With Gujarat’s GIFT project commencing the start of Prime Minister Narendra Modi’s ambitious 100 Smart Cities dream, India is drawing attention of many domestic and international investors. The project hopes to get India in par with neighbouring countries like China and Dubai.
The Indian government announced a programme this year to build 100 smart cities that has the potential to transform India’s global competitiveness within 10 years and boost the country’s long-term economic growth rate.
While the meaning of ‘Smart City’ has been quite hazy and contested, the presence of high-end infrastructure and technologyenabled city governance seems to be a prerequisite. Smart Cities may refer to entirely new cities built from scratch or existing cities made smart by investing in technology and infrastructure. Smart Cities emerged as a buzzword in the last decade or so when technology firms like IBM and Cisco started to market themselves on how they are building ‘smarter cities’ through technology. In Gujarat, two smart city projects were already initiated – the Dholera Special Investment Region and The Gujarat International Financial Tech City which is spread over 886 acres and being built as a financial centre. Dholera is a much bigger brownfield project spread across 903 square km which designates a large industrial area.
Why Smart City?
This Smart City plan is part of a larger agenda of creating Industrial Corridors between India’s big metropolitan cities which include the Delhi-Mumbai Industrial Corridor, the Chennai-Bangalore Industrial Corridor and the Bangalore-Mumbai Economic Corridor. While there’s no single definition of a ‘smart’ city, the term generally refers to cities using information technology to solve urban problems. Think of sensors monitoring water levels, energy usage, traffic flows, security cameras, and sending that data directly to city administrators. Or apps that help residents navigate traffic, report potholes and vote, or even trash collection that’s totally automated. According to the Smart Cities Council, all the data that is collected from sensors – electricity, gas, water, traffic and other government analytics, is carefully compiled and integrated into a smart grid and then fed into computers that can focus on making the city as efficient as possible. This allows authorities to have realtime information about the city around them and allows computers to attempt to generate accurate information on various operational aspects like balancing supply demand on electricity networks, synchronising traffic signals for peak usage, and optimising energy networks. Transportation, energy utilities, buildings, and security are some of the aspects that need to be smarter and driven by technology and automated processes. In the case of transportation, the traffic light management should be smarter and driven by actual traffic density and patterns, and drivers could get real-time alerts on their mobile phones while leaving the office about the traffic situation. Similarly, smarter energy utilities will make both users and companies smarter when it comes to their business. Companies will come to know the amount of electricity consumed by every consumer in real-time with smart meters and based on that they will not only manage supply smarter, but could also provide discounts in non-peak hours. There will be smart buildings. These buildings will be driven by technology and would include energy management, facility management, and water management executed through technology solutions. Citizen services would also become smarter accordingly. And lastly the most important aspect, the security function of a Smart City would be driven by technology and go wider than physical security into cyber security.
There may be two types of Smart Cities in India as mentioned earlier. One kind could be complete Greenfield projects – building a Smart City from scratch, but there would also be brownfield projects, turning existing Indian cities smart. For example – Lavasa, built by HCC is a Smart City. Another one in the news recently has been the Lodha group’s Palava, spanning over 4,000 acres and costing INR140 billion. Palava will incorporate IBM’s smarter cities technology using advanced, data driven systems to integrate information from all city operations into a single system to improve efficiency and deliver an enhanced quality of life for residents. But that’s a claim that’s yet to become reality, and sadly Mumbai builders are legendary for their marketing claims that promise the sky. Recently SAP announced that the Bhopal Municipal Corporation has implemented solutions from SAP to automate and centralize public service offerings. Available in Hindi too, SAP claims the project would streamline day-to-day functions such as issuing marriage certificates, birth and death registrations, city infrastructure development and open space management, including roads, parking, traffic signals, community halls and schools. The project would also improve permits, health services, water supply, lake conservation and tax collection. The other type may not be fully Greenfield but part brownfield, which means it would begin Smart Cities projects in Tier II and Tier III locations that would be much easier to execute than in a city like Mumbai – where infrastructure is already very heavily built up and where change is a difficult process.
Although until now India has lagged far behind other Asian industrial economies, such as China and South Korea, in developing smart cities, these new projects are already creating initial momentum for smart city infrastructure development in India, says the report. At the moment 100 cities remains a tentative figure, with much still to be pinned down. The budget speech only officially identified cities along the Amritsar- Kolkata Industrial Master Plan that covers seven states. Although they weren’t named in the budget, seven cities have also been named along the Delhi-Mumbai Industrial Corridor, some which would overlap with the Amritsar-Kolkata plan.
The Indian Government has allocated INR 10 billion for each city which will be selected according to its population. Eight cities with more than four million people have been identified and they will have a satellite smart city. 45 cities with one to four million people will be upgraded to a smart city. 17 capital cities also qualify irrespective of their population. There will be 10 other smart cities with tourist and religious significance.
