Budget 2018 Opinion

No Budget For Smart Cities

The union government needs to provide untied budgetary support to empower Indian cities.

At the end of the much-awaited Budget for 2018-19, the Finance Minister Arun Jaitley left city dwellers with little to clutch on to.

The total size of the Ministry of Housing and Urban Affairs (MOHUA) budget is Rs 41765.13 crore, which amounts to 39% of the Department of Rural Development budget. Out of the total budget, 51% of the expenditure outlay proposed by the MOHUA has been in the form of Central Sponsored Schemes (CSS) to be transferred to states and union territories. That makes the urban local bodies reliant upon states for the financial support.

The municipalities, even after relying highly on states for their expenditure, carry an enormous burden to provide public amenities to 31 percent of India’s population. For instance, the Bruhat Bangalore Mahanagar Palike (BBMP), with a population size of 6.8 million, still relies on the Karnataka government for 38 percent of its total budgetary expenditure. This financial constraint not only limits municipalities from being able to plan for the needs of its citizens, but is also responsible for the deplorable condition of amenities provided. The union government should just have created schemes to transfer the outlay amount directly to urban local bodies.

That said, the current government has done a tremendous job of optimising the schemes created for urban development by merging most of the old schemes into three big ones: the Smart Cities Mission (SCM), the Atal Mission for Rejuvenation and Urban Transformation (AMRUT) and the National Heritage City Development and Augmentation Yojana (HRIDAY). This has increased the capacity of the schemes and has helped direct central resources in a much more planned manner.

Out of these, the most beloved scheme is the SCM that is dedicated towards creating 100 Smart Cities in the country. This is evident from the fact that the Finance Minister mentioned a much larger number as an outlay for SCM in the speech than has been allotted. According to the speech, the outlay provided for the SCM is Rs 2.04 lakh crore; however, as per the budget documents, the outlay for the financial year 2018-19 is just Rs 6169 crore.

Nevertheless, there was still an increase of Rs 2169 crore allotted to the SCM this year, while the total outlay for the entire Ministry only increased by Rs. 1147 crore. With 99 cities already on the list, the scheme will be a positive step towards a technologically advanced governance system. It would help if this advancement is complimented with an improvement in the basic amenities provided in Indian cities.

To an extent AMRUT, the second largest scheme within the Ministry, is an attempt to transform urban regions. Tasked with providing basic amenities in all cities like tapped water, sewage connections, open spaces and so on, AMRUT has been allotted an outlay of only Rs 6000 crore this year. This is Rs 3000 crore less than the BBMP’s budget last year. To add to it, when the Finance Minister said that HRIDAY, a scheme to promote heritage conservation, has been “taken up in a major way,” he was referring to the mere Rs 10 crore increase in the outlay from Rs 151 crore to Rs 161 crore.

This budget also reveals that although the CSS play an important role in providing financial support to urban local bodies, they do not do enough to empower them to become independent. The limited amount that is provided under the various schemes is tied to a predetermined objective. This limits the ability of the city administrator to use it based on their needs. For instance, the AMRUT scheme focuses mostly on water and sewage facilities that may not necessarily be the primary concern of all cities in India. However, as the grants provided are tied to an objective, city administrators are bound in how they may utilise them.

Moreover, by compelling state governments to be co-sponsors of the central scheme, the union government has also reduced the incentive for the states to spend any additional amount on cities. States thereby have an incentive to substitute their expenditure on cities with the amount they would spend on the CSS. As a result, the net amount spent on cities does not increase even though the sources do.

In all of this, the one positive takeaway from the budget was the mention of credit rating for cities. This doesn’t just increase the opportunities for city municipalities to raise income but also helps incorporate a sense of accountability and transparency in the process.

Fixing the deeper issues related to urban governance in India is a complicated task. First and foremost, the amount currently allocated to urban local bodies is insufficient to fulfil their responsibilities. And it is not just the quantity but also the mode of providing grants that needs revision. Urban local bodies need the freedom to spend grants to address endemic problems. The union government can best help them by creating a scheme that provides grants that are not tied to a specific objective. By doing this, the union government can truly empower urban local bodies and put weight behind the words of the Finance Minister that “urbanisation is our opportunity and priority.”

About the author

Devika Kher

Devika Kher is the Programme Manager for the Takshashila Institution's Graduate Certificate of Public Policy. She is also a Policy Analyst at the Takshashila Institution and her areas of research focus are urban governance and public finance.