Feasibility study of Economic investment in Smart Cities Projects

Feasibility study of Economic investment in Smart Cities Projects

By Surya Dev Prakash and Samridhi Chaurasia

Cities are the ‘engines of economic growth’ and ensuring that they function efficiently is critical to our economic development. Large scale urbanization poses several challenges which will accelerate in the near future. In a decade, over 50 billion devices will be connected through machine-to-machine communication and The Internet of Everything (IoE) will be a $1.5 trillion-a-year business globally. There will be other $2 trillion annually in new services and within this market, the global urban services segment is estimated to be around $2 trillion in revenues and savings over the next decade. I believe that the “Make in India” initiative and the Smart Cities initiative should be converged with cities becoming living labs for hardware, software and urban services developed and made in the country, thereby creating a base for exports. Consider street lighting, which today accounts for 1.5% of total electricity consumption in India according to McKinsey. Cities that use networked motion-detection lights can save 70-80 percent of electricity and costs, according to an independent, global trial of LED technology. Smart street lighting initiatives can also reduce crime in the area by seven percent because of better visibility and more content citizenry, according to Cisco’s estimates.


Another example to consider is buildings. Today, buildings in India account for nearly 40% of the total energy consumption, which will reach 50% by 2030. McKinsey estimated in India that 700 million to 900 million square metres of new residential and commercial space would need to be built every year from 2010 to 2020. Just imagine the increase in energy consumption unless buildings outfitted with intelligent sensors and networked management systems collect and analyze energy-use data.

In India alone, traffic congestion costs $10 billion a year in wasted time and fuel. Drivers looking for a parking space cause 30 percent of urban congestion, not to mention pollution. Imagine if Indian cities embedded networked sensors into parking spaces that relay to drivers real-time information about-and directions to-available spots. Think about how we could reduce congestion, pollution, and fuel consumption as well as generate more revenue for cities through dynamic parking fees for peak times.

Economic rationale and technological ability now also exists for smaller and satellite cities to pool their resources and integrate their management processes. In the process, many of these satellite townships can compete with those in developed countries on terms of physical and technology infrastructures. For example a smaller city that is part of a regional cluster could offer remote management services like infrastructure monitoring to other cities and may eventually become a center of excellence in this particular domain. So, cities can concentrate on some parts of the overall Smart Cities services and solutions industry and build an economic engine around them.

Additional Resources for financing Smart Cities: Government of India funds: ~ Rs.500 cr ; Matching contribution by States/ ULBs: ~ Rs.500 cr ; User Charges; Public-Private Partnerships (PPPs); FFC recommendations (incl land based instruments); Municipal bonds; Borrowings from bilaterals and multilaterals National Investment and Infrastructure Fund (NIIF) ; Convergence with other Government schemes.

User charges way below cost recovery in urban infrastructure.

infra costs

Parking fees: Parking fee is an important instrument of revenue enhancement through user charges for local governments; Dual impact – It also serves to influence commuting choices in favor of public transport.

Public Private Partnerships: Unmet infra needs in sectors like water supply, sewerage, solid waste management, urban transport are immense. PPPs important for bringing in capital to urban infra and private sector efficiencies. However, PPP success stories in urban infra are rare mainly because of inadequate cost recovery and associated political sensitivity.

  Recommendation % Rise over last FC
10th Finance Commission Rs 1000 Cr grant
11th Finance Commission Rs 2000 Cr grant 100 %
12th Finance Commission Rs 5000 Cr grant 150%
13th Finance Commission Rs 23,111 Cr grant 362%
14th Finance Commission Rs 87,000 Cr grant 277%

Essential elements of a PPP – also applicable to Smart Cities: PPPs are commercial transactions between a public and a private party by which the private party: –performs a function traditionally performed by the public sector for an extended period of time; assumes related construction, commercial, and operational risks; and receives a benefit in exchange, either by way of public authority paying from its budget, or user fees, or a combination of these.

Best practices in PPPs: lCompetitive bidding is necessary to ensure competition for the market and thus value for money, besides ensuring transparency lTwo stage bidding process. lSingle bidding parameter at the RfP stage: –Lowest subsidy that the government must provide (Viability Gap Funding in India) – Lowest annuity payment (BOT – annuity projects) –Lowest initial tariff.

