Cities in India would need to
establish their credit ratings
before gaining access to
international funds
implementing the Fourteenth Finance Commission’s
recommendation regarding the better use of land-based
financing instruments and other taxes. If implemented
correctly, this fiscal route has the advantage of raising
funds with no financial burden. The second alternative
involves undertaking the debt financing using munici-
pal bonds. However, most of the urban local bodies in
India lack the creditworthiness to use this instrument
optimally. The third choice involves raising funds from
the bilateral and multilateral institutions like World
Bank and Asian Development Bank (ADB). ADB has
promised US$1 billion (Rs.6000 crores), and World
Bank has set aside US$ 500 million (Rs.3000 crores) as
long-term loans for funding the Smart City mission of100
The amount in terms
of crore which the
central government will
disburse every year for a
period of 5 years to each
Smart City.The government of India has designed a creative fi-
nancing model. The overall budget for this initiative is
estimated at Rs.96,000 crores. This outlay will be
funded 50:50 by central and state governments. The
central government has allocated a budget of Rs.48,000
crores for this initiative and will disburse Rs.100 crores
every year for a period of 5 years for each Smart City. The
remaining investment of Rs.48,000 crores is expected
to be funded by state governments. The success of the
mission is, therefore, largely dependent on the financial
generation capacity of the state governments along with
investments by the private sector.
The government has identified several alternatives to
meet the financing challenge. The first option involves