Performance Audit on Implementation of Smart City Mission in Karnataka

Smart City Mission (SCM), launched in June 2015, aimed to develop 100 smart cities across India through core infrastructure improvement, sustainable and inclusive development and the application of smart solutions. Five Karnataka cities — Bengaluru, Belagavi, Davanagere, Mangaluru and Shivamogga — were selected. The CAG audited SCM implementation in Karnataka from 2015-16 to 2022-23. The defining finding is a large-scale diversion of funds from their designated purpose: against a ₹817.42 crore allocation under the Pan City component (which was to improve city-wide services using technology), projects worth ₹1,462.67 crore were taken up — indicating 79 per cent excess spending over Pan City allocation, with funds diverted from other heads. Additionally, cities were not allotted the mandated paid-up capital of ₹200 crore each; actual paid-up capital was only ₹19.08 crore against ₹60.22 crore required. Financial irregularities included: ₹2.69 crore earned as interest on Centrally pooled funds not remitted to Consolidated Funds; and ₹2.56 crore of excess payment in smart city contracts.

State: Karnataka
Audit period: 1 Apr 2015 — 30 Jun 2024
Presented: 29 Jan 2026

Findings

The Pan City component of Smart City Mission — meant for technology-enabled city-wide service improvements — saw ₹1,462.67 crore in projects taken up against a ₹817.42 crore allocation: a 79 per cent excess driven by diversion from other components. This while 30 per cent of originally planned projects were cancelled or modified, and the mandated paid-up capital of ₹200 crore per Smart City company was far from achieved (actual: ₹19.08 crore operationalised against ₹60.22 crore required).
“As against ₹817.42 crore allocation under Pan City, projects were taken up to the tune of ₹1,462.67 crore indicating diversion of funds”Ch.II §2.3 · p. 9
₹2.69 crore in interest earned on Central grant money was not remitted to Consolidated Funds. ₹2.56 crore was overpaid in smart city contracts. Centralised Command and Control Centres — the flagship "smart" monitoring infrastructure — were operationalised at ₹19.08 crore against a required ₹60.22 crore. The Tender SURE road infrastructure showed shortfall in achieving intended pedestrian and public transport benefits.
“interest of ₹2.69 crore but was not remitted to respective Consolidated funds.”Ch.IV §4.3 · p. 22
₹817.42 Cr allocated / ₹1,462.67 Cr spentPan City allocation vs projects actually taken up (fund diversion)
Against the ₹817.42 crore allocation under the Pan City component of SCM, projects were taken up for ₹1,462.67 crore — indicating diversion of funds from other categories into Pan City expenditure. 30 per cent of originally planned Area-Based Development projects were cancelled or modified.
“As against ₹817.42 crore allocation under Pan City, projects were taken up to the tune of ₹1,462.67 crore indicating diversion of funds”Ch.II §2.3 · p. 9
₹2.69 CrInterest earned on Central funds — not remitted to Consolidated Funds
₹2.69 crore earned as interest on Centrally pooled funds (grant money) was not remitted to the respective Consolidated Funds as required — kept in Smart City SPV accounts instead. This is a violation of financial rules governing treatment of interest on government grants.
“interest of ₹2.69 crore but was not remitted to respective Consolidated funds.”Ch.IV §4.3 · p. 22
₹2.56 CrExcess payment in smart city project contracts
Audit found excess payment of ₹2.56 crore in smart city contracts in test-checked cities. Centralised Command and Control Centre (CCCC) infrastructure worth ₹19.08 crore against a required ₹60.22 crore was operationalised — indicating massive shortfall in the flagship monitoring infrastructure.
“excess payment of ₹2.56 crore.”Ch.IV §4.1 · p. 19
₹19.08 Cr vs ₹60.22 Cr requiredSmart City paid-up capital vs mandate (₹200 crore per city)
Each Smart City company was mandated to have paid-up capital of ₹200 crore (Central + State + ULB). Actual paid-up capital operationalised was only ₹19.08 crore against ₹60.22 crore required — raising questions about the financial foundation of the Smart City SPVs.
“₹19.08 crore only against ₹60.22 crore.”Ch.II §2.2 · p. 9
30%Projects originally planned subsequently cancelled or modified
30 per cent of Smart City projects originally planned were subsequently cancelled or significantly modified — indicating poor initial planning, changing priorities or implementation failures. Projects under the river front development category showed shortfall in achieving intended benefits.
“(30 per cent) projects originally planned, which was against MoHUA”Ch.II §2.3 · p. 9

Recommendations

Recover all ₹2.69 crore in interest on Central funds and remit to Consolidated Funds immediately; enforce strict financial discipline on grant interest rules.
Audit all Pan City expenditure for compliance with original component-wise allocations; recover any amounts diverted without MoHUA approval.
Complete paid-up capital infusion to the mandated ₹200 crore per Smart City company before sanctioning further projects.
Operationalise all Centralised Command and Control Centre infrastructure to the full sanctioned scope.
Review all cancelled projects for reinstatement or compensation; conduct a post-project benefit assessment for river front developments.

