Need for Smart Cities, Introduction to Smart Cities, India Smart City Initiative Details, Financing Mechanisms to support implementation & Global Examples

1. J.P. Gadia, Resurgent India

2. • Need for Smart Cities
• Introduction to Smart Cities
• India Smart City Initiative Details
• Financing Mechanisms to support implementation
• Global Examples

3. • Cities are likely to inhabit 40% of India’s population by
2030, and contribute nearly 75% of the national GDP
in the next 15 years
• The global experience is that a country’s urbanization
beyond 30% happens at a much faster pace till it
reaches about 60-65%.
• India is, thus at a point of transition and the current
trajectory is likely to result in urban decay and
gridlock
• Thus, planning for urban cities become critical to
magnify the development potential and arrest
underlying stress
• With this vision, the Government of India, led by
Prime Minister Narendra Modi, has set up the task on
development of 100 Smart Cities in the country
37.7 42 47 52
63
75
Urban share of India GDP %
220
290
377
600
1991 2001 2011 2030
Rapid Urbanisation
+223
Urban Population
Mn
Urbanisation Rate
26 28 31 41

4. • No standard definition for this vision.
• Various definitions have been put forth for Smart Cities, over time:
Characterized and defined by a number of factors
including sustainability, economic
development and a high quality of life.
– European Commission
That monitors and integrates conditions of its critical
infrastructures , better optimize its resources, plan its
maintenance activities, and monitor security aspects while
maximizing services
- The U.S. Office of Scientific and Technical Information
• From an implementation perspective, a Smart City should leverage the existing
traditional and complement the modern to enable a better standard of living,
sustainable development and better management of resources .

5. • In the absence of a standard definition, an
integrated framework with 3 key enablers
established under the guidance of Ministry of
Urban Development
• The framework facilitates implementation
and is helpful to both existing and new cities
– Existing cities can aspire to create new
features towards smartness
– New cities be aided in their planning &
operations by creating dimensions and metrics
around the enablers
• The delivery of the enablers rests on the
existing and created infrastructure under
following pillars :
– Physical , Institutional , Social, Economic
Integrated Framework

6. MISSION OUTLAY
• Smart Cities Mission on an outlay of INR 48,000 crore over 5
years
SELECTION OF CITIES
• Aspirant will be selected through a ‘City Challenge’ competition
• It is intended to link financing with the ability of the cities to
perform to achieve the mission objectives.
• All states to have at least one Smart City
OPERATIONAL AND FINANCIAL SUPPORT
• Selected cities will receive Rs 100 crores over 5 years each year
• Each state will form a SPV for financing smart cities
• Smart City Council India formed to promote development
• Focus on core infrastructure services like adequate and clean
water, sanitation ,solid waste management, efficient urban
mobility, affordable housing, power supply etc.
• AMRUT, in parallel will be implemented in 500 locations with a
population of one lakh and above
Timeline

7. *Additional investments required in Affordable housing, 24x7 electricity, ICT services, education, cost-efficient health services, recreation & sports facilities, etc. have
not been estimated / considered by the MoUD in the above fig.
Source: Ministry of Urban Development, McKinsey, Resurgent Analysis
Funding Requirement*
Green
Field
 Significant funding requirement as
development done from scratch
 All aspects of development such as
power, water, solid waste mgt. need to be
addressed
 Typically, funds raised through sale of
land / commercial / residential space
 Relatively lower funding requirement as
large scale modifications avoided
 Focus on leveraging technology solutions
to deliver citizen services – water supply,
solid waste mgt, etc.
 Typically, user charges are levied to meet
the operations & maintenance costs
Funding Criteria
Brown
Field
**INR 7 lac crore will be required
over the next 20 yrs. ; Annual
investment of INR 35k crore
required
85
60
205
350
700
Water Sewerage &
Sanitation
City Roads Mass Transit Total Funding
Requirement
Fig in chart in INR (‘000 Crores)

8. Financial Support from Government
 Center allocation
 Viability Gap Funding
 National Investment and
Infrastructure fund
 Sale of land and/or commercial
and residential real estate
 Increasing FAR (Floor area ratio or
total floor area of a building)
Land Monetization
 Borrowings from multi-lateral and
bi-lateral agencies
 Municipal bonds
 PMDO facility
 Flexible PPP models
 Infra. Debt funds
Debt and PPP
 Tap fees
 Charges on sale / registration of
property
 Green tax on fuel purchase
 Urban tax on purchase of new
vehicles
User Charges / Fees / Taxes
Funding
Strategy