The Programme would include:
• GIFT designed to be an international financial services and technology hub.
• Dholera Special Industrial Region located in the DIMC with USD90 billion in projected investment as a joint Indo-Japanese project with a 26 per cent equity stake from the Japanese Bank for International Co-operation in the DIMC Development Corporation.
• Singapore’s Ascendas India Development Trust with Japan’s Mizuho Corporate Bank and JGC Corporation have signed an memorandum of understanding with the government of Tamil Nadu to build a smart city 50 kilometres south of Chennai for Japanese industrial firms such as automakers and electronics firms.
• In Kochi, the government of Kerala and Dubai Holding subsidiary, Dubai Tecom Investments, are developing Smart City Kochi.
These projects are also attracting leading global technology partners such as Siemens, Cisco Systems, Microsoft, ABB, NE C, Toshiba and IBM, as well as India’s own IT giants such as Infosys, TCS and Wipro.
The estimated investment for the Delhi Mumbai Industrial Corridor project and the GIFT smart city together amounts to USD100 billion, so the total investment associated with the development of 100 smart cities in India could be far in excess of USD1 trillion. This indicates the city wise budget will clearly not be enough, and even if more is added, it’s unlikely that the government will have the resources to pay for the cities. A significant share of this investment is likely to be from foreign government and private sector investment inflows. In the last budget, the government announced that it was relaxing norms for foreign direct investment to make it easier for overseas companies to invest in smart cities. In addition, India has spoken to France, Japan and Singapore about collaborating on the projects. Much of the funding for smart cities have already started coming from private developers and overseas. The USD100 billion Delhi-Mumbai corridor effort has a 26 per cent investment from Japan. Singapore offered to invest in building one such city. The British Government too extended a 1 billion pound credit line to help British companies to invest in Indian infrastructure. The US has also agreed to will help India in developing three such cities apart from joining hands with civil society and authorities to provide clean water and sewage facilities in 500 cities in the country. These three are Allahabad, Ajmer and Visakhapatnam.
As India grows, it will take an increasing share of infrastructure related imports over the next two decades. Currently the US tops the list of countries importing infrastructure goods, followed by India, Hong Kong, China and Germany. By 2020 India will sit on top of this list. Smart cities will definitely add to this but the main driver will be the rising middle classes across the country’s rapidly emerging markets, driving significant infrastructure demand in across the country. Aspirations of the new middle class and rapid urbanisation will force India to upgrade its civil infrastructure, thus pushing up demand for overseas infrastructure related goods.
Despite India’s recent rise to prominence as a manufacturing and sourcing jurisdiction, underdeveloped infrastructure and transportation networks continue to hinder the manufacturing sector’s competitiveness on the world stage. Relative to other popular manufacturing and sourcing locations such as China, Thailand, Vietnam and Malaysia, India’s transportation and power supply networks lag behind regional standards and often result in higher supply chain and logistics costs. While many developed countries feature logistics costs at around seven to eight percent of national GDP, Indian logistics costs currently hover around 13-14 per cent. This is set to change with India having signed a USD500 million loan agreement with the World Bank to fund its National Highways Interconnectivity Improvement Project (NHIIP). When completed, the USD 1,146.05 billion NHIIP will feature an upgrade of 1,120 kilometres of India’s existing National Highways in three low income states – Bihar, Odisha and Rajasthan and in less developed regions of two middle income states – Karnataka and West Bengal. The NHIIP will entail upgrading existing highway infrastructure to two lanes with pave shoulders along with single and intermediate lane strengthening.
Opportunities for European Investors
The European India Chamber of Commerce (EICC) confirms that India will remain an increasingly popular destination for European companies and investors despite persistent shortcomings in the countries legal and intellectual property rights. Indian investments in India totalled nearly USD 200 billion between 2004-2013 with Britain, France and Germany accounting to more than 60 per cent of that figure. Britain injected more than USD 70 billion in FDI in India followed by Germany and France. For comparison, the export rates of European countries, such as the UK, France and Germany, are forecasted to grow at about 4-5 per cent annually on average over this 10-year period. Meanwhile, average export growth in the US is estimated to top off at around 6 per cent annually during the same period. What this means is that by 2030 infrastructure-related goods will be the most commonly traded type of goods, increasing in market share from the current rate of 45 per cent of total goods exported to upwards of 54 per cent.
Despite several challenges facing European investors in India; domestic market growth potential, India’s proximity to booming markets and consumers and the nation’s skilled workforce were cited among three key reasons to consider future investment. By 2020 India is expected to surge past the US as the world’s largest importer of infrastructure goods – a position it is expected to hold until at least 2030. This is a result of the country’s increased demand for materials for infrastructure projects lined up as it invests more into the building of its civil infrastructure.
Though hundred of smart cities many sound like a woolgatherer’s wishlist, but the good news is some of the projects like GIFT in Gujarat are really on the path of building a ‘Smart India’ and are generating investment opportunities. n