14th Finance Commission recommendations: Grants should enhance resources available with municipalities to enable them to discharge their statutorily assigned functions. The division between basic and performance grant will be on a 80:20 basis.

FFC recommendations on Use of Land-based Financing Instruments: Levy of vacant land tax be considered; Conversion charges are collected at the time of land use conversion, e.g. from rural to urban use, and from residential to commercial use – part of this can be shared by State Governments with municipalities; Betterment tax: States should prepare a clear framework of rules for the levy of betterment tax.

Other FFC recommendations: Advertisement tax: two components – tax on hoardings and tax on advertisements on buses, cars, lamp posts and compound walls – States may consider steps to empower local bodies to impose this tax. Entertainment tax: States should take action to increase its scope to cover more and newer forms of entertainment. lProfession tax: Ceiling should be raised from Rs. 2,500 to Rs. 12,000 per annum.

Debt financing – Municipal bonds: lFinancial status of ULBs is such that they lack credit worthiness for using this instrument. lAlmost all Municipal Acts in India impose restrictions on the power of ULBs to borrow funds, in terms of balancing their budgets and seek permission of the state government before borrowing. These permissions are project-based and are granted on an adhoc basis. lIn the short term, pooled financing can be an alternative option through which ULBs with poor financial health can access the market by sharing risks among number of participating ULBs – Pooled Finance Development Fund. lTax free municipal bonds can be a huge incentive lGujarat (Ahmedabad), Tamil Nadu (Chennai and Madurai) and Karnataka (Bangalore), Telengana (Hyderabad), AP (Vizag) and Maharashtra (Nagpur and Nashik) have tried this. Given the needs of Smart Cities, DEA has taken up a project for assessing some cities (Chennai, Indore, Bhubaneshwar) for their credit worthiness and bond readiness and conducting one transaction.

OTHER SOURCES OF FINANCE – MULTILATERALS, NIIF, CONVERGENCE: This fund may blend grant funds from: ► CSS (Central Government allocation), ► Borrowings from multi-lateral and bi-lateral agencies; For instance, ADB has firmly committed to support India’s Smart Cities Programme ► Bonds subscribed by national and state level land development agencies (e.g., HUDA, PUDA, DDA, etc.) The pooling of funds from several sources is expected to reduce borrowing cost and lengthen tenor. The fund may provide Viability Gap Funding (VGF) as well as provide credit guarantees to municipal bonds and term-loans to leverage debt resources from financial markets.

Assistance from the World Bank/ ADB: l$500 million from WB and $1 b from ADB over 5 years (2015-20) in the works lIt will be used to provide funds to Smart City SPVs – exact modalities are being worked out. lLoan should be available in 2016 for use by Round One Smart Cities.

National Investment and Infrastructure Fund: Objective: Maximize economic impact mainly through infra development in commercially viable projects, both greenfield and brownfield.lInitial authorized corpus of NIIF would be Rs.20,000 cr. Functions include investing, which would entail considering and approving candidate companies/ institutions/ projects (incl state entities) for investments – both debt and equity. Funds would also be available for equity support for NBFCs/ FIs that are engaged in infra financing.

Other financing sources could include: Use PPPs where feasible in smart city projects to leverage private sector financing. Fostering PPPs in the urban sector provision for incentives could be explored; however, this needs to be discussed with the relevant ministries of the GoI and concerned departments in the Central/State Governments.

Pooled Municipal Debt Obligation (PMDO) facility was set up in 2006 with the participation of several Banks to promote and finance infrastructure projects in urban area on shared risk basis. Current corpus of the facility is GBP500mn. It is proposed to enlarge it to GBP5bn by 2019.

Real Estate Infrastructure Trusts (REITS): GoI intends to provide incentives for REITS, which will have pass through for the purpose of taxation. These are expected to make available fresh equity and attract long term finance from foreign and domestic sources including the NRIs.

