A question was raised by former mayor Surendra Furtado at the meeting of the council of the Corporation of the City of Panaji on Monday whether the CCP would be able to provide 20 per cent of the share for the Smart City Mission launched by the central government. The mission requires a 40:40:20 funding ratio, with the central government and the state government giving 40 per cent each and the urban local body 20 per cent. For the mission, which will be operated as a centrally sponsored scheme, the central government will give Rs 48,000 crores over five years — on an average Rs 100 crore per city per year. An equal amount, on a matching basis, will have to be contributed by the state governments and urban local bodies, thus providing for Rs 1 lakh crore.
Is the CCP in a position to contribute Rs 20 crore per year, that is Rs 100 crore over five years? Going by its annual revenue, it is not possible for it. The projects under the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) required the urban local body to contribute 10 per cent of the total cost. Most urban local bodies, including the CCP, could not manage to provide funds for that. That is why fears are being raised about the Smart City Mission going the same way as JNNURM. The mission requires the CCP to generate 20 per cent share. The CCP does not have adequate funds to provide the basic amenities such as water, sanitation, garbage management and parking to its residents. Much of the revenue it generates goes into paying salaries to staff. The mission expects urban local bodies to generate their share of funding either through its own resources or through loans from domestic or external sources. One of the options for the CCP is to raise money through tax free bonds. But it will depend on the credit rating it gets. Considering that the CCP is not very financially sound and has poor revenue collection and resource mobilization records and leakages it cannot expect high financial ratings. That would indicate its lack of ability to pay the matured bonds and hence low credit ratings.
The challenge before the CCP, as well as the Goa government, would be in raising funds through private investment and assistance. The Smart Cities Mission, which aims at efficient provision of infrastructure and services, urban mobility and governance, mainly through use of digital technology, is in real fact going to be financed by the private sector. The total funding for the mission is estimated at Rs 4 lakh crore till 2020 in the 100 Smart Cities, and only 20 per cent of this (Rs 1 lakh crore) is expected to come from central and state governments and urban local bodies.
With opportunities for 80 per cent of the estimated funding coming from private sources, the mission has already generated a lot of interest among domestic and international players in urban infrastructure and services sectors. Several foreign governments and bilateral and multilateral agencies and infrastructure companies are eager to have a share of the pie. Some of the organisations and multilateral agencies that have offered technical assistance include the World Bank, the UK government-owned Department for International Development, Asian Development Bank, German government’s KfW Development Bank, Japan International Cooperation Agency, the US Trade and Development Agency, United Nations Industrial Development Organisation and United Nations Human Settlements Programme. It depends on the negotiating and managerial skills of the Special Purpose Vehicle (SPV) that is going to be created for the Smart City project for Panaji to interest some of these agencies which international lenders for financial assistance through loans for the projects in Goa’s capital city.
The CCP could also get domestic players interested in investing because the mission will allow the private sector to get returns on investment by levying user charges on people for providing improved services. For instance, if they minimise distribution losses and ensure uninterrupted water supply, they will be allowed to recover water charges from users. The same goes for electricity distribution, planning new mass transit modes, constructing ring roads in the city or installing and managing CCTV cameras in public areas for ensuring safety and security. Domestic private sector companies and financial institutions are also going to be equity partners in the Special Purpose Vehicle. No wonder, domestic developers have supported the initiative. However, domestic private sector participation is easier said than done. India’s many infrastructure companies have got deeper and deeper into debt. Outstanding bank credit to the infrastructure sector, which stood at Rs 9,500 crore in March 2001, has risen phenomenally to more than Rs 10,00,000 crore in March 2015. Non-performing assets in the infrastructure area have shrunk private investments in infrastructure and housing, posing yet another big challenge to the CCP and state government in choosing the right, credible and viable private partner for raising the financial resources for the fulfilment of the Smart City Mission for Panaji.