Pritika Hingorani and Komal Hiranandani write in Swarajya magazine's special edition on Smart Cities: "The way we choose to finance and structure the Smart Cities initiative has direct implications for governance and who holds power in our cities."
"Since late last year, a few Indian cities... have been hitting the news for wanting to pull out of the 100 Smart Cities initiative. Their primary objection was that the Smart City projects are to be implemented through Special Purpose Vehicles (SPVs) rather than entirely through city municipalities. The SPVs, as envisioned by the Ministry of Urban Development, will be run by a full-time CEO and will include representatives of the central government, state government and municipality. This structure, some argue, undermines the authority of locally elected representatives and allows both central and state governments to interfere with decision-making for and execution of vital projects in the city.
This concern is not new. Rather, it reflects a long-standing and increasingly problematic disconnect between execution and accountability in the governance of Indian cities...
The central government said that one of the primary reasons for creating SPVs is to “ensure operational independence and autonomy in decision making and mission implementation”. However, the structure of SPVs seems to place tremendous power back in the hands of state and central governments.
Smart City SPVs will be limited companies in which the concerned state and municipality have equal equity shareholding. The private sector or financial institutions may also take an equity stake, as long as the equal shareholding pattern of the state and municipality is maintained, and they together have a majority shareholding. The SPV’s Board of Directors will include representatives of the central, state and local governments. Its CEO will be appointed with the approval of the Ministry of Urban Development. A State Level High Powered Steering Committee will steer the programme.
Meanwhile, states and municipal governments have to ensure that “a dedicated and substantial revenue stream is made available to the SPV so as to make it self-sustainable.” This can open the floodgates of political disputes. For instance, fights may arise about which elected municipal councillors to include as SPV members, with political parties vying for more representation.
Since state governments can decide whether the SPV’s Chairperson will be the Divisional Commissioner, Collector, Municipal Commissioner, or Chief Executive of the Urban Development Authority, city leaders in Pune have expressed fears about the municipality losing power if the state appoints the Divisional Commissioner as Chairperson instead of the Municipal Commissioner.
This may snowball into heated problems if such avenues are used as ammunition in political struggles where the state and municipality are controlled by different political parties. A separate entity has also created the space for special demands. The Shiv Sena suggested an amendment to Mumbai’s Smart City proposal by which 75 per cent of jobs generated by the Smart City project should be given to locals....
But if cities are to function more efficiently, more power needs to be devolved to them. This includes control over revenues and taxes, so that cities can be less dependent on state and central government funding. We will delay this process by building more institutions that create powers at the state and central levels for functions that municipalities should perform.
To incentivise efficient implementation, disbursements of Smart Cities funds will occur in installments after set conditions are fulfilled. On its own, this may not be as much of a guarantee of performance as controlling the project from the central and state levels, but it is some safeguard that can be used while we move in the desired direction.
Alternatively, funding can be routed through an escrow account accessible directly to the municipality, and provisions for auditing and managing withdrawals can protect the interests of funders. Such escrow provisions are widely used to enable oversight, monitoring and accountability. For instance, in Singapore, real estate developers need to maintain escrow accounts for sales proceeds, and independent trustees authorise withdrawals based on the level of progress of the project.
The Real Estate Bill recently passed in Parliament requires developers to maintain 70 per cent of the amount raised from buyers of a project in an escrow account. Money from this account can only be used for construction costs of that particular project, and is to be withdrawn in proportion to the percentage of completion of the project as certified by an engineer, architect and chartered accountant.
These arrangements can be modified to meet the needs of Smart Cities. For instance, withdrawals from Smart City escrow accounts may only be allowed after meeting preset conditions and receiving approvals by prescribed central, state and municipality government officials. To reduce the regulatory burden, these approvals may only be required to release successive bands of spending, for instance, the first approval would authorise withdrawals up to Rs 10 crore, and the second approval would authorise withdrawals up to the next Rs 10 crore.
This will allow accountability to stakeholders without creating elaborate institutions that layer over city governments. If SPVs are retained, perhaps funding installments can be tied to devolution of power, wherein a road-map is designed for central and state government members of SPVs to be gradually replaced by representatives of the municipal government. This road-map can be a default requirement, and central and state governments can retain their powers if they prove poor capacity in the municipality to handle the programme...
Urbanization has been called a necessary but insufficient condition for economic development. While no country has achieved middle-income status without significant urbanization, cities need to be managed and harnessed to realize their potential. Creating competency in cities should be part of this process.
What will do this better—state and central government intervention or empowerment of officials elected by, and hence accountable to, the citizens of a city? While the short-term answer may lie in the middle, we should at least decide that devolution should be the ultimate goal. Instead of constantly trying to skirt the system, we should ask how policies can empower and build the capacity of urban governments. If the 100 Smart Cities programme’s delivery mechanisms are devolved to municipalities, the central and state government may fear inadequate ability to execute projects. If they are not, the empowerment of cities will be delayed...
Democracy works because voters can reward positive outcomes. Expecting development to occur within a democratic framework that breaks the link between the voter and the executor is a stretch of democratic institutions. Government policies and programmes should work towards bridging this gap."