Infrastructure debt funds (IDFs): They could be directed to invest in highly rated municipal bonds/green bonds. They could be used as a means to re-finance debt taken during the construction phase as well as additional cash for financing operations. Tax-free municipal bonds: Creditworthy local govts. issuing tax-free municipal bonds to bring down the cost of borrowing.

Convergence with other Government schemes: lStrong convergence between AMRUT and Smart City Mission – Most Smart Cities (area based) would also be AMRUT Cities (project-based). lAt the planning stage itself, cities must seek convergence in the SCP with AMRUT, SBM, HRIDAY, Digital India, Skill development, Housing for All, etc.

Cross Subsidization and User Charges: A technique of charging higher prices from one party in order to subsidize lower prices for another. Services can be designed in phased manner so that cost recovery can be enabled by this model. User fees allow cities to impose fees to cover the cost associated with funding supporting infrastructure. Under this system, the public jurisdiction shoulders the costs of service/infrastructure investment and dedicates the fee stream from private users for repayment.

New Development Bank: The NDB floated by the BRICKS Nations has formally started financing infrastructure investment and sustainable development projects at its headquarters in Shanghai. The NDB will be supporting the international financial system. The NDB will have an initial capital of $50 billion, which will be expanded to $100 billion within the next couple of years. The Asian Infrastructure Investment Bank (AIIB) is in process of getting functional with support from China worth $50 Billion. India and 56 other nations have joined the AIIB.

Bilateral and Multilateral Agencies: The India government is can coordinate with the World Bank and the Asian Development Bank for providing grants to support the ambitious five year Smart Cities Plan. Other funding agencies such as China-led Asian Investment Infrastructure Bank, Japan International Cooperation Agency (JICA), Agence Française de Développement (AFD) and Germany’s GIZ and KfW Development Bank could also be other options for sending proposals for procurement of funds. The World Bank Group is already supporting India’s rural sanitation mission through ongoing projects worth $1.1 billion. These include a $500 million rural water and sanitation project that is funding sanitation investments in low-income states, including Assam, Bihar, Jharkhand, and Uttar Pradesh. 4.5.3 Foreign Direct Investment and Foreign Institutional Investment (FDI and FII) Private entities will play a major role by financing the Smart Cities which will ensure new revenue streams and capitalization on digital platform. Educational institutions and Business Conglomerates will be the first to bank maximum revenues by providing infrastructure and technology solutions. So the far the FDI policies are not in favor of investors resulting in poor structure of PPP model. Although, FDI in real estate has been relaxed in terms of built-up area and capital requirements, which might further encourage smaller investors to participate. In the January-June period, India has surpassed US and China as the biggest Foreign Direct Investment (FDI) destination, garnering $31 billion investments compared with $28 billion attracted by China and $27 billion by the US. (DIPP report).

Financial Innovation for Smart Funding: Crowd Funding Crowd funding is basically a methods where the people contribute voluntarily small amounts to a cause. The basic reason normally are to either connect to a great cause of the campaign or expect some great aspect like reward from the campaign or connect to some exhibit from the campaign as the outcome. For smart cities the crowd sourcing for funds by contributing to the cause of building of the smart cities. Under the planning for the smart cities it is up to the planning commission to set the limits and norms for this method. There is also the issue of the different period where the crowd sourcing that will be needed for sustainable development. The people who contribute to the cause must entail some benefits for the future and hence it cannot be unaccounted. There are several crowd sourcing platforms and government norms setting a ceiling limit to the sourcing for the same. Example: Chicago City, where local community members are participating in the implementation of renewable energy projects through community based crowd funding model.

Nirbhaya Fund (Indian perspective): Nirbhaya fund was created with a view to ensure empowerment, security and safety of women and girl children in India. A corpus of 10 Billion Indian rupees has been earmarked by the Government of Indian in the Union Budget 2013. The funds allocated under this head can be utilized for development of Smart cities with a view to enhance safety and security of women. Safety in public transport systems, CCTV cameras for Smart Cities to reduce Crime and other security measure in terms of Information technology, Road transportation and highways and railways etc.