9. Central Government
Allocation
• Cabinet allocated INR 48K crore for the smart city project ; Each smart city to
be funded INR 100 crores per year for the five years
• Initial investment of INR 5k crore for the selected cities to prepare City
Development plan
• Allocation of funds provided by center - 60% in infrastructure, 10% for e-
governance initiatives and rest will be equity contribution for building
townships along with Pvt. developers
• Each state will form a Special Purpose Vehicle for smart city financing.
Viability Gap
Funding
• VGF up to 90% reduction in project cost for cities in hilly areas and 40%
reduction in project cost for cities on the plains
National Investment
and Infrastructure
fund
• Funding for smart cities to be supported by the INR 20K NIIF fund
• NIIF funds will be secured from PSU dividends and Central govt.

10. Borrowings from
multi-lateral and bi-
lateral agencies
• Borrowing can be secured from multilateral agencies such as ADB for financing smart city
projects.
• Recently, the Govt. has sought support from ADB for annual funding of at least $20 billion
in smart city projects
Municipal bonds
• ~10% of the funding requirement can be raised through municipal Bonds; Civic bodies in
US have raised USD 500 billion through them
• Recently, SEBI approved guidelines for allowing municipal bodies to raise funds through
issue of municipal bonds
PMDO facility
• This provision, which was initially set up in 2006 can be leveraged for funding smart city
projects
• Recently, the corpus under the facility has been enhanced from INR 5K Cr. to INR 50K Cr.
Flexible PPP models
• Funding from the private sector is necessary to meet the overall funding requirement
• PPP models where in the private sector companies are leveraged for technical support,
capital funding and oversight of operations
Infra. Debt funds
• IDFs can be directed to invest in municipal bonds by defining these as eligible investments
• IDFs can also re-finance debt taken during the construction phase as well as additional
funds for financing operations

11. Land
Monetization
• Typically, in brownfield projects, the funds can be through the sale of sale of land and/or
commercial and residential real estate
• Funds can also be raised by increasing the floor area ratio, that is, total floor area of a
building in comparison to the size of the land upon which it is built
User Charges
• User fees allow cities to impose fees to cover the cost associated with funding
supporting infrastructure
• Under this system, the public jurisdiction shoulders the costs of service/infrastructure
investment and dedicates the fee stream from private users to repayment
Tap Fees
• Tap fees can be levied to cover the cost of tying water meters for new connections to
existing lines
• Several States in US such as Michigan and Colorado charge fees for installing water
meters, which are usually over and above normal water usage charges based on
consumption
Other taxes
These can also leveraged to finance smart city initiatives. However, they need to explored
further to understand their potential benefit /impact -
• Green tax on fuel purchase
• Urban tax on purchase of new vehicles
• Betterment charges payable on sale / registration of property

12. California (USA)
Financing
Instrument
Municipal Bonds
Intended
Benefit
 In 2006, the state of California estimated, that it will grow by 30% over the
next 20 years, putting a $500 bn strain on infrastructure, specially transport
Financing
Strategy
 A two phased 20 year investment plan was proposed, the first phase
involved issuance of Municipal bonds
Use &
Impact
 To meet the funding requirement, state voters passed a $37.3 billion bond
package, the largest ever offered on a single ballot
 The transportation sector received $19.9 billion of the allocation. These
funds went to congestion reduction, highway and local road improvements,
transit, air quality, safety and security

13. Toronto (Canada)
Financing
Instrument
User Fees
Intended
Benefit
 User fees can be leveraged to secure financing to fund part of smart city
initiatives
 User fees allow cities to impose fees to cover the cost associated with
funding services and enhancements to increase the quality of life and cover
administrative and regulatory processes
Use &
Impact
 In 2009, in order to address the $500 Mn deficit, municipalities in Toronto
introduced levy of user fee on a set of city services, such as $50 for
recreation programs, additional 50 cents for paying parking online, new
property tax accounts @ 50, etc.
 User fees collected by the municipalities were used to make
enhancements to the city infrastructure

14. Colorado & South Carolina (USA)
Financing
Instrument
Tap Fees
Intended
Benefit
 The primary use of tap fees is to cover the cost of tying water meters for
new connections to existing lines
 It involves an upfront payment to cover costs associated with growth
Use &
Impact
 In South Carolina, the Charleston Water System charges a $500 tap fee for a
¾” water line tap and and $200 for a sewer line tap of six inches or smaller
 Colorado uses a combination in which all residential units pay a tap fee of
$4,000 for a 3,000 square foot home and an additional $2 per square foot
is tacked on after that.
 These charges are used to fund capital improvements and recover the cost
of integrating new development into existing infrastructure