Why Did India's 100 Smart Cities Mission Fail?

TL;DR

India's Smart City Mission collapsed on funding and execution, not on vision. Of 9,860 crores released to 60 cities by December 2017, only 645 crores were spent, about 7%. Three years after launch, most projects were still stuck at the detailed project report stage, so Mumbai still floods and Bangalore still takes 2 hours for 10 km.

Transcript

May Narendra smoothhaunga. Hi everybody. In 2014 when Modi Gi was elected as a prime minister of India, he got the entire nation excited by the idea of smart cities. Hindustan city. The BJP government promised to revolutionize the entire country with 100 smart cities and it was said that smart cities will have AI, machine learning, IoT, zero traffi... Read More

Key Insights

• The Smart City Mission was launched on June 25th, 2015 by Prime Minister Narendra Modi, promising 100 smart cities built around AI, machine learning, IoT, zero traffic, spotless roads, efficient public transport and affordable housing for the poor.
• Only about 7% of released smart city funds were actually spent in the early years. As of December 2017, 9,860 crores had been released to 60 selected cities, but just 645 crores of that had been utilized.
• Central funding was budgeted far below the announced ambition. Planned central mission support was 48,000 crores over 5 years, yet the budget estimate for the first three years came to just over 15,000 crores, roughly a third of the promised support.
• The FY 2017-18 shortfall shows the gap clearly: the Ministry of Housing and Urban Affairs required 13,646.3 crores for the first installment for 99 cities, but only 3,989.5 crores was allocated at the budget estimate stage.
• Unspent money traced back to unprepared paperwork. Three years after the mission launched, the standing committee on urban development reported that the majority of identified projects were still at the stage of preparing detailed project reports.
• India's urban rural imbalance is the underlying problem the mission was meant to solve. Mumbai's GDP is $277 billion against $130 billion for the whole state of Bihar, and Mumbai's per capita GDP of 6.4 lakh rupees is nearly 10 times Bihar's 68,000 rupees.
• Bihar's underdevelopment persists despite resource wealth. The state holds one of the largest reserves of coal, one of the largest reserves of gemstones, and 57% of India's gold reserves, yet loses bright minds to migration, which starves local industry of skilled workers.
• Urbanisation makes the stakes enormous: 35% of Indians live in cities today and that reaches 40% by 2030, meaning 600 million urban residents, double the population of America and more than 27 European countries combined.
• The retrofit pivot introduced special purpose vehicles, separate companies for each project such as Bhopal Smart City Development Corporation Limited, a 50/50 state municipal company that issues tenders, signs contracts and implements projects outside normal municipal channels.
• Outcomes on the ground contradict the 94% completion claim. Mumbai still floods after one heavy rain, a 10 km trip in Bangalore still takes 2 hours, and Delhi's air is toxic enough that breathing it equals smoking 10 cigarettes a day.

Questions & Answers

Q: What was India's Smart City Mission and when was it launched?

The Smart City Mission was launched by Prime Minister Narendra Modi on June 25th, 2015, after the idea was first raised when Modi was elected in 2014. The BJP government promised to revolutionize the country with 100 smart cities powered by AI, machine learning and IoT, with zero traffic, spotless roads, efficient public transportation, affordable housing for the poor, no overflowing sewers, no mounds of garbage and plenty of drinking water. The stated vision was to bring Indian cities up to European standards. Countries including the US, France, Germany, Japan and Singapore, plus companies like Siemens, Hitachi and Schneider Electric, came forward to help build them.

Q: Why did India's Smart City Mission fail?

Building new cities from scratch turned out to be financially unsustainable for three connected reasons. First, the central government did not allocate enough funds: planned central support was 48,000 crores over 5 years, but the first three years were budgeted at just over 15,000 crores. Second, the funds that were released went largely unspent, with only 645 crores of 9,860 crores utilized as of December 2017. Third, that underspending traced to unprepared paperwork, since three years after launch most identified projects were still at the detailed project report stage. Money fell short, and what arrived could not be deployed.

Q: How much money was actually spent on the Smart City Mission?

The government says 1.64 lakh crores has been spent in total and claims 94% of urban projects are complete. The early-stage figures tell a different story. As of December 2017, 9,860 crores had been released to 60 selected cities under the mission, but only 645 crores had actually been utilized, roughly 7% of what was released. Individual cases were even smaller: Ranchi and Andaman saw only 35 lakh and 54 lakh rupees spent respectively, amounts too small to build and maintain even a telecom tower, let alone a smart city.

