India’s plans to create 100 smart cities by 2022 could be the most admirable, or the craziest, idea in the world. Finbarr Bermingham reports on a scheme that could transform India’s trade economy.
In 2009, ﬁve polling ofﬁcials and two policemen travelled 100km through the lion-infested Gir forest in Gujarat to collect a single ballot, cast ahead of India’s general election. There was no special reason for ensuring that Bharatdas Darshandas’ vote was collected, other than the fact that in the world’s largest democracy, every vote is equal.
This tale of inclusiveness is even more mind-boggling when you consider India’s population. The ﬁgure is currently 1.3 billion, but is projected to peak at around 1.8 billion by 2060. That’s an extra half billion people within 50 years. India’s megacities – Mumbai, New Delhi, Kolkata – are adding 30,000 people per day to their populations through urbanisation alone. That doesn’t include the people being born within the cities themselves.
The notion that each of India’s 1.3 billion citizens deserves a vote strikes to the core of the government’s Smart Cities Mission, which works from the premise that every citizen should have a shot at a decent life.
The term “smart city” conjures Jetsons-esque imagery of people scooting about in self-driving cars or hovercrafts. But in India, the needs are more primal. Smart cities there are primarily about survival: leveraging digital technology to ensure a city of 25 million people can survive, to provide housing, power, transport, clean water and breathable air. To quote the mission itself, “to accommodate this massive urbanisation, India needs to ﬁnd smarter ways to manage complexities, reduce expenses, increase efﬁciency and improve the quality of life”.
Ultimately, the impact on trade, investment, manufacturing and infrastructure will be huge. India is planning to build 100 smart cities by 2022. Rather than brand new, greenﬁeld cities, these will satellite towns of larger cities. They will be built along prime minister Narendra Modi’s industrial corridors – the developing Delhi-Mumbai Industrial Corridor (DMIC) alone will host seven smart cities across six states.
The Smart Cities Mission will turn India into the third-largest construction market in the world and is likely to be the country’s biggest destination of inbound FDI. Already, the Japan International Co-operation Agency (JICA) has ploughed US$4.5bn into the DMIC plans, a drop in the ocean when you consider the US$1.2tn price tag the government has slapped on the venture at large.
It will require huge levels of debt ﬁnancing, which has yet to materialise in earnest, but according to those on the ground, the banking sector is shaping up to take a very active role in both these and other areas.
“At this stage, it’s very early,” explains Ashutosh Kumar, head of transaction banking for South Asia at Standard Chartered. “We have a broad understanding of how it would work in terms of funding, how much from the Indian government, how much from states and so on. And deﬁnitely, there would be bank involvement in providing various forms of guarantees, ﬁnancing, making sure that whichever consortium leads the projects, the collections from the various sources of incomes are going into an escrow and so on. I would see the involvement of banking being quite high in such a project, beyond traditional ﬁnancing.”
The World Bank is said to have earmarked US$500mn for the ﬁrst 20 cities, with US$1bn expected to come from the Asian Development Bank (ADB). The ministry of urban development spent the ﬁrst months of 2016 urging city administrators to tap these packages as early as possible.
Making it a reality
As well as dealing with the urban sprawl, India’s smart cities will be designated hubs for international investment. They will be nodes for prime minister Modi’s ‘Make in India’, a scheme to attract international manufacturing companies, which will provide goods for India’s domestic market and for export.
They will be the epicentre of his Startup India campaign, which seeks to pair bank ﬁnance with India’s burgeoning, innovative generation of graduates. In 2015, 37% of Mumbai graduates went to work for a start-up, while in 2016 the city has reported 1,400 new companies in the tech space alone.
Work on the ﬁrst batch of 20 cities is underway, while existing city councils are bidding for work on the next lots. Reliance Industries, one of India’s largest companies, is heavily involved. At a conference in Dublin, GTR spoke with the CEO of Reliance’s internet of things business, Juergen Hase, who since moving to Mumbai last year, has been taken aback by the scale of the plans.
“I believe that a principle of determination exists in India. With the smart cities initiative, India is in execution-mode and it is powerful. It is not like Europe, where you have talk, talk, talk. They’re doing it,” he says.
One of Hase’s early projects involves collecting data from the transport network in the Bandra-Kurla Complex (BKC) a business hub in south Mumbai. By putting sensors on buses and taxis, trafﬁc can be managed and predicted. This can assist with congestion and pollution management, but also with infrastructure maintenance.
“If you’re using the data information from taxis and trucks passing the roads of the cities, some are saying: ‘Why not use the vibrations of taxis to maintain the street?’ If there are holes in the street, this can be measured by a taxi, via vibrations picked up by sensors. You can see where 1,000 cars go ‘BABOOM’. Every time, at this point in the street, ‘BABOOM’,” he explains.
Harvesting this data means maintenance can be targeted and efﬁcient: imperatives in a city where the trafﬁc is as chaotic as it is in Mumbai.
The next items on the agenda for Hase are smart parking, smart street lighting and smart, renewable energy generation. Already, Modi’s government has prioritised renewable energy: it has set a goal of adding 175GW of renewable energy facilities to the energy mix by 2022 and encourages local generation through solar panels on top of homes and businesses.
“Having local energy production means you don’t have to have all these huge energy plants,” says Hase. “But how can we make the solar panels work when the air is so dirty? The problem is the sun can’t get through. You can have the best solar panels on the roof, but someone has to clean the air up.”
It’s clear that opportunity comes loaded with a myriad of challenges. But none is greater than the state of the underlying infrastructure, which is a hindrance to everything in India, especially trade and investment.
Abhishek Dangra, a director at ratings agency Standard & Poor’s, agrees that poor infrastructure is among the greatest hurdles facing the country’s ambitious plans. While the government is trying to drum up ﬁnance for Make in India and the Smart Cities Mission, Dangra advises it to tap into its own funds in order to improve transport infrastructure, otherwise international investment is unlikely to ﬂow as hoped.
Some progress has been made in the renewables sector, where clear regulations and attractive power-purchasing agreements have been greeted enthusiastically by lenders and investors. But elsewhere, progress is slow.
“Only when you get a framework in place through which the private sector works with the government will you see the pace of infrastructure development changing. It’s still going to take some time,” he tells GTR. “There are pockets of success: Delhi airport was built on a public-private partnership (PPP) basis. The other larger cities have had PPP projects. But regulations have also been slightly patchy. There are a great deal of uncertainties that are hindering these companies getting involved.”
As well as fronting ﬁnance of its own, the Indian government has been trying to create investment-friendly policies at a national level – the country jumped 12 places on the World Bank’s Ease of Doing Business table in 2016, but still languishes at number 130. Internally, it has created a similar ranking level for its states and this competitive federalism has been important in improving business conditions in certain parts of India.
“In India, the opportunity is there for everyone to see and exploit. It’s whether the regulation would work or whether companies get paid on time. In some sectors we’ve seen corporates waiting for a long time for payment, which increases their working capital requirements,” Dangra explains.
Considering the scale of everything in India, the lack of homogeneity and the base level of problems, the Smart Cities Mission can seem like the most admirable plan in the world, or the craziest.
It will be a vital cog in India’s development over the next ﬁve years and if the government can make it work, will be transformative for the country’s economy.