Smart city project funding by multilateral agencies

The central government’s Smart Cities Mission is an ambitious project, which envisages various city-level projects, in areas such as low-cost housing, renewable energy and public transit. The sheer magnitude and size of the project brings to mind implementation and finance.

The first phase of the mission has been rolled out, with the central government disbursing the first tranche of ₹1.94 billion (US$29 million) to many selected cities. However, the present financial assistance from the central government, state governments and urban local bodies (ULBs) will aggregate to only a fraction of the total estimated cost.

To bridge this gap, the mission contemplates financing through various sources, including multilateral agencies. Such financing may be easier and cheaper than other funding options. The fact that it works for long-term infrastructure projects is well demonstrated by Delhi Metro, which successfully raised a major portion of its funding through the Japan International Cooperation Agency (JICA). Also, as the Smart Cities Mission is not aimed at developing tier 1 or metropolitan cities, but at financing tier 2 or tier 3 cities, with the probability that these may eventually develop into business cities, banks may see the projects as a risky or not-so-attractive proposition. Considering these factors, financing by multilateral agencies is likely to emerge as a major source of funding.

Soumya Kanti De Mallik is an associate partner at HSA Advocates. HSA is a full-service firm with offices in New Delhi, Mumbai, Bengaluru and Kolkata.