Access to services like health and water is increasingly dependent on citizens’ capacity to pay, which transforms rightsholders into consumers, critics warn.
A labourer in Gujarat International Finance Tec-City or GIFT city in Gujarat in 2015. | Amit Dave/Reuters
When it was launched in 2015, the Smart Cities Mission aimed to select 100 urban areas that would be retrofitted with infrastructure, offer residents a sustainable environment, and use information technology to increase efficiency in governance.
This, the urban development ministry estimated, will cost Rs 7 lakh crore (approximately $105 billion) over the next 20 years.
The 100 cities selected for the mission ranged from New Delhi to Bhagalpur, Imphal to Salem, Satna to Ahmedabad.
The Central government initially allocated Rs 48,000 crore for the mission. This amount was to be matched by the states in which projects were to be carried out.
The mission recommended that public services such as water supply, sanitation, sewage and transport be delivered by private partners through the Public-Private-Partnerships – contractual agreements that allow private sector participation in the delivery of public services and infrastructure projects.
India’s urban development model since the liberalisation of the economy in the early 1990s has involved a push to involve private companies in delivering public services and then making citizens pay user charges. As part of this strategy, Public-Private Partnerships have been favoured as a vehicle to provide opportunities for the private sector and boost the flow of funds to implement these projects.
Many opportunities
There are hundreds of project opportunities listed on the government’s India Investment Grid website that are proposed to be implemented in this mode under the Smart Cities Mission.
Over five years, starting from the 2015-’16 financial year, about Rs 96,000 crore were made available by both the central and state governments for projects proposed by cities under the Smart Cities Mission.
The municipal corporations of the selected cities play a central role in bridging the costs that are in excess of the contributions of the Central and state governments. Among the avenues by which they are expected to raise funds for projects is by increasing taxes on property, entertainment, advertisements, and entry to the city.
In addition, the 14th Central Finance Commissionrecommended raising funds by imposing a tax on vacant land and public transport and increasing user charges for water, electricity, telecom, gas, parking fees, and on changes in land and building use.
The other sources for generating funds that have been suggested are municipal bonds, green bonds, energy conservation bonds and pooled finance mechanisms from financial institutions and bilateral and multilateral agencies.
When investors buy bonds, they are lending money to the issuer, which could be a government, municipality or a corporation. A pooled finance mechanism combines finances from several sources to fund projects, such as for municipalities that may lack the capacity to secure funding individually. This might reduce costs and help access to capital for infrastructure and development projects.
Around the world, cities have used digital technologies to improve citizens’ access to public services Helsinki, Singapore and Amsterdam are among the cities that deliver services using use digitalisation and Internet of Things technology – a network of devices with sensors that exchange information with other systems in order to improve data-based decision making in real time.
The major advocates for smart city projects have been the transnational corporations and international financial institutions.
Among the corporations that have been developing and implementing tech solutions to improve service delivery in urban areas are CISCO, IBM, General Electric, Hitachi and Toshiba.
Keenly supporting such “smart solutions” for cities around the world are international financial institutions such as the World Bank, Asian Development Bank and the International Finance Corporation.
India’s Smart Cities Mission has received support from the World Bank along with the International Finance Corporation. The International Finance Corporation is the World Bank Group’s private-sector arm and aims to advance economic development by investing in for-profit and commercial projects.
It is a strong proponent of involving the private sector in financing and developing new models for public service delivery and investing in infrastructure for climate-smart cities.
The Asian Development Bank, meanwhile, has been leveraging funds for its urban programmes under the Urban Financing Partnership Facility and Water Financing Partnership Facility.
Its Cities Development Initiative for Asia supports cities in building their capacities and enhancing their readiness for faster project preparation and implementation.
Its Urban Climate Change Resilience Trust Fund supports cities in building their capacities for incorporating climate change resilience principles in their planning and operation
The Asian Development Bank has provided financial and technical assistance to smart cities such as Bengaluru,Aizawl, Agartala and Tripura. It has also initiated a programme called Strengthening Climate Change Resilience in Urban India, which intersects with the Smart Cities Mission.
Bilateral agencies backed by the governments of countries such as the US, the UK, Germany, Singapore and France have signed MoUs with Indian municipalities along with the Ministry of Housing and Urban Development. Among the cities that have reached agreements with bilateral agencies to develop, implement and finance smart city projects are Bhubaneswar, Kochi, Coimbatore and Ajmer.
However, India’s experience over the past two decades with private operators implementing projects and delivering public services has not lived up to the high expectations.
A World Bank study of five Private-Public Partnerships in the water-supply sector warned that “investments alone will not be effective in the context of complex and fragmented institutions with little accountability; lack of capacity to run utilities efficiently and meet performance standards; weak commercial orientation; interference in utility operations by external entities; and the absence of a regulatory framework focused on customer service and financial sustainability”.
A report by the European Network on Debt and Development, meanwhile, concluded that the Private-Public Partnership model has “failed on many different levels”, leaving impacts that are both fiscal and human.
“The high fiscal cost of PPPs is due to the high cost of capital; the expectation of profit from the private partner; the high transaction costs associated with the negotiation of complex PPP contracts; and the high likelihood of renegotiation,” it said. “These higher costs are rarely justified by proven efficiency gains in delivering public services. Of serious concern, particularly in the context of a growing debt crisis and a forecast of a global recession, is that they can create a ‘hidden debt’ for the government, which adds to their overall indebtedness.”
It went on to say that the human cost of Private-Public Partnership is especially visible in public services delivery. This is “due to the fact that private companies, unlike the state, are accountable to their shareholders, and not to citizens,” the report said. “Access to services like health, education and water is increasingly dependent on citizens’ capacity to pay, which transforms rightsholders into consumers”.
However, despite the debatable experience, Public-Private Partnerships continue to be favoured as a model to implement public service projects.
Gaurav Dwivedi is associated with the Centre for Financial Accountability and works on privatisation, public-private partnerships, and reforms in public services, especially water and sanitation.
This article is the third in a series on 10 years of the Smart Cities Mission, curated for Scroll by the Centre for Financial Accountability. It was originally published in Scroll, and you can read here.
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