Smart Cities Mission needs innovative financing models

Under the Smart Cities Mission, the government of India has earmarked approximately US$7.3 billion for funding of smart cities, with a total proposed investment of US$15.6 billion for 100 smart cities based on a matching contribution from states and urban local bodies. But estimates suggest that building smart cities and allied infrastructure is likely to require around US$1 trillion.

This means that the funding model for smart cities needs to shift from using public resources to contractual public-private partnerships (PPPs), to be able to attract private capital. PPPs will play a key role in developing the infrastructure for smart cities, especially due to limited availability of public resources.

The key to success of PPPs lies in framing a concession model that is balanced both for the government and the private party, taking into consideration the sector in respect of which a PPP is proposed. Since India is venturing into PPPs in urban infrastructure for the first time, a flexible model with greater risk allocation to the government is desirable.