There’s only one way India can pay for its ambitious smart cities

Big bang projects.
Big bang projects.
Image: Reuters/Amit Dave
We may earn a commission from links on this page.

India is in the process of converting 20 of its urban centres into smart cities.

Smart cities are essentially urban clusters with smooth transportation, e-governance, and better social infrastructure, including healthcare and education. The development of smart cities was among the first initiatives launched by the Narendra Modi government after sweeping the Indian elections in 2014.

Over the next six years, India plans to transform 98 such cities and towns—that account for 35% of India’s urban population—at a cost of Rs50,802 crore ($7.5 billion). These cities will feature adequate water supply, better electricity supply, sanitation, solid waste management, and affordable housing. The first few include the eastern Indian city of Bhubaneswar, the IT hubs of Pune and Chennai, and the western coastal cities of Mumbai and Kochi.

But, to undertake the colossal project, the Modi government has to woo and win one section more than anybody else: India’s private sector.

That’s because the central and state governments will be able to meet just about 20% of the projected investment, according to a report by the consultancy firm, Deloitte. Currently, the Modi government plans to give each of these cities Rs200 crore in the first year and Rs100 crore for every subsequent year, while the state governments will also provide Rs500 crore. Local bodies, responsible for the smart city, will have to bring in the rest.

But, according to Deloitte, India needs some $150 billion over the next few years to set up these smart cities. And almost 80% (around $120 billion) of the investment has to come from the private sector.

Cities in Asia’s third-largest economy currently lack basic infrastructure such as toilets, and are among the most polluted in the world. The country’s capital, New Delhi, tops the global pollution chart.

“Several challenges remain with respect to the development of smart cities including those related to project funding, project management, government decision making and policy & regulatory framework,” P N Sudarshan, a senior director at Deloitte, said in the report.

With India’s urban population estimated to grow from almost 350 million to about 700 million over the next 15 years, the Modi government had initiated the smart city plan to reduce pressure on existing infrastructure. Next year, the government is likely to announce 40 more cities under the initiative.