Q: What is the urban rural imbalance in India?

The urban rural imbalance is the gap between India's booming metros and its stagnating states. Millions have migrated from UP and Bihar to Mumbai since independence in search of jobs. This creates a vicious cycle: fewer people in Bihar means less investment, less investment means no industries, no industries means no jobs, and lack of jobs drives more migration. Mumbai alone has a GDP of $277 billion while the entire state of Bihar has a GDP of $130 billion. Per capita, Mumbai stands at 6.4 lakh rupees per year against Bihar's 68,000 rupees, nearly a 10x difference.

Q: How many Indians will live in cities by 2030?

Today 35% of Indians live in cities, and by 2030 that figure will reach 40%, which translates to 600 million urban residents. To put that scale in perspective, 600 million is double the population of America and more than the entire population of 27 European countries combined. This projected surge is precisely why the Smart City Mission was launched: existing cities are already choking with overcrowding, sky-high real estate prices and poor quality of life, and adding hundreds of millions more urban residents without new infrastructure compounds the problem rather than solving it.

Q: What are special purpose vehicles in the Smart City Mission?

Special purpose vehicles, or SPVs, are separate companies set up for each smart city project, with the main job of cutting through bureaucracy to get work done. They were introduced when the government pivoted from building new cities to a retrofit model. An example is Bhopal Smart City Development Corporation Limited, a 50/50 state municipal company that directly issues tenders, signs contracts and implements projects without going through normal municipal channels. Alongside SPVs, the government introduced public private partnerships. Both were practical answers to a practical problem, but SPVs created further problems and private players largely did not participate.

Q: What is the retrofit model for smart cities?

Retrofit means giving old cities a complete makeover rather than building new ones from scratch. After the original build-from-zero approach proved financially unsustainable, the government shifted to focusing on cities that already exist, upgrading their roads, transport, electricity and water supply to turn them into smart cities. The logic is sound, since existing cities already have population and economic activity. To execute it, the government introduced two mechanisms, special purpose vehicles and public private partnerships, though in practice the private partners largely failed to show up.

Q: Why is Bihar underdeveloped despite having natural resources?

Bihar holds one of the largest reserves of coal, one of the largest reserves of gemstones, and 57% of India's gold reserves, yet its entire state GDP is just $130 billion against Mumbai's $277 billion for a single city. The resource wealth does not translate into growth because of a self-reinforcing cycle: bright minds migrate out, causing brain drain; local industries then struggle to find a skilled workforce; and tax revenue stays low, which limits infrastructure development. Without infrastructure and skilled labour, industries do not arrive, so there are no jobs, and migration continues.

Summary & Key Takeaways

• The Smart City Mission was launched by Prime Minister Narendra Modi on June 25th, 2015, promising 100 smart cities with AI, machine learning, IoT, zero traffic and spotless roads, lifting Indian cities to European standards. After 1.64 lakh crores in expenses, the government claims 94% of total urban projects are complete, yet everyday city conditions have barely changed.

• The real problem the mission targeted was India's urban rural imbalance. Mumbai alone has a GDP of $277 billion while the entire state of Bihar has just $130 billion, despite Bihar holding large coal and gemstone reserves and 57% of India's gold reserves. Migration drains Bihar of talent while Mumbai chokes on overcrowding and high real estate prices.

• Funding fell far short of the plan. Against a planned central mission support of 48,000 crores over 5 years, the first three years budgeted just over 15,000 crores. In FY 2017-18 the Ministry of Housing and Urban Affairs needed 13,646.3 crores for the first installment for 99 cities but received only 3,989.5 crores at budget estimate stage.

• Money that did reach cities went unspent because project preparation lagged. Three years after launch, the standing committee on urban development found most identified projects were still at the detailed project report stage. Ranchi and Andaman saw only 35 lakh and 54 lakh rupees spent, sums too small to build and maintain even a telecom tower.

• The government pivoted from building new cities to a retrofit model, upgrading existing roads, transport, electricity and water supply. Two mechanisms were introduced: special purpose vehicles, separate 50/50 state municipal companies like Bhopal Smart City Development Corporation Limited that issue tenders and sign contracts directly to bypass bureaucracy, and public private partnerships, where private players largely did not show up.