Fact-checks citing this report

Not supported by auditWe will initiate building 100 new cities; enabled with the latest in technology and infrastructure - adhering to concepts like sustainability, walk to work etc, and focused on specialized domains.

Performance Audit on Implementation of Smart City Mission in Karnataka

Findings

The Pan City component of Smart City Mission — meant for technology-enabled city-wide service improvements — saw ₹1,462.67 crore in projects taken up against a ₹817.42 crore allocation: a 79 per cent excess driven by diversion from other components. This while 30 per cent of originally planned projects were cancelled or modified, and the mandated paid-up capital of ₹200 crore per Smart City company was far from achieved (actual: ₹19.08 crore operationalised against ₹60.22 crore required).

“As against ₹817.42 crore allocation under Pan City, projects were taken up to the tune of ₹1,462.67 crore indicating diversion of funds”Ch.II §2.3 · p. 9

₹2.69 crore in interest earned on Central grant money was not remitted to Consolidated Funds. ₹2.56 crore was overpaid in smart city contracts. Centralised Command and Control Centres — the flagship "smart" monitoring infrastructure — were operationalised at ₹19.08 crore against a required ₹60.22 crore. The Tender SURE road infrastructure showed shortfall in achieving intended pedestrian and public transport benefits.

“interest of ₹2.69 crore but was not remitted to respective Consolidated funds.”Ch.IV §4.3 · p. 22

₹817.42 Cr allocated / ₹1,462.67 Cr spentPan City allocation vs projects actually taken up (fund diversion)

Against the ₹817.42 crore allocation under the Pan City component of SCM, projects were taken up for ₹1,462.67 crore — indicating diversion of funds from other categories into Pan City expenditure. 30 per cent of originally planned Area-Based Development projects were cancelled or modified.

“As against ₹817.42 crore allocation under Pan City, projects were taken up to the tune of ₹1,462.67 crore indicating diversion of funds”Ch.II §2.3 · p. 9

₹2.69 CrInterest earned on Central funds — not remitted to Consolidated Funds

₹2.69 crore earned as interest on Centrally pooled funds (grant money) was not remitted to the respective Consolidated Funds as required — kept in Smart City SPV accounts instead. This is a violation of financial rules governing treatment of interest on government grants.

“interest of ₹2.69 crore but was not remitted to respective Consolidated funds.”Ch.IV §4.3 · p. 22

₹2.56 CrExcess payment in smart city project contracts

Audit found excess payment of ₹2.56 crore in smart city contracts in test-checked cities. Centralised Command and Control Centre (CCCC) infrastructure worth ₹19.08 crore against a required ₹60.22 crore was operationalised — indicating massive shortfall in the flagship monitoring infrastructure.

“excess payment of ₹2.56 crore.”Ch.IV §4.1 · p. 19

₹19.08 Cr vs ₹60.22 Cr requiredSmart City paid-up capital vs mandate (₹200 crore per city)

Each Smart City company was mandated to have paid-up capital of ₹200 crore (Central + State + ULB). Actual paid-up capital operationalised was only ₹19.08 crore against ₹60.22 crore required — raising questions about the financial foundation of the Smart City SPVs.

“₹19.08 crore only against ₹60.22 crore.”Ch.II §2.2 · p. 9

30%Projects originally planned subsequently cancelled or modified

30 per cent of Smart City projects originally planned were subsequently cancelled or significantly modified — indicating poor initial planning, changing priorities or implementation failures. Projects under the river front development category showed shortfall in achieving intended benefits.

“(30 per cent) projects originally planned, which was against MoHUA”Ch.II §2.3 · p. 9

Recommendations

Recover all ₹2.69 crore in interest on Central funds and remit to Consolidated Funds immediately; enforce strict financial discipline on grant interest rules.

Audit all Pan City expenditure for compliance with original component-wise allocations; recover any amounts diverted without MoHUA approval.

Complete paid-up capital infusion to the mandated ₹200 crore per Smart City company before sanctioning further projects.

Operationalise all Centralised Command and Control Centre infrastructure to the full sanctioned scope.

Review all cancelled projects for reinstatement or compensation; conduct a post-project benefit assessment for river front developments.