DPR) could be prepared. So, if you factor in these two elements of a new institutional mechanism and the time taken in preparation of DPRs to translate the concept into an actionable project, you can be a little bit more lenient on the pace of execution of the projects. Plus, the urban local body has traditionally been slow in project implementation. The fundamental reason for that is the local urban body does not have a predictable revenue stream for its financial planning. If you are unsure about the money you are going to get as income in the future, you cannot do any multi-year investment planning and hence the project implementation capacity never got developed.
But then why is it like that?
Urban local bodies lead a very hand-to-mouth existence. If you look at the entire history of the urban development framework in India, projects have happened only with the launch of large missions. The Jawaharlal Nehru National Urban Renewal Mission (JNNURM), which was launched in 2005, made Rs 160 billion money available through central assistance. That was a major landmark in terms of funding made available to cities. However, if you look at the period from 1980 to 2005, the successive central governments would have spent only between Rs 30-40 billion on urban development projects for the entire country! Cities have moved from one mission to the next rather than going on a mission mode. If you create a predictable source of earning for cities and give them the autonomy to spend, you will see a greater momentum at their level to implement projects. Lastly, one also needs to know that it is always a challenge to implement an urban infrastructure project as due to the involvement of multiple agencies and authorities it is an ever-expanding ecosystem. So, we need to be a little bit more sympathetic to urban local bodies before passing judgment on them.
Smart city development in India is unique as we have more brownfield than greenfield projects. Do you think the strategic and development needs are being adequately met?
Smart city development is almost always going to be brownfield as there are only very few examples of cities being created on a greenfield basis, globally. Also, the birth of a city is driven by economic activity. People come to the city for work and unless you create jobs, the city doesn't have a reason to exist. For instance, Raipur was growing very fast and after the formation of the state of Chhattisgarh in 2000, its growth was further exacerbated. The solution was not in building Naya Raipur. The problem was about addressing the challenges of the existing city of Raipur. The greenfield approach to city development is a major challenge because you have to spend a lot of money to grow a city.
To give you another example, Navi Mumbai was conceptualised in 1970. Despite being situated so close to the very large urban agglomeration of the city of Mumbai, 50 years down the line the population of Navi Mumbai is 1.5 million. From 1970 to the early 1990s, there was no rail connectivity between Navi Mumbai and Mumbai. It was only when City and Industrial Development Corp. (CIDCO) invested in the rail connectivity that the growth started. So, the approach to smart city development is going to be brownfield and as far as the smartness of that concept is concerned, the Smart Cities Mission made it mandatory that the pan-city component should contain the technology element. And that's how they are pushing the cities into embracing new technologies.
What would be some of the most viable means of funding a smart city?
Firstly, the existing revenue base for a city, which is the property tax revenues, can only fund operations & maintenance expenditure. You need a revenue source linked to economic activity that can create a very buoyant financial resource base. The conventional source of revenue for a municipal corporation is the property tax and the entire base for it in India is around Rs 150 billion. This should be around at least Rs 850-900 billion. If you don't increase rates, make the budget more efficient to cover every property and have the property tax linked to the value of the property than to some abstract annual rental lease. That is the first level of change that cities need. If they demand more money, they will have to make sure that is made available to them.
Secondly, they will need to have a revenue option like octroi, which has gone away for most cities with the GST coming in. There has to be a framework where a city has a share in the GST revenue generated within its jurisdiction. A city like Mumbai with a share in the economic activity can meet its funding requirements. But smaller cities like Jalna, Sagar or Beed don't have that kind of an economic base. And that is where the role of the state finance commission becomes very important for it decides on the revenue share between the state and city government. Wherever there is a deficit in the revenue-generating capacity of a city, devolution of funds can happen from the state government to that city. Despite being a critical body, the state finance commission is non-functional. It needs to be operationalised in full letter and spirit to address the funding requirements of cities. Besides, local bodies require to be reformed internally to enhance their resource base.
The finance minister had proposed five new smart cities in her budget speech of 2020-21. Will the COVID-19 pandemic and lockdown have an impact on smart city development?
What the finance minister had mentioned in her budget speech was not five new cities but the development of five cities as investment hubs. No further details have been made available and the general environment in the aftermath of the COVID-19 pandemic was somewhat disconcerting. You need to consider what the government is looking at to restart the entire economy. The answer would perhaps lie there.
Can smart cities help in controlling and providing faster relief in a contingency like COVID-19?
If you look at Singapore, which is one of the most well-developed and well-controlled environments, it is also facing a challenge. It is not technology alone that can solve this problem. The smart city can enhance the monitoring part to some extent but transmissions can still happen without you suspecting a thing. The fundamental answer to this question lies in far more basic actions like proper washing of hands, social distancing and greater awareness. Technology alone can't help in containing the transmission. That is why you are witnessing most of the developed world feeling helpless before this threat. In comparison, Indian cities have done better.
- MANISH PANT