Urban Development Minister Venkaiah Naidu on Thursday announced the winners of the government's Smart Cities challenge, a competition for central funds aimed at upgrading urban spaces in India. Bhubaneshwar, the capital of the eastern state of Odisha, took the top spot on the list of 20, alongside other relatively less-developed cities like Solapur in Maharashtra, Kakinada in Andhra Pradesh and Belagavi in Karnataka.

But the final list also included some cities that caused a few eyebrows to be raised, chief among them being NDMC – the New Delhi Municipal Corporation.

What is New Delhi – surely one of the most developed parts of the country – doing there?

The answer has to do with how the Centre has gone about designing its Smart Cities challenge and how states have, in turn, decided to respond to the competition.

First off, the very idea of a smart city remains broad enough for it to encompass nearly all sorts of urban upgradation, with the government's reference note basically admitting that smart cities are those that can attract investments. For a quick backgrounder on the entire challenge, read this.

Secondly, the Smart Cities project is more of a smart neighbourhood plan, with the aim of that area being an example for the rest of the city, and the state as well. As the guidelines to the scheme explain, "the focus is on sustainable and inclusive development and the idea is to look at compact areas, create a replicable model which will act like a light house to other aspiring cities." (emphasis added).

Next, although the Centre's initial approach giving states and union territories a quota of cities to nominate was based on population, the rest of the process has been a competition.

States and UTs were first asked to evaluate their potential smart cities based on a formula that rewards development that has already taken place, with the best-performing ones being forwarded to the Centre for consideration in the 100 Smart Cities list. This means the cities (with political squabbling holding the last few back so it didn't come up to 100) that eventually qualified were already somewhat 'smart.'

As a result of this scoring system, for example, the only nominee from Delhi happened to be the New Delhi Municipal Council, which eventually made it into the final list. The full list of 98 cities that were picked after the first round is here.

Finally, each of the 100 were expected to put together Smart City Proposals, that the Centre evaluated based on criteria such as the operational efficiency of the public entities in that city over the last three years, how well its city vision has been prepared, and how financially sustainable its plans are.

This part of the process actually relies less on pre-existing development and leans more on successful planning, based on a consultative process that each city carried out.

On Wednesday, the government revealed the final scores based on these metrics. This is why states like Uttar Pradesh and Bihar, despite being populous, have no cities on the list, while Gujarat and Maharashtra have multiple ones.

What happens next?
Special Purpose Vehicles will be created for each of these 20 cities, with a full-time Chief Executive Officer and nominees of the Centre, State and urban local body on the board. This SPV will be given a grant by the Centre of Rs 194 crore. For each of the the following three years, each selected Smart City will be given Rs 98 crore. The actual cost of making cities smart is, of course, much more than just Rs 500 crore, with the government expecting its grant to be matched by local funds and investment.

The release of additional funds from the Centre each year will be contingent on quarterly report cards, achievement of slated milestones and a well-functioning SPV. Among the mission outcomes laid out in the smart cities policy document include a reduction in electricity outages, non-revenue water and an increase in tax collections, as well as better resource mobilisation.

The cities that didn't win will get another chance to be selected for the second round of the competition cycle, which will take place over 2016-'17.