Evaluating the Impact of Special Purpose Agencies on Local Governance

Picture walking into your municipal office to complain about a broken streetlight, only to be told that the issue falls under the electricity board, which reports to the state, not the municipality. You leave without a resolution, unsure whom to hold responsible. This everyday frustration reflects a deeper structural reality of Indian local governance: the growing dominance of Special Purpose Agencies (SPAs) that operate parallel to, and often independently of, elected local bodies. Evaluating these agencies is no longer an academic exercise; it is central to understanding why cities struggle to deliver on basic services despite heavy investment.

What special purpose agencies actually do 🔗

Special Purpose Agencies, sometimes called parastatals, are function-based rather than area-based bodies set up by state legislatures or through executive resolutions to carry out specialized tasks. Common examples include water supply and sewerage boards, housing boards, urban development authorities like the DDA and HUDA, pollution control boards, and city transport corporations. Unlike municipalities, which handle a wide geographic area with diverse responsibilities, SPAs focus narrowly on one mandate and operate with considerable autonomy.

Their rise is rooted in a straightforward logic. Modern urban management demands technical sophistication, from designing metro systems and managing bulk water treatment to monitoring air quality and running integrated transport networks. Elected municipal councils are rarely equipped with the engineering, financial modeling, or regulatory expertise required for such work. Parastatal agencies are created precisely to take on specialized tasks that require expertise and resources local governments may not possess, and they often serve as bridges between state governments and the private sector for large-scale infrastructure projects.

The Smart Cities Mission and the SPV model 🔗

The most prominent recent example is the Smart Cities Mission launched in 2015. The mission’s guidelines mandated that each of the 100 selected cities implement its development plan through a Special Purpose Vehicle (SPV) registered as a private company under the Companies Act, 2013. These SPVs were given sweeping powers to plan, appraise, approve, release funds, implement, manage, and monitor smart city projects. The design reflected a conscious move toward what political scientists call Type II multilevel governance: task-specific institutions with overlapping jurisdictions, meant to deliver faster and more flexibly than traditional municipalities.

The case for specialized agencies 🔗

Defenders of SPAs make three substantive arguments, and they deserve fair treatment.

First, there is the expertise argument. Running a metro network, managing a 24×7 water supply utility, or processing construction debris at scale requires skills that a ward councillor or even a municipal commissioner cannot reasonably be expected to have. SPAs allow governments to recruit domain specialists, ring-fence projects from bureaucratic churn, and maintain institutional memory across political cycles.

Second, there is the efficiency argument. SPAs typically have lean administrative structures, dedicated budgets, and the power to enter into public-private partnerships. As one detailed analysis of the Smart Cities Mission notes, SPVs have built-in models to raise finances, can partner with private actors to build or lease assets, and their minimal staffing expedites decision-making. In a country where municipal project execution is famously slow, this agility matters.

Third, there is the scale argument. Some functions, like regional water supply or metropolitan transport, cut across multiple municipal boundaries. A single elected body cannot realistically coordinate them. Agencies like the Mumbai Metropolitan Region Development Authority exist precisely because the problem they solve is regional, not local.

Where the model begins to fail 🔗

The difficulty is that the same features that make SPAs technically effective also make them democratically problematic. Evaluation must therefore weigh performance against legitimacy, not just one or the other.

Erosion of local authority 🔗

The 74th Constitutional Amendment of 1992 was meant to establish municipalities as genuine institutions of local self-government, with eighteen functional items listed in the Twelfth Schedule. In practice, most of these functions are still discharged by state-controlled parastatals. A recent editorial analysis highlights what has been termed the “parastatal trap,” in which SPVs and development authorities bypass elected ULBs and take over lucrative functions like land use and transport, leaving municipalities with low-revenue tasks such as garbage collection and slum management. A CAG audit across eighteen states found that only four of the eighteen constitutionally listed functions are truly autonomous at the municipal level.

The result is what critics call a “responsibility without power” syndrome. Mayors are held politically accountable for city outcomes they have almost no authority to shape.

Diffused and fragmented administration 🔗

When multiple agencies perform overlapping functions within the same city, coordination becomes the exception rather than the rule. In Rajasthan, for instance, urban water supply involves multiple agencies including the Public Health Engineering Department and state-controlled bodies, often requiring ULBs and utilities to work together under a common roadmap that has yet to fully materialize. Karnataka presents a similar picture: the state has constituted as many as 31 Urban Development Authorities and 52 Town Planning Authorities, rather than devolving functional autonomy to its ULBs.

The cost of this fragmentation is borne by citizens. When a water pipeline bursts beneath a newly repaired road, the municipality blames the water board, the water board blames the road contractor, and the contractor blames the planning authority. Everyone is busy, but nothing gets fixed.

Accountability gaps and democratic deficit 🔗

Perhaps the most serious charge against SPAs is that they dilute democratic accountability. Unlike municipal councils, which face voters every five years, most parastatals are run by bureaucrats appointed by and answerable to state governments. These agencies function with significant autonomy and are accountable only to the state government, not the local government, and critics see them as pre-74th Amendment legacies that have not been undone.

