When the government announced the Smart Cities Mission in June 2015, the move elicited excitement and skepticism in equal part. The programme is aimed at ushering in an “urban renaissance” by promoting sustainable and inclusive urban development and driving economic growth. It envisages a massive technology-driven transformation through the successful deployment of various “smart” elements. However, there is serious apprehension about India’s readiness to build technology-enhanced infrastructure that would address the structural inequalities and inadequacies in the cities. In an interactive discussion at the recently concluded Second Annual India Infrastructure Forum, organised by the publishers of tele.net, Vivek Agrawal, joint secretary, Government of India and former managing director, Madhya Pradesh Urban Development Company, shared his views on the progress in the state under the Smart Cities Mission, the key challenges, and the way forward….
How do you define a smart city?
A smart city to me is a city that has all the modern elements in place, with all sorts of information and communication technology applications available, 24×7 power, 100 per cent recycling of water, beautiful green areas, and short commute time and distance from office spaces. Also, it is a city that is based on sustainable principles. How can this be achieved in the Indian context? The concept was to develop one part of the city with all these aspects. This area-based development (ABD) under a smart city complex becomes an example for the rest of the city to follow.
There are several elements to a smart city: e-governance, water management, waste management, transportation, etc. Which ones have worked better than others in Madhya Pradesh’s smart cities?
E-governance was the easiest to do. Then came intelligent traffic management systems, better pedestrian facilities, public bike sharing facilities, smart lighting, etc. These are all low-hanging fruit. Elements such as upgradation of infrastructure, creation of more employment opportunities, establishment of incubation centres, connected educational institutes and pan-city impact for smart city initiatives are difficult to achieve.
It is imperative that apart from taking care of the low-hanging fruit, the money put by the government into the smart cities multiplies. A certain pool of money, around Rs 10 billion, was given to a city, to be spent on infrastructure creation. This is too small an amount for a smart city initiative to really take off in five years. Also, the contribution by the central and the state governments was to be viewed as an equity contribution, and the focus should have been on growing it. We could have easily attracted an investment of Rs 50 billion, which most cities could not do. In Madhya Pradesh, we tried and had a certain degree of success such that our Re 1 worth of investment could actually convert into Rs 5-Rs 6 of investments. That said, the theme of incubating investments has been missed out under the current system.
When the Smart Cities Mission was announced, development models such as greenfield, redevelopment and retrofitting were proposed. Which of these have been followed by the mission in Madhya Pradesh?
The development of smart cities is not only dependent on the mission. The idea is to bring about a convergence of multiple programmes and schemes to create a city with good infrastructure. In Madhya Pradesh, we focused on convergence as well as resource availability. For instance, in Bhopal, there was a 300-acre area of land occupied by low structures, basically a housing complex for Class III and IV government employees. We saw this as a good opportunity for redevelopment, wherein, if we took over the site and promised to build multi-storey buildings to accommodate these houses, the rest of the free land could be used under the ABD initiative. Thus, in Bhopal, we followed a redevelopment model.
In Indore, we chose the beautiful heritage area around Rajwada and followed a retrofit model. Similarly, in Gwalior, we adopted a retrofit model. Satna had a different aspect as it had a huge cement manufacturing base and did not have an area that could be transformed into a city, and so we opted for a greenfield development there. In Sagar, we followed a retrofit model and in Ujjain, we opted for a mix of redevelopment and retrofit. Basically, we picked up a different area and strategy for every city, depending on the city’s requirements and availability of resources.
Which models have worked better in terms of private participation in smart cities?
In Madhya Pradesh, we put the projects into three categories. The first category had those projects that do not generally have a user charge, such as traffic management and sewage management. These projects do not have a direct revenue implication. For them, we earmarked a sunk fund and did not expect any return on the investment. The second category included projects that were healthy as far as the returns were concerned. Such projects had a very foreseeable revenue mechanism and could be easily taken up by the private sector. We went for a pure public-private partnership (PPP) with a premium or a viability gap funding (VGF) built in. For instance, we went for an interesting PPP project to set up smart poles and smart lights. The smart lights helped us in cost savings while the smart poles helped us earn revenues by enabling telecom connectivity and allowing electronic advertisements on them. Through these revenue sources, we were able to get investments worth Rs 6 billion in Bhopal alone. The entire infrastructure was laid by private companies. Similarly, we went for PPP projects for waste management. We developed clusters to manage the entire cycle of waste management, right from collection to processing, and for each of these clusters, we opted for PPP with a 40 per cent VGF built in. We managed to garner investments of more than Rs 20 billion as PPP in waste management. We also undertook projects like public bike sharing on a PPP basis. The vendor had the opportunity to collect revenue from advertisements on bikes and stations where bikes are parked.
The third set of projects was those where returns accrue over a long gestation period. These cannot be fully privatised because the revenue comes over 10-15 years. It would thus be very difficult for private players to invest a huge amount and wait for returns for so long. Here, we opted for the borrowing route.
Despite the central government push to revive the municipal bond market, it has not taken off in a big way. What are your views on this?
We had a very successful issue of bonds in Bhopal recently. Jabalpur is now also in line for the issue of bonds. However, the problem is that the time at which these cities decided to issue municipal bonds, the Indian bond market became very hard with an almost 100 basis points increase in the cost of bonds.
For cities, bonds make sense when they are relatively cheap as compared to the regular availability of capital. For us, it made sense as we raised the bonds at about 8 per cent and had a 2 per cent interest subsidy. So, as a borrower, one has to see which is the most efficient way of borrowing. Another issue was that the market in India was not ready to consider municipal bonds as sovereign bonds because they are not guaranteed by the state. So, in the Indian context, people are comfortable with the low rates of interest only if you are a state-owned or a Central Government-owned entity. If it is a municipal bond, the market does not respond that well. If we have an AA+ rating or an AA rating, only then do we get funds. It will take time for all these issues to settle down, but it is a good beginning.
What should the next steps be for the government in the Smart Cities space?
We need to realise that the Smart Cities Mission is a different concept from the government’s regular programmes. Each city has had to go through a competition and win the bid to get the smart city tag. The whole concept is very different. However, the machinery and people are not trained to take on this responsibility. My take is that when we go to the next level of implementation, moving beyond the introduction of new technologies and practices, we would have to ensure that implementers undergo a comprehensive training. Training of people is imperative for them to appreciate that this programme is differently conceived, has a different purpose and thus needs to be implemented in a different manner through securing partnerships and more private sector involvement. A key thing is to understand and appreciate the real purpose of the overall mission and to implement it.