Monetizing the Data: Smart cities will generate enormous amount of data by instrumented systems. The data could be provided for commercial use to other service providers who can further extract useful information from the same. State Government could mobilize the then generated resources for funding smart infrastructure and other utilities. The Internet of Things is set to be a $3 trillion opportunity in the market. With increased connected devices, there will be huge accumulation of data, which the companies must convert to value and then effectively use it as part of their revenue model. A SAP study estimates that the worldwide market for selling data generated from mobile phone user behaviour may reach $9.6 bn by 2016.

Smart Bonds: A special purpose vehicle which provides economic returns to all the stakeholder of the investment by achieving a specific goal such as development of smart cities or providing smart services to the masses, infrastructure development or increase in efficiency. Some common examples of Smart Bonds are Green Bonds, Social Impact Bonds, and Infrastructure Bonds etc. A fixed income security issued to raise funds for a project which contributed to ecofriendly, low carbon, and carbon resilient economy. Funds could be mobilized from government in the form of direct funding or from institutional investors to climate change mitigation.

Carbon Offset Funds could be generated by issuing the bonds (Usually Government or Private Players maintaining the project) to the investors or corporates. The carbon offset is a financial instrument which represents the reduction of Carbon Dioxide equivalent from the atmosphere from an emission reduction projects taken up by government, corporates. The World Bank has issued US $8.5 billion in green bonds in 18 currencies, including a 10-year US $600 million benchmark green bond and green growth bonds linked to an equity index and designed for retail investors. The proceeds are later utilized for supporting renewable energy, energy efficiency, sustainable transportation and other low-carbon projects. The Multi-National Companies and Indian Corporate Giants could lead the road ahead by issuing green bonds.

Cloud based Services: Smart City Solutions as Service (SaaS) are changing the traditional business models. CISCO, IBM, Accenture are some of the private sectors companies are creating cloud based services such as Smart Parking, Smart Building, Traffic management and Health Care. The Cisco Smart City designed for Cisco employees to work, play and learn, the Cisco Smart City is a spectacular showcase of how a pervasive physical network infrastructure can easily connect to devices (such as sensors, information access points and mobile devices) with a high degree of security. Another example is the cloud based infrastructure delivered by Local Government with CISCO and Korean Telecom (KT) sharing both cost and risk of the project. The Public Private Partnership (PPP Model) has not only generated USD 2.2 million as revenue but also drives new jobs in the city.

Monetizing Revenue from Data: Data monetization could be the next big revenue model which the Government and private sector companies could tap for generating stream of revenues. Denmark for example has estimated the revenues generated from reuse of public data could be as much as 80 million Euros per year while the social benefit of this amounts to 14 million Euros. The statistics of IBM Big Data Flood Info graphic shows that 2.7 Zettabytes of data exist in digital universe today and 100 Terabytes of data are updated daily through Facebook and other social networks resulting into 35 Zettabytes of data generated annually by 2020 (Elena, 2012) The big data technology would serve as a revenue model and could be a gateway to monetizing data. Smart city strategies may lie upon big data which for example could help in eliminating traffic congestions through predictive analysis of transport system etc.

Tax Increment Financing: A public financing method used for generating funds in the form of subsidy for redevelopment, infrastructure and development projects for the community. This option could be exploited by the India government for generation of funds. Funding for the smart cities could also be done by implementing the TIF, commonly used as a subsidy for redevelopment, infrastructure and other community development projects. Revenues from increases in property tax are escrowed for a defined period of time to finance new infra investments in this area. This would also enhance accountability by linking expenditure with outcomes relevant to local residents. For example in Chicago 105 of all property tax are earmarked for TIF purpose.

‘Assured Electricity supply’ is one of the identified pillars of “Smart City – Core Infrastructure” identified by the Smart City guidelines of GoI. Scheme Cost: Rs 32,612 crore including budgetary support of Rs 25,354 crore. Main Components: Strengthening of sub-transmission and distribution networks in the urban areas; Metering of distribution transformers / feeders / consumers in the urban area; IT enablement of distribution sector and strengthening of distribution network being under taken under R-APDRP (subsumed in IPDS); Provisioning of Solar Panels on Govt. buildings. Projects worth Rs 24,204 crore for 3,406 towns in 26 States/ UTs sanctioned (including In-principal sanction of Rs 19,072 crore for 3044 towns).

