The Smart City Dream: Why All’s Not Well In The Govt’s Grand Plan

Posted by Naim Keruwala in #GoalPeBol, Politics
July 24, 2017
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C0-authored by Maya Roy:

From 1985, when the first concrete step towards addressing the issues cities was taken by the Rajiv Gandhi government by constituting a task force on towns and cities, to the launch of  Smart Cities Mission by the Narendra Modi government in 2015, India has come a long way.

A lot has changed in these 40 years in the Indian urban landscape – but unfortunately the status of urban governance in India is still in shambles. According to estimates, 95% of urban expansion in the next decade will take place in the developing world – and India, with its growth story, will have a significant impact on how this happens. In fact, the dearth of concrete actions by the government to improve urban governance reforms, is going to have a significant impact on India’s promise to create inclusive and sustainable cities under the Global  Sustainable Development Goals.

With the Smart Cities Mission, India aims to create 100 cities with state-of-the-art infrastructure like intelligent lighting, intelligent traffic systems and vehicle management systems and Wi-Fi access points, among others. This ambitious idea will be implemented by a Special Purpose Vehicle (SPV), a company constituted by the local government with a CEO at the helm of things to curtail the bureaucratic processes that delays the decision making process.

Smart Cities India 2015 Exhibition
Blueprint of a smart city? (Photo by Pradeep Gaur/Mint via Getty Images)

One cannot disagree that long-drawn bureaucratic processes are frustrating, but the government’s decision to institute a parallel system (in the form of a SPV) instead of correcting the course of governance is problematic. The mission could have been a flag-bearer of systemic governance reforms that successive governments have ignored – but instead the mission chose to outsource local governance. However, it is too early to say if the outsourcing model will work in favour of or further weaken the third tier of our federal structure.

Another caveat to the Smart Cities Mission is the financing of the projects. As per M Venkaiah Naidu, the then urban development minister, “Under Smart City Mission, a total investment of about Rs 1,35,000 crore has been proposed by the 60 cities that have so far been identified for financing smart city plans.” A major source of revenue for financing the plan is through issuance of municipal bonds. According to Moneycontrol, over ₹50,000 crore of municipal bonds may be up for grabs soon, as 26 cities get ready to hit the market.

It is a welcome change that cities are creating a brand identity for themselves and reaching out to the market for financing their infrastructural needs. However, unless comprehensive governance reforms are implemented, municipal bonds may prove be detrimental to the Indian urban story.

An example which showcases the downside of market-based borrowing is the state of urban local governments (ULGs) in China. A 2008 stimulus program of the central government in China forced many of the ULGs to borrow massively from the market to match up to the central subsidies. An over-investment of these funds in infrastructure, combined with structural governance issues, have led to a huge local debt despite significant growth in the revenues of cities in China. The amount of debt owed by Chinese ULGs in 2017 will be around 1 trillion yuan (approximately $160 billion or ₹ 10,92,000 crores), according to estimates. The situation has escalated to a level where the Chinese finance ministry had to intervene and restructure the debt of the Chinese urban local bodies.

Compared to their Chinese counterparts, most Indian cities have hardly seen any rise in own-source revenue. Most municipal bodies in India fail to comply with the national municipal accounts manual. Budgets are faulty, audits are pending and own source revenue is so less that it hardly covers staff salaries.

Cities in India are highly understaffed and the capacities to implement complex projects are simply non-existent. No municipal body in India has a Fiscal Responsibility and Budget Management (FRBM) Act similar to the Union and state FRBM laws. The Fiscal Responsibility and Budget Management Act, 2003, aims to institutionalise financial discipline, reduce fiscal deficit and improve overall management of public funds by moving towards a balanced budget and strengthening fiscal prudence in the state and Union governments. The lack of any such control has added to the tendency of municipal bodies to rely on inter-governmental transfers, rather than tapping their own revenue potential. In this scenario, the intended goal of creating sustainable cities and human settlements that will ensure access to basic services, energy, housing, transportation for all, seems like a distant dream.

As per Gregory Peirce’s paper in the Economic and Political Weekly, in a sample of 3524 cities in 2001, on an average, cities showed a 44% dependency on state finance. Far from improving, the situation has worsened in the period from 2007-08 to 2012-13, as per the India Habitat III report.

Moreover, the Smart Cities Mission does not link the disbursal of funds from the Centre and the enactment of reforms. Under the erstwhile JNNURM (Jawaharlal Nehru National Urban Renewal Mission), the release of funds from the Centre were subject to the achievement of milestones agreed upon, as well as the implementation of mandatory and optional reforms. This carrot-and-stick approach to nudge cities to implement governance reforms is missing in the Smart Cities Mission.

Smart Cities India 2015 Exhibition
When will cities in India attain the standards set by these international cities? (Photo by Pradeep Gaur/Mint via Getty Images)

Thus, the lack of skilled staff, the low own-source revenue, incorrectly-aligned incentives and poorly-developed regulations for borrowings from markets may cause urban local bodies to go for binge-borrowing. Unless these market-based borrowings are coupled with capacity building of ULGs, along with concerted efforts for exact own- revenue sources, they might end up being a cocktail for financial disaster.

Our cities are in dire need of a radical revolution in governance – one that does not outsource local governance to manoeuvre around the chaotic processes – but one that builds institutional capabilities by adequate and efficient staffing, simplifying the administrative processes, engaging citizens and strengthening grassroots democracy. As a signatory to the Global Sustainable Development Goals, India needs to do more to ensure access to adequate, safe and affordable housing for everyone.

The future we want includes cities with opportunities, clean air, adequate infrastructure and access to basic services for all. The Smart Cities Mission and the Atal Mission for Rejuvenation and Urban Transformation are welcome steps by the government. But unless they are coupled with governance reforms, these will only be limited to some anecdotal success stories.

Naim Keruwala and Maya Roy are experienced urban governance practitioners working with universities, not-for-profits and urban local governments across the country on governance reform interventions. Naim tweets at @Naim_K and Maya tweets at @mayamishika.

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Images used for representative purposes only.

Image Source: Samir Jana/Hindustan Times via Getty Images

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