India’s smart cities: the role of the beneficiaries

By Hazem Galal, Partner PwC, Cities & Local Government Sector Global Leader and Neel Ratan, Partner PwC, Digital Government Network Global Leader and Government Sector Leader, PwC India

India continues to witness explosive urban development where the urban population is expected to grow at a rate of 12 million people annually for the next 35 years, posing more complex and higher expectations from urban beneficiaries. Traditionally, the response to urbanisation in India has been to reduce the migration from rural India to urban India, thereby limiting the challenges that accelerated urbanisation poses. However, despite efforts of government, the urban population in India has continued to soar.

In 2005, the Government of India launched a city modernisation scheme called Jawaharlal Nehru National Urban Renewal Mission (JNNURM) which was set out to invest US$20 billion in 67 cities in order to improve the urban infrastructure, develop peri-urban areas and the inner cities. Despite initiatives taken up by the central and state governments, various city indices and benchmarks, including PwC’s ‘Cities of Opportunity’ have rated Indian cities as laggards in terms of its global peers.

India hence needs a multi-pronged approach in order to ensure new emerging technologies are embraced, while focusing on providing of basic urban services. The Government of India has recognised the need to adopt solutions which will enable the cities to leap-frog the competition while ensuring that services such as water, waste management, mobility and health care are strengthened. It has hence launched a very ambitious urban transformation programme, the Smart City Mission.

Smart City Mission

The objective of the Smart City Mission as laid out by the Government of India, is to promote cities to provide core infrastructure, decent quality of life, clean and sustainable environment, and smart solutions, with a focus on inclusive development. The core infrastructure and services envisaged to be improved under the scheme are: water supply, electric supply, sanitation, mobility, affordable housing, IT connectivity, safety, security, education and health.

The mission will cover 100 cities and its duration will be five years, during which the Government of India will fund approximately US$7.5 billion, with an equal contribution coming from the state governments of the selected cities. Each of the 100 smart cities will thus receive funding to the tune of US$150 million over a period of five years in order to develop one pan-city programme and one area development programme.

Under the area development programme the cities will have the flexibility to either retrofit smart elements in specific areas of the city, redevelop an existing area in the city, or develop a previously vacant area using innovative planning, plan financing and plan implementation tools.

The smart cities will be chosen through a city-wide challenge, wherein each city will submit a ‘Smart City Proposal’. During the first year, 20 cities will get selected through a competition–wherein the 100 cities selected by the states will be competing against each other for selection and funding. The implementation of the mission at city level will be done by a special purpose vehicle (SPV) created for this programme. The SPV will plan, appraise, approve, release funds and implement, manage, operate, monitor and evaluate the smart city development projects.

The government expects that a number of initiatives planned by cities will be taken up through publicprivate partnerships and use funds from municipal bonds, tax increment financing, borrowings from financial institutions, including bilateral and multilateral institutions, national investment and the infrastructure fund (NIF), over and above collection of user fees, beneficiary charges and impact fees, and land monetisation.

Role of the beneficiaries

Traditionally, urban development initiatives in India are delayed and often shelved due to political agendas, bureaucratic red tape, land speculations, insufficient financing, unpredictability and sufficiency of revenue, and complex and contradictory policies limiting the expectations of the urban beneficiary. It is time that urban beneficiaries rise to the occasion, navigate the predictable challenges and deliver outcomes that will exceed their own expectations, as meeting expectations would mean providing what is just rightfully overdue.

Citizens

The design of the smart city scheme is to create increased ownership of city-specific urban transformation projects among city dwellers. Citizen consultation is part of the planning phase in order to capture the aspirations of the urban dwellers and ensure that projects prioritised at city level address their specific issues. Leveraging of platforms like ‘MyGov’ that track real-time voice and sentiments, which PwC helped the Indian government build, can enable effective participation. Additionally, the Government of India has introduced the concept of a ‘City Challenge’ in order to further get the masses engaged through the selection phase.

While the idea of a smart city has certainly caught the eye of urban residents, it will be imperative to continue this enthusiasm and engagement through the project execution and operations phase. There have been several instances wherein an urban infrastructure project that was awarded on a PPP basis failed due to non-payment of user charges. With the users (citizens) getting engaged early on during the conceptualisation phase, the propensity to pay the user charges will increase, thus improving the financial sustainability of the projects.

Moreover, the members of civil society would also have their say while the smart city plans are being prepared, ensuring that environmental and social sustainability dimensions of the initiatives have been factored in during the planning phase so that public outburst following award and initiation of projects is avoided. Citizen engagement thus will be an important tenant for the programme to be successful, and all tiers of government must ensure continuous citizen participation throughout the life cycle of the programme to ensure required outcomes are planned and achieved.

Government

The earlier urban rejuvenation schemes followed a top-down approach, wherein projects had to go through three tiers of governance in order to obtain approvals. The new scheme reverses the approach with the city governments having the freedom to choose projects for implementation based on ambient issues in the city. A separate entity, a SPV, will manage the implementation and service delivery to ensure operational independence for project execution. This however may further complicate urban administration as it introduces one more agency among the myriad of planning and administration agencies responsible for day-to-day city operations. Therefore, in order to avoid overlap of jurisdiction, the central and state governments will have to ensure appropriate segregation of duty among multiple planning and development agencies to ensure success of execution.

Businesses

The smart cities programme presents an exciting opportunity across the board in areas such as power, discoms, telecom, heavy engineering, construction, IT services and utilities, and such opportunities will sustain for the foreseeable future. Indian infrastructure and urban service companies are excited to contribute towards this exercise of nation building but the key reforms need to be brought in promptly in order to ensure that the delivery of ambitious programmes do not face any bottlenecks that earlier urban rejuvenation programmes have faced. One major issue that has limited the success of public-private projects in the urban domain has been the lack of adequate project development, and suboptimal allocation of risks, authority and accountability. The private sector and government will need to come together in order to ensure that feasible project structures and revenue streams are created in order to execute the project.

Driving the agenda

Unlike other programmes, the success of the Indian smart cities programmes will require sustained commitment from all beneficiaries. Urban leaders will need to ensure that policy reforms and procedural changes transpire while executing the large-scale infrastructure project. Such reforms will have a spillover effect and positively influence other infrastructure projects planned outside of the Smart City Mission as well creating exponentially impactful outcomes. The reforms that will provide a big boost to the private sector include reforms in land acquisition, environmental clearances, permits processes, imports of goods, dispute resolution and contract enforcement.

The overall infrastructure investment required over the 20-year period 2012-2031 to address the gaps and ensure outcomes is estimated by the Indian government to be US$650 billion. There is promise this time with a motivated government, educated masses and enthusiastic businesses, where the Smart City Mission scheme is only the tip of the iceberg.

See more in the upcoming February edition of Cities Today which will include a special focus on Indian cities.