The Special Purpose Vehicle (SPV) will be created by each city to implement the Smart Cities Mission (SCM) at the city level. The SPV will be in charge of planning, appraising, approving, releasing funds, implementing, managing, operating, monitoring and evaluating the projects in their city. The States will ensure that there is a dedicated revenue stream for the SPV and the SPV should evolve its own credit-worthiness for raising additional resources from the market. The SPV will be a limited company and will have a 50:50 equity shareholding with the State.
There are a number of concerns raised around using an SPV implement the SCM projects. Many of these concerns center around the idea that the SPV is undemocratic. A further analysis of the framework of the SPV and its implications for city governance is needed.
Kristian Hoelscher writes that “SPVs will need to generate adequate financing both to guarantee investor returns and ensure sufficient working capital”. In a paper published in March 2016, Hoelscher opines that “guidelines also present the mission as fundamentally requiring private sector and/or international organization involvement for success”.
Shalini Nair writes that private players or financial institutions “will also get equity stake in the SPV which can extend to a maximum of 50 percent”. As such “the center can in no way ensure inclusiveness for the urban poor, migrants, and the marginalized if it hands over its responsibilities in terms of infrastructure and basic service provision to the private sector on such a mass scale”.
Matthew Idiculla writes that “much of the opposition to the Smart City is emerging from the fear that Municipal Corporations would get side-lined as a… SPV constituted in each city gets vested with the powers to implement the Smart City Mission". He also writes that “the SPVs will be headed by a CEO with a fixed term of three years and can only be removed with prior approval by the central government”. They will be “empowered to enter into Public Private Partnerships, incorporate subsidiaries and appoint project management consultants”. This raises concerns that “the influence of private investors and consulting firms in urban governance is likely to increase with Smart Cities.”
Finally, he writes that the “Mission encourages the State government and urban local bodies to delegate the rights and obligations of the municipal council with respect to the Smart City project to the SPV. Further it also encourages them to delegate the decision making powers available to the ULB under the municipal act/ government rules to the Chief Executive officer of the SPV”. He says, “essentially, it is an instance where a policy issued by the central executive is seeking to niftily circumvent a law passed by the state legislature”.
Image 1: What is the real cost of creating smart cities? Source: Indian Express
Additional concerns have been raised in a series of interviews with public officials and civil society. The first is that an SPV would raise problems of coordination with other departments responsible for basic services. According to one senior civil servant, the SPV’s role should be limited to being a project management agency that sets service level benchmarks and monitors those. The execution should be given to the agencies already working in the city. Additionally, interviewees felt that the SPV disempowers city governments. Giving power to an SPV, which is not accountable to an elected body, is at divergence with the 74th amendment to empower the local body.