Indian Cities Build A Head Of Steam To Become ‘Smart’

Rana Kapoor Dec 07, 2017

Indian cities are growing at an unprecedented pace, with one-third of the country’s population living in urban areas and contributing a majority share to our GDP. We can expect a steep increase in these values by 2030 with cities hosting 40% of our population and contributing about two-thirds of GDP. Given the mass exodus, it is no surprise that increasing amount of pressure is being exerted on cities. It is now a challenge to keep the infrastructure intact and cater to the millions that now consider these cities their home.

Against this backdrop, I feel that the approx. INR 48,000 crore and INR 50,000 crore earmarked for Smart Cities Mission and AMRUT, respectively are essential steps taken by the Government to develop urban infrastructure. Further, as per Government reports, large urban infrastructure projects will require a substantial investment of INR 1,89,256 crore for 90 smart cities declared so far. Majority of this funding would have to come through the private sector and Urban Local Bodies (ULBs). Although the new urban policies encourage development, however, innovative financing mechanisms are required to harness additional resources for infrastructure development. ULBs in India are largely dependent on funds from State/Central Finance Commission to execute infrastructure projects, making the task to bridge the infrastructure gap more daunting. These ULBs are caught in a vicious circle of generating less revenue and spending even lesser on services and infrastructure. Further, low user charges and poor collection exacerbate the financial condition of ULBs. This leads to poor credit rating and mars the opportunity to leverage the bond market for financing.

I, therefore, feel that the Ministry of Urban Development’s initiative to build capacity at the local level for raising creditworthiness in tandem with Government programs would go a long way in creating smart urban infrastructure. I am confident that the initiative would help establish the framework to improve municipal finances and provide a fillip to the Municipal Bonds market in India. This, in turn, will act as a catalyst for investment in local industry and accelerate the pace of growth.

Provision of urban infrastructure is capital intensive. The Government will inevitably have to adopt PPP in order to fulfill the huge demand for infrastructure. A major concern is lack of bankable infrastructure projects for private sector participation. Hence, it is imperative that the PPP projects are structured to meet the objectives rather than simply transferring risk to the private partner, which might jeopardize the project. This requires capacity building at the project planning stage to identify and mitigate risk in order to facilitate private participation. Value capture and land-based financing mechanisms could also be plausible strategies to augment resources for infrastructure development. These policies can be effectively employed to recover ‘unearned increment’ resulting from rising in land values due to change in land use or public investment in infrastructure. These mechanisms leverage passive value accretion to finance infrastructure, reduce dependence on debt, optimize land use patterns and improve urban land markets. Tools such as land pooling, also hold the potential to foster development by channelizing private investments, thus, providing a win-win proposition for the beneficiary community and the government/developer.

Cities in India can garner significant economic gain by improving infrastructure and service delivery. I truly believe Smart City Mission and AMRUT have an indispensable role to play in urban regeneration, which would ensure socio-economic progress at the grassroots. I truly believe that the need and requirement of smart urban solutions, Government’s thrust towards building smart cities and structured financing mechanisms will go a long way in making our cities Sustainable, Modern, Attractive, Reliable & Technologically advanced.