Investment in 98 Smart Cities ( in Rs Cr) as on 21.10.2015
  No. of Towns Present status Amount Sanctioned Amount Disbursed
Part A IT 82 49 (towns declared Go-live) 2248 1191
Part A SCADA 46 17 (Control Centre commissioned) 1090 328
Part B 64 6 (towns completed) 12906 2085
Sub Total(R-APDRP) 16244 3604
IPDS 76* Circles approved containing Smart City 9516 49
Grand Total (IPDSincl. R-APDRP) 25760 3653
* IPDS Projects have been sanctioned circle wise which cover the Smart City town and Project cost indicated is the cot for entire circle.

Investment sanctioned in Smart Cities under IPDS:
* IPDS Projects have been sanctioned circle wise which cover the Smart City town and Project cost indicated is the cost for entire circle.

Estimated Cost (Power sector): Assumptions- Population ~10 lacs; Consumer Base ~2 lacs (Single Phase -60% and Three Phase-40%); Tentative Cost for a Smart City (~ 382 Crore)-Greenfield; AMI System incl MDAS,MDM & PLM – 161 Crore; GIS Mapping- 10 Crore; SCADA/DMS – 4.5 Crore; Outage Management System- 129 Crore; Control Centre HW & SW- 10 Crore v Communication Infrastructure-28 Crore; Street Light Automation System-40 Crore; Estimated Project completion -3 Years from Sanction.; Tentative Cost for a Smart City (~ 334 Crore)-Brownfield (IT and SCADA implemented under RAPDRP); AMI System incl PLM – 155 Crores; Outage Management System- 103 Crores; Control Centre HW & SW- 5 Crore; Communication Infrastructure-28 Crore v Street Light Automation System-40 Crores; Integration Cost -3 Crore ; Estimated Project completion -30 Months from Sanction.

UKTI (United Kingdom Trade Investment): UK offered India to build smart cities together:

How Smart Cities can break through such challenges? ► Optimise resources through better information on the resource use cycle ► Use information to better manage utilities ► Enable consumers to make more informed use of resources, and lower their consumption, thereby reducing utility operating costs and extending operating life of existing infrastructure ► Provide opportunities for new services to citizens through smart technologies The market for Smart City products and services is forecast to be more than GBP900bn by 2020, equivalent to 12th largest nation on earth, in terms of GDP. Further, it is estimated that the top 750 smart cities will generate two-thirds of the world’s GDP by 2030.

High Indian population is setting the groundwork to become a knowledge based society. While urban population is, currently, around 31% of the total population, it contributes more than 60% of India’s GDP. It is projected that contribution is going to increase nearly 75% of the national GDP in the next 15 years. Among the top ten mega-cities in India single Smart City appears in the list of first four mega-cities of Greater Mumbai, Delhi, Kolkata and Chennai. These Cities, especially Greater Mumbai, contribute a significant share to country’s GDP and it is probable that converting these mega-cities to Smart Cities may yield a higher contribution to the current GDP.

Gujarat International Financial Tec (GIFT), spread over 886 acres, is situated at a distance of 18km from Ahmedabad airport. The city is expected to be a front-runner in Smart Cities Programme. The city has been conceptualised as a global financial and IT services hub, whose construction began in 2011.It’s a JV between the state-owned Gujarat Urban Development Company and Infrastructure Leasing and Financial Services (IL&FS), involving total investment of GBP8bn in three phase development. The three phases are expected to be completed by 2026, with first phase to be completed by 2016.

Private Smart city projects: Private Smart City projects are being exclusively funded by corporate players and do not involve Government in any phase of development. Some of such projects are Wave Infratech’s 4,500-acre smart city (Wave City) on NH-24 and Lodha Group’s Palava City, spread over 4,500 acres and located close to upcoming Navi Mumbai International Airport. The private developers float tenders and invite companies to support on different aspects of the project. UK companies can participate in such tenders and be a part of private Smart City projects. Wave City: ► Developer roped in SBI Bank to fund its projects, who will conduct due diligence of customers, before financing projects ► Tied-up with IBM to develop Smart City ► Awarded contract of GBP90mn to construction major Larsen & Toubro (L&T) to build residential towers.

