Economic Outlook

Govt approves Rs1 trillion urbanization plan

The government signed off on a Rs.1 trillion urbanization plan on Wednesday, with the Union cabinet approving the proposal to create 100 smart cities and the rolling out of a new five-year urban development mission for 500 cities.

Key focus areas of the mission, which allows states greater flexibility in spending the money, include provision of clean water supply, sanitation and solid waste management, efficient mobility and public transport, affordable housing and governance.

The government’s ambitious plan acknowledges the growing trend of urbanization in the country. At present, nearly one-third of India’s population is estimated to live in urban areas, including so-called census towns, or village clusters that mimic urban centres. This is projected to grow to 50% by 2050.

“Happy that union cabinet approved smart city mission and Atal mission for rejuvenation and urban transformation (AMRUT),” M. Venkaiah Naidu, minister for urban development, housing and urban poverty alleviation, said on the microblogging site Twitter.

“Will be spending Rs one lakh crore (Rs.1 trillion) in next five years to recast country’s urban landscape. Substantially hiked outlay from Rs 42,900 crore provided for nine years of JNNURM implementation,” Naidu tweeted.

JNNURM is short for the Jawaharlal Nehru National Urban Renewal Mission, which the government is replacing with the new mission named after Atal Bihari Vajpayee, prime minister when the National Democratic Alliance was in power in 1998-2004.

Under the smart city mission, an election promise of the Bharatiya Janata Party (BJP) and a pet project of Prime Minister Narendra Modi, each of 100 cities will get central assistance of Rs.100 crore per year for five years. The cities will be selected through a “city challenge competition”. The cabinet has approved a sum of Rs.48,000 crore for the project in the next five years.

“While the outlay of Rs.100 crore per city for the smart city programme may appear to be on the lower side, this would hopefully be supplemented by the state government and the corporation/urban local body and more importantly the private sector,” said Arindam Guha, a senior director at Deloitte, a consulting firm, in India, said.

“However, for private sector players to invest in this space, most cities would have to take a relook at their tariff structure for urban services so that they not only recover the cost of service delivery but are also able to service these investments,” Guha said.

Each state will shortlist its smart city aspirants in line with norms that will be specified later and submit proposals to the centre for evaluation and financial support, according to a statement released by the ministry of urban development.

“Cabinet’s formal sign-off on the creation of smart cities clarifies the next steps on this big initiative announced by the government in the budget,” said Neeraj Sharma, a partner at consulting firm Walker Chandiok and Co. Llp. “Given the facets of a smart city, this creates a significant opportunity for companies in real estate and in infrastructure sector, apart from companies in IT (information technology), waste management and others.”

The new urban development mission, to be called the Atal Mission for Rejuvenation and Urban Transportation (AMRUT), has been allotted Rs.50,000 crore. AMRUT will be implemented in 500 cities and towns, each with a population of 100,000 and above.

“Design of new missions recast based on JNNURM learnings. States get substantial operational flexibility,” Naidu tweeted.

Under AMRUT, states will be given the freedom of designing their own schemes. They will only need to submit an annual action plan to the centre for broad concurrence, based on which funds will be released. The Union government will not appraise individual projects, a key point difference from the JNNURM.

Ten percent of the budget allocation for AMRUT will be offered to states and Union territories as an incentive based on the reforms they succeeded in making during the previous year.

“Central assistance will be to the extent of 50% of project cost for cities and towns with a population of up to one million and one-third of the project cost for those with a population of above one million. Central assistance will be released in three instalments in the ratio of 20:40:40 based on achievement of milestones indicated in state annual action plans. AMRUT seeks to lay foundation to enable cities and towns to eventually grow into smart cities,” said a government statement.

Debolina Kundu, an associate professor at the National Institute of Urban Affairs, expressed scepticism.

“The new mission is certainly good for a few select cities, but what about the rest? Only 500 out of 7,933 urban centres is too small a number to focus on, that too when half of these 8,000 are census towns where urban administration and governance lack even formal recognition,” Kundu said.

The cabinet committee on economic affairs on Wednesday also extended the deadline for completion of urban housing projects sanctioned under JNNURM before March 2012 by another two years. Construction of 360,000 houses for the urban poor is still in progress.

The article appeared in Mint. The article can be found here.