Government has a view to let the development of smart cities be taken up by special purpose vehicles created by the state and municipal bodies

A key question that has arisen in the process of development of the smart city scheme in India is whether municipal bodies are indeed capable of meeting the challenges posed by new development demands. The Government of India has taken a view to let the development of smart cities be taken up by special purpose vehicles (SPVs) – companies created by the state and municipal bodies to expedite the process of development.

Certain sections of civil society have been viewing this as a ways to sidestep the normative process of using elected local self governments to drive a broader agenda – essentially setting a trend to undermine local self governance by replacing them with similar entities in future developments.

This argument is also reinforced by stipulations where elected local self governments are encouraged to delegate the rights and obligations of the municipal council with respect to the smart city project to the SPV.

The chief executive officer of this SPV, usually a senior bureaucrat appointed by the state government has a fixed tenure of three years and cannot be changed without the authorisation of the government of India.

The structure would ordinarily appear to be influenced by industrial township authorities (enshrined in the municipal law, but without any elected members) and SPV based governance structures in private townships as promoted by several state governments to promote private sector investment.

However, a quick perusal of the smart city obligations would indicate that the process of development of a smart city comprises of functions which have traditionally never vested with municipal bodies.

The bulk of smart city initiatives in India are based on area based development, ie development of new real estate – a function that is not within the obligatory or discretionary function of a municipal body as per the 12th schedule. Essentially, the SPV would work as a master developer, entering into arrangements with other developers to develop the site for redevelopment, new development or retrofitting, and thereafter exiting the project, having earned its requisite dividend/expended the amounts for capital works.

Being a separate body corporate (typically under the Companies Act, 2013), it can take up processes, works and mechanisms which the municipal body may not be empowered to do in terms of law or its processes, such as being able to raise large amounts of debt, enter into joint venture arrangements, lease, purchase or sell assets – most of which, for municipalities – need separate sanction from the state government.

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