CAG Report No. 11 of 2025 — Implementation of Smart City Mission, Government of Karnataka

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Fund Management
The SPVs could mobilise very few financial resources from sources other
than Government grants defeating the objective of their formation. The State
Level Nodal Agency (SLNA) conducted credit rating and financial
improvement studies of the cities through consultants to tap resources by
innovative financial mechanisms prescribed in the guidelines such as
municipal bonds, pooled finance mechanisms, tax increment financing,
value capture financing etc. However, the financial improvement plans
submitted by the consultants could not be implemented as the State
Government was yet (June 2024) to take decision on its suitability for
universal adoption in all ULBs after effecting legislative amendments to the
existing Acts/Rules. There is no progress in this regard.
State Level Nodal Agency (SLNA) has spent an amount of ₹0.75 crore
towards activities which does not pertain to the Smart City project/cell.
Inadequate verification in respect of payments made to the PMC resulted in
excess payment of ₹2.56 crore.
Though the service provider for Master System Integrator for the Integrated
Command and Control Centre (ICCC) failed to complete the work as
scheduled, SLNA did not enforce the contractual obligation of levying and
collecting penalty for delayed execution of works. Levy of nominal penalty
of ₹2,000 per day lacked justification though specific rate of penalties were
prescribed in the contract.
Implementation and monitoring
Four of the sampled SPVs had not maintained the minimum requirement of
₹200 crore, against which the actual paid-up capital of each Smart City stood
only at ₹10 lakh, in the absence of which, compliance to the provisions of
the Companies Act could not be ensured. Failure to provide full time CEOs
for the SPVs impacted their functioning. Lack of operational independence
resulted in dependence of SPVs on Government for technical approvals and
variations which delayed the projects, wherein, only 45 out of 645 projects
were awarded within stipulated time.
Master System Integrator’s appointment to establish centralised Data Centre
at Karnataka Municipal Data Society (KMDS) could not be completed even
after five years of awarding contract and financial progress achieved was
₹19.08 crore only against ₹60.22 crore. The implementation of Centralised
Command and Control Centre could not be carried out in the absence of
completion of data centre at KMDS. Tweaking of tender condition resulted
in selection of ineligible Local System Integrator for implementation of
Integrated Command and Control Centre (ICCC) project in Shivamogga,
which vitiated the tender process.
Functioning of ICCC was sub-optimal as the integration of line departments
with ICCC is pending either due to non- readiness of local system at
department level or due to security reasons, indicating poor inter-
departmental coordination. The integration of City Surveillance System