A performance audit by the Comptroller and Auditor-General of India (CAG) has flagged widespread irregularities in the implementation of the Smart City Mission in Tamil Nadu, including diversion of funds, execution of unapproved projects, works outside designated Smart City areas and spending on items unrelated to the mission, as per a Times of India report.
The audit covered seven of Tamil Nadu’s 11 Smart Cities, including Chennai, and examined the implementation of the Union government’s Smart City Mission during 2015-23. The findings span the tenures of three successive State governments during the period, including two AIADMK governments and one DMK government.
The audit found that projects originally approved under the Smart City Proposals were dropped while several projects that were not part of the approved plans were taken up instead.
As many as 52 approved projects with a total value of ₹1,602.20 crore were not implemented. The CAG noted that Ministry of Housing and Urban Affairs (MoHUA) guidelines permitted deletion of approved projects only in exigent circumstances and with clear justification.
At the same time, 44 unplanned projects worth ₹623.86 crore were executed in violation of the mission guidelines.
Of these, 21 projects valued at ₹184.71 crore were implemented entirely outside the approved Area Based Development (ABD) areas. Five other projects worth ₹21.42 crore were identified as routine works that should ordinarily have been financed by the respective urban local bodies rather than through Smart City funds.
Tirunelveli recorded the highest value of unplanned works. It executed 15 such projects worth ₹314.62 crore, accounting for 25.84% of the projects examined in the city.
The audit identified several examples of works taken up outside the approved plans. These included a green building at the Greater Chennai Corporation campus, floodlighting at Nehru Stadium in Coimbatore, a guest house in Tirunelveli and a convention centre in Madurai.
Smart City Money Spent on Cars, TVs and Salaries
The CAG also found that six cities diverted ₹23.83 crore from Smart City funds towards expenditure that was not permissible under the mission. The spending included cars, computers, legal charges and other activities unrelated to approved Smart City works.
In Chennai, ₹66.58 lakh was spent on advertisements issued by the State government. Another ₹18.44 lakh was paid to consultants for projects that were not Smart City projects.
The city also spent ₹15.33 crore on shifting and resettlement of families.
In Tiruppur, Smart City funds were used to renovate a conference hall of the urban local body and to purchase a 110-inch LED television, computers, printers and furniture.
Erode charged ₹2.59 crore under administrative and office expenses towards salaries of staff working in the underground sewerage section. Salem transferred another ₹2.95 crore under the same head.
Madurai used ₹48.36 lakh from Smart City funds to make payments to contractors for other civic projects.
The CAG treated these expenditures as violations of Union government directions and Smart City Mission guidelines.
₹1,127 Crore Parked in Personal Deposit Accounts
The audit also flagged the handling of funds released by the Centre.
The Union government had released its entire share of more than ₹5,000 crore to Tamil Nadu under the mission. However, at least ₹1,127 crore was diverted into personal deposit (PD) accounts maintained by State government departments on eight occasions between July and October 2021.
The CAG noted that Smart City rules required mission funds to remain in the account of the designated nodal agency.
The transfer of funds was also delayed substantially. There were delays of up to 714 days in transferring money from the State government to the Tamil Nadu Urban Finance and Infrastructure Development Corporation (TUFIDCO), while transfers from TUFIDCO to the Smart City entities took up to 960 days.
The parked funds generated ₹239.40 crore in interest for five cities. However, only ₹149.01 crore of this interest was released back into the Smart City Mission.
The audit further found that TUFIDCO retained ₹11 crore without specific authorisation. Another ₹2 crore was held under the Dindigul head even though Dindigul was not part of the Smart City Mission.
Smart City Funds Diverted To Other Projects
The audit found that funds were also transferred from the Smart City Mission to finance other infrastructure projects.
Coimbatore transferred ₹150.73 crore towards its ongoing 24×7 water supply project. Erode, Tirunelveli and Tiruppur also transferred Smart City funds to the Tamil Nadu Water Supply and Drainage Board or the respective corporations for similar works.
The CAG found that such transfers amounted to diversion of funds from their intended purpose.
93 projects Started Without Mandatory Clearances
The audit also found violations in the approval and clearance process.
As many as 93 projects were started without obtaining mandatory clearances from agencies including the Tamil Nadu Pollution Control Board, the Directorate of Town and Country Planning and the Public Works Department.
The City Level Advisory Forums, which were intended to provide stakeholder participation in the mission, were convened only after a delay of two years. Stakeholder meetings were also not conducted periodically.
The audit found deviations in pan-city projects as well. Against 37 pan-city projects worth ₹1,488.59 crore that were originally proposed, 69 projects costing ₹780.77 crore were taken up. Of these, only 22 projects worth ₹209.24 crore were found to meet the actual criteria prescribed under the mission.
Smart City SPVs Bypassed Statutory Requirements
The CAG also raised concerns over the functioning of the special purpose vehicles (SPVs) created to implement the Smart City Mission.
Each Smart City SPV was supposed to have a capital of ₹200 crore. However, all the sampled SPVs were established with only ₹10 lakh.
The audit concluded that the low capitalisation was intended to avoid statutory provisions under the Companies Act, 2013.
Except Chennai, none of the sampled SPVs had a full-time chief executive officer. Municipal commissioners effectively managed the SPVs in the absence of full-time CEOs, creating a potential conflict of interest between their responsibilities as municipal officials and their role in the SPVs.
The CAG also found that corporations floated limited tenders on behalf of the SPVs. This was contrary to prescribed tender norms and, according to the audit, undermined prudent budgeting and the purpose of establishing independent SPVs.
The findings point to extensive deviations from the original Smart City plans, with funds being used for projects and expenses outside the mission’s approved scope while several projects included in the original proposals remained unimplemented.
#Breaking: CAG flays Tamil Nadu govt for misusing upto Rs 10,000 crore worth smart city project funds, wasting the money, executing unapproved projects, diverting funds to random govt departments, and spending the money for buying cars, TVs, public advertisement, paying…
— Omjasvin M D (@omjasvinMD) September 8, 2026
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