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TOPIC:  urbanization, their problems and their remedies; Investment models.

Smart City selection process: 

STAGE-1: Shortlist

Three documents are needed for applying as a SMART city.

  1. Citizen Reference Framework: This includes nukkad meeting, workshops and surveys to find out what people want.
  2. Smart City own Development Plan: Geographic Information Sysem( GIS), spatial data, ICT mapping will be done and financial requirements will be laid down.
  3. Environmental Sustainability Plan: plantation of trees, waste & water managment and disaster management plans will be laid down.

Cities will submit their proposals to the state government. The state government will shortlist the eligible aspirants and will forward the names to the Ministry of Urban Development (MoUD). The MoUD will finalize the All-India list.

STAGE-2: Smart City Plan (SCP)

  • Cities in the All-India list will prepare their SCP and send the proposal to the union government. In preparing the plan, they can hire a consultant agency or can even take the help of a hand-holding agencies like World Bank, Asian Development Bank etc.

STAGE-3: Selection

  • MoUD will consider their plans and will select 100 cities. Those who lose can apply in the next round. Those cities which appear in the final list will have to form a Special Purpose Vehicle (SPV). This SPV will implement the SMART city.
  • The SPV will be a limited company under Company Act, 2013. In the SPV, the State or Union Terrirtory (UT) will provide minimum Rs. 100 cr capital. The Urban Local Body (ULB) will also provide a minimum of Rs. 100 cr capital. A private company or a Financial Intermediary can also become a shareholder but on the condition that the State/UT and the ULB should collectively be the majority shareholders. And the shareholding of State/UT and the ULB should be equal.
  • If the initial capital is still not enough, then money can come in the form of grants from the central and the state government on the condition that their contribution should be equal.
  • The SPV can also borrow by issuing bonds, can ask for user fees for the services it provides.
  • The SPV will also be given taxation powers provided the ULB agrees to it.
  • There will be a Board of Directors of the SPV consisting of nominees from the Union, state and ULB. The chairman of the board will be decided by the state government. A CEO will also be appointed by the MoUD for a term of three years.

Funding mechanism for SMART cities:

  • It is a Centrally Sponsored Scheme where union and state governments will together invest approximately Rs.1 lakh crore
  • In May, 2015 the union government announced 46,000 crore for developing 100 SMART cities.
  • Seven lakh crore will be given over the next 20 years.
  • 60 percent of the government funding will go to infrastructure development and 10 percent will go for ICT & e-governance.
  • 10 percent bonus will be given by the government to those SMART cities which are performing well.
  • Independent regulators will be made for assessment of user charges for electricity and water, and to determine the rates of property taxes.
  • Private sector will be involved for the development of public transport system. They will recover their costs by way of user fees.
  • To get money from public, REITs, InvITs and tax free municipal bonds will be introduced.
  • REITs– Real Estate Investment trusts.
  • InvITs- Infrastructure Investment Trusts (this includes airports. highways etc)
  • Both REITs and InvITs are similar to mutual funds i.e they take money from the public and invest the money in income generating assets (real estate or infrastructure). The money which comes in the form of rent or user fee will be given accordingly to the unit holder.
  • SEBI (Securities & Exchange Board of India) has given its guidelines for REITs:
  • REITs at present have been reserved for only High Net Worth Individuals and institutional investors. They will have to buy a minimum of Rs. 2 lakh worth of units.
  • REITs fund managers can issue units of minimum Rs. 250 cr. It will be listed at the stock exchange.
  • There should be a minimum of 200 individual investors.
  • Minimum 25 percent of the units should be held by the public.
  • The money will be invested in those real estate projects which are either finished or about to be completed.
  • The rent so received will be given as return to the investors as per their unit holding
  • Benefits of REITs and InvITs:
  • These are tried and tested in US, UK, Australia and Japan.
  • If the developer is falling short of finances, REITs and InvITs can provide them with the necessary finances to complete the projects. Else they might turn into Non- performing assets (NPA).
  • The investors can sell their units in stock exchanges and there is no need to wait till maturity.
  • It is a new investment opportunity for people. There is also a possibility of getting positive real interest rates from REITs and InvITs. This means that the return is more than inflation. So investment in gold will reduce, Current Account Deficit(CAD) will reduce. As a result, rupee will not become weak, petrol will not become expensive and the problem of inflation will not be there.
  • 100 percent FDI:
  • 100 percent FDI( Foreign Direct Investment) is permitted in SMART cities but with a few conditions for minimum build up area, investment and lock-in period. But these conditions will be waived if the construction is for poor people.

CRITICISM:

  • Chinese government decided to build satellite towns near the provincial capitals. They invested huge sums of money in transport and other facilities, but the population density remained less.
  • China is a communist country and so land is nationalized. People cannot buy homes but can take them only on lease. The middle class families of China bought them on lease, with a hope to sublet them to have a steady source of income. But people are not migrating to these satellite towns due to harsh weather conditions and low income opportunities. As a result Smart cities of China have turned into Ghost towns. There is a fear of the same happening in India as well. But in India, we will not make new cities like China, instead the existing cities will be upgraded.
  • As there will be 100 percent dependence over ICT, cyber terrorism or even a software bug could crash public transport system or electricity grid.
  • There is an apprehension that constant surveillance by CCTV camera will lead to an authoritarian government.
  • It will be a soulless landscape made of glass, steel and concrete boxes and everything will be connected through ICT and wires.
  • “Sense of place” will be lost. All streets and shops will look identical.
  • People will lose personal communication with family since everything will be connected by ICT. Community values will decrease. Everyone will have smartphone, GPS and Wi-Fi.
  • Government should focus more on village development else migration to urban centres will keep on increasing. It is against the Gandhian philosophy of village-centric development and would lead to environmental catastrophe.
  • Urban development achieved by exploiting the nature is not sustainable. Urban development is producing more and more carbon dioxide which is leading to illness, overcrowded hospitals, and the rise in temperatures pose a threat to the very existence of all living things.

Read more: SMART city mission (Part-1)

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