The Smart Cities SPVs sharpen this problem. SPVs are headed by a CEO appointed by the state government for a three-year fixed term, removable only with the authorisation of the Government of India, placing them beyond the legal and administrative purview of electorally mandated local authorities. Public consultations do occur, but as researchers who studied SPVs in Bangalore and Kochi have documented, these meetings are typically not legally binding on the SPVs themselves.

T.R. Raghunandan, a former civil servant and decentralisation expert, captures the deeper issue sharply. He argues that government complexity is not an accident but a feature, because the more complex the structure, the easier it is for officials to blame someone else when things go wrong. When a city corporation officer says potholed roads are the responsibility of Smart City Private Limited, he is not lamenting; he is escaping accountability.

Financial opacity 🔗

SPAs often handle project portfolios worth thousands of crores with limited legislative oversight. A reported case from Karnataka noted that the Karnataka Urban Infrastructure Development and Finance Corporation handled projects worth around Rs 60,000 crores that would otherwise have been routed through government line departments with their own internal checks and balances, yet it was not accountable to the urban local bodies for whom it prepared projects and policies. International financial institutions have often preferred to lend to parastatals precisely because such loans can bypass legislative debate and grassroots resistance.

How to evaluate a special purpose agency 🔗

Given these competing considerations, any meaningful evaluation of an SPA should rest on four dimensions.

Legitimacy 🔗

The first test is whether the agency has a clear, narrowly defined mandate established through a transparent legal process, and whether that mandate genuinely requires a specialized body rather than capacity-building within the municipality. Many parastatals were created decades ago to address specific problems but continue long after their original rationale has faded.

Accountability 🔗

The second test is whether citizens and elected representatives can hold the agency answerable. This includes reporting to the local council, submitting to audit by independent bodies, publishing performance data, and giving ward committees a real say in decisions that affect their areas.

Coordination with local government 🔗

The third test is whether the SPA’s functioning is integrated with, rather than parallel to, the municipal body. This is where most Indian SPAs struggle. The BBMP Act of 2020, for example, gives the Bengaluru corporation responsibility for all eighteen Twelfth Schedule functions but does not clarify whether existing parastatals will continue to perform them or whether their accountability will shift to the corporation, leaving a grey zone that neither side manages well.

Performance and technical outcomes 🔗

The fourth test is whether the agency actually delivers on its narrow mandate. Here the record is mixed. Some metro corporations and development authorities have delivered significant infrastructure. Others have become rent-seeking silos. Neutral performance audits, rather than self-reporting, should form the basis of this assessment.

Towards a more integrated model 🔗

The debate is not really between abolishing SPAs and retaining them. Modern cities cannot do without specialized capacity. The real question is whether specialization must come at the cost of democratic control.

Several reform directions are worth considering. States could bring parastatal boards under the supervisory authority of municipal corporations for functions that fall within the Twelfth Schedule. Local bodies already struggle with overlapping jurisdictions and poor coordination with parastatal agencies and SPVs, leading to inefficiency and delays, as seen in the coordination challenges between the Delhi Development Authority and the Municipal Corporation of Delhi on urban planning. Merging or co-locating such functions, even partially, could reduce the blame-shifting that plagues current arrangements.

District Planning Committees and Metropolitan Planning Committees, already mandated by the Constitution but largely dormant, could be activated to integrate the plans of SPAs with those of municipalities and panchayats. Citizen participation mechanisms like ward committees could be given statutory teeth so that SPV decisions on projects affecting a neighborhood require local consent.

Finally, sunset clauses should be built into new SPAs so that they are formally reviewed and, where appropriate, folded back into line departments once their original purpose is served. The tendency to let parastatals continue indefinitely creates bloated structures that are neither technically sharp nor democratically accountable.

Evaluating Special Purpose Agencies ultimately means asking whether they are servants of local governance or rivals to it. The evidence suggests they are often both at the same time. Getting the balance right is one of the defining challenges of Indian urban administration today.

What do you think? If a Special Purpose Agency in your city delivered a metro line on time but eroded the authority of your elected councillor, would you consider that a success or a failure of governance? And how would you design an accountability mechanism that preserves technical expertise without sacrificing democratic control?

References

1. https://pwonlyias.com/udaan/urban-government/
2. https://adulteducation.quest/sustainable-development/urban-governance-smart-inclusive-cities/
3. https://www.tandfonline.com/doi/full/10.1080/21622671.2022.2107559
4. https://www.ideasforindia.in/topics/urbanisation/special-purpose-vehicles-for-smart-cities-a-question-on-governance.html
5. https://www.drishtiias.com/daily-updates/daily-news-editorials/urban-governance-reforms-for-viksit-bharat-2047
6. https://cuts-cart.org/pdf/Research_Report_RCMLP-Urban_Local_Governance_in_Rajasthan_and_Role_of_Parastatals.pdf
7. https://www.iipa.org.in/cms/public/uploads/342451652163582.pdf
8. https://www.shankariasparliament.com/current-affairs/concerns-in-urban-local-governments
9. https://accountabilityindia.in/blog/parastatals-in-india-governance-executive/
10. https://indiatogether.org/parastate-government
11. https://prsindia.org/theprsblog/examining-urban-local-governance-in-india-through-the-case-of-bengalurua?page=39&per-page=1
12. https://www.drishtiias.com/daily-updates/daily-news-editorials/revitalizing-india-s-local-governance