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

Financial Management
17
Audit observed that the SPVs failed to mobilise resources from sources other
than Mission grants as detailed below:
• The 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. Further there
is no progress in this regard.
The State Government replied (April 2025) that UDD is currently
deliberating on the recommendations made by the credit rating agency for
its suitability of universal adoption by all ULBs in the State, after effecting
legislative amendments to the existing Rules/ Acts or introduce new
clauses for the applicable Rules/Acts as required.
• SPVs did not take any action to mobilise additional resources through
National Investment and Infrastructure Fund (NIIF) and Leverage
borrowings from financial institutions.
The State Government accepted that Smart Cities have not proposed
mobilisation of funds under NIIF and it will be implemented in future
projects.
• In respect of PPP models of seven SCPs an outlay of ₹2,907.38 crore
could not be implemented fully as envisaged. 31 PPP projects were
dropped as they were financially not viable. Further out of 26 projects
(Appendix-3.1) implemented under PPP model, only 13 were completed.
The State Government replied (April 2025) that smart cities are
implementing 26 PPP projects worth ₹1,091.05 crore, out of which, 13
projects of ₹329.68 crore were completed and 13 projects worth ₹761.37
crore are in progress.
• The SCPs projected an amount of ₹7,409.12 crore to be generated over a
period of five to 30 years from revenue-generating projects18. The revenue
so generated was to take care of the operation and maintenance
expenditure of the SPVs. However, SPVs took up only 53 out of 645
smart city projects (eight per cent) under revenue generation model. Even
in respect of these 53 projects, proceeds of revenue would flow to the
respective Corporation or Trusts created for the operation and
maintenance of the assets.
The State Government replied (April 2025) that as on date seven cities
have taken up 130 projects under revenue generation category. Further,
the core infrastructure of the city is being developed viz., roads, UGDs,
foot paths, parks, water supply, SWM, Government schools and hospitals
etc., which are essential urban infrastructure in nature and building a
18 In the form of development charges, entry fees, lease rentals, sanitation charges, smart
metering charges etc.