Estimating the addressable market: Modern urban systems: HPEC estimates in 2012, the High Powered Expert Committee (HPEC) estimated urban investment requirement, between FY12 and FY32 (20 years), at GBP383bn. This encompassed both existing urban infrastructure shortages and future development for projected population growth.

Incorporating ‘100 Smart Cities Programme’s’ investment requirement: Within HPEC estimates-The Government of India’s Centre’s Expenditure Finance Committee has set the stage for one of the biggest urban renewal programmes to modernise India’s cities in recent times, with a top government panel approving some GBP40bn to develop 100 smart cities and upgrade basic civic infrastructure in another 500 cities during the next 10 years. The Committee cleared GBP10.8bn for developing smart cities and GBP18.6bn for the National Urban Renewal Mission (NURM). It aims at improving water supply, sewerage, and drainage and transport infrastructure in 500 cities.

The Smart Cities project clearly requires private sector partnership with GoI to build robust cities. Indian Government’s Indicative Future Budgetary Reserve is expected to be GBP68bn over 20 years. It is expected that most of the infrastructure will be taken up either as complete private investment or through PPPs.The GoI has indicated that it will provide incentives in form of a CAPEX subsidy for projects via VGF mechanism –

  • 90% VGF for cities in hilly areas
  • 40% VGF for cities in plains

Allowing for Greenfield and brownfield projects and other aforementioned factors: The associated Capex per sq. km of built ‘Smart City’ environment varies widely due to specific urban locations as well as some Smart City specific aspects. Illustration Of the three pilot projects underway (Pavala by Lodha Group & IBM; GIFT City and Dholera Investment Region as part of DMIC), the Greenfield project costs per sq. km vary significantly.

brownfield costs

Estimate of percentage of cost for greenfield and brownfield project is based on Dholera project estimate, HPEC break-up, ICT cost estimate by government and some missing components such as Surveillance solutions.

Category Sub-category Estimated cost per city (GBP bn) No. of Cities Total cost
Greenfield cities Greenfield 15 6 35
Satellite cities 4.8 9 43
Brownfield cities With 1-4mn population 4.8 44 211
State capitals 4.2 17 71
Tourist places 3.6 10 36
Less than 1mn popuation 2.4 20 48
Total investment 445
Dholera GIFT Naya Raipur Others(-3)
12 7 4 12

Modus Operandi of our assessment (all numbers are in GBP billion, unless stated otherwise). The total investment opportunity in ‘100 Smart Cities’ is GBP445bn. Of this total, infrastructure constitutes 75% (GBP334bn), real estate 21% (GBP94bn) and remaining ICT. While, real estate constitutes 40% of total cost for Greenfield projects, it will be only 19% for brownfield cities. Infrastructure costs constitute more than 3/4 of the total cost for brownfield projects and more than half in case of Greenfield projects.

Transport system constitutes 45% of overall infrastructure costs, followed by surveillance solutions (10%) and Power (8%). For both Greenfield and brownfield projects, these constitute top three components.

With the exception of Greenfield cities, all other categories comprise building upon existing cities. The estimated costs, however, differ as they are based on size, population, etc. Detailed workings to arrive at the estimate of GBP445bn are as follows:

(A) Greenfield & Satellite cities (B) Breakup of total cost (C) Brownfield (D) Break up of total cost (B)+(C)
Infrastructure development cost 56 % 44 77% 282 326
Transport system(roads, rail transit) 26% 20 35% 128 149
Traffic support 2% 2 3% 11 13


Street Lighting 1% 1 2% 5 6
Land procurement 2% 2 3% 11 13
Water sourcing and transmission 3% 2 4% 13 15
Power 5% 4 6% 22 26
Land improvement and earth works 3% 2 4% 15 17
Water distribution 3% 2 4% 15 17
Sewerage, solid waste and storm water projects 3% 2 4% 15 17
Landscaping, Signages and building works 1% 1 3% 9 10
Surveillance solutions 6% 4 8% 27 32
Other infrastructure 2% 2 3% 9 11
Real estate 40% 31 10% 70 101
Renewal and development 10% 37 37
Housing 33% 26
Commercial 3% 2
Retail 2% 2 3% 11 13
Hospitality, Recreation, education etc. 2% 2 6% 22 24
ICT (including internet connectivity) 4% 3 4% 15 18
Total 78 367 445

Source-EY analysis

UK India Business Council (UKIBC): UK India Business Council is a leading business-led organisation promoting mutual trade and investment between the two countries. Its objective is to help in increasing the trade between the UK and India through business to business dialogue. UKIBC Advisory Council is comprised of members from prominent companies and institutions representing both the countries. These include British Airways, University of Cambridge, Standard Life, Hindustan Construction Company, Standard Chartered, Biocon, Diageo Plc., Hero Group, Manipal Global Learning, Max India Ltd., Trent Ltd., Murugappa Group, Arup, etc.

India – UK JETCO was formed in 2005 jointly by the Government of India and Government of United Kingdom with the objective of strengthening economic relationship between the two countries. It was conceived as a mechanism to develop business led vehicles for enhancing bilateral trade and investment through business to business relationships. Recently, its 10th meeting on ‘Smart Cities’ was held on 19-20 January, 2015 in London. The meeting had a sectoral focus, covered sectors viz. urban infrastructure, urban planning, infrastructure, infrastructure financing, ICT, homeland security, geospatial technology and energy from the point of view of smart cities. The meeting saw both industry and government come together for productive discussions in the three Working Groups constituted on the themes of Education& Skill Development, Smart Cities and Technological Collaboration, Advanced Manufacturing and Engineering. Indian companies that participated in the meeting ► Fairwood Group► IL&FS Ltd.► Township & Urban Assets Ltd.► L&T Ltd.► Peninsula Land Ltd.► Tata Realty & Infrastructure Ltd.

Foreign countries/organisations collaborating with India on Smart Cities Programme:

Entity Selected major investment plans in India
France Plans to invest GBP 1.5bn in development of three smart cities, including Puducherry and Nagaland
US Anticipated GBP 25bn private investment into India, partnership on clean water and solid waste management for 500 cities
Japan GBP22bn-mix of private and public investment
China GBP12bn-mix of private and public investment
Germany (KfW Bankengruppe) GBP0.7bn on solar capacity for next 10 years
ADB GBP1.6bn to establish five industrial zones for Andhra Pradesh; GBP39mn for North Karnataka Urban Sector investment programme.

Collaborations to develop cities around industrial corridors:
Smart City plan is a part of a larger agenda of creating Industrial Corridors between India’s metropolitan cities. These include DMIC, Chennai-Bangalore Industrial Corridor and Bangalore-Mumbai Economic Corridor. Smart Cities are expected to be developed around such corridors in collaboration with foreign governments.

► Japan is investing GBP2.8bn in first phase of DMIC project, to develop smart cities, through lending from the Japan International Cooperation Agency (JICA). ► The UK is collaborating for developing Bangalore-Mumbai Economic Corridor project with the help of private companies from Britain.

Other key partnerships/investment plans:

  • Sweden is keen to offer their expertise in the development of Smart Cities in India. They intend to be a part of the Ahmedabad-Gandhinagar metro rail and BRTS projects in different cities.
  • Japan has proposed to set up hotels and smart cities in India. Among the projects proposed is setting up of Hotels by Toyoko Inn Japanese chain and developing smart cities by a Japanese Housing company-Daiwa House.
  • India signed MoUs with the US Trade and Development Agency for developing Visakhapatnam, Allahabad and Ajmer as smart cities.
  • Telangana Govt. intends to develop a smart city in Hyderabad in association with Smart City Dubai. Smart City Dubai is an integrated development featuring offices for IT companies along with residential and commercial space, technologically enabled.
  • Kerala Govt. has entered into a partnership with Smart City Dubai for developing a similar model in Kochi, where latter will be investing GBP413mn over the next eight years.
  • Poland intends to partner in Smart cities and industrial corridors projects.
  • Singapore is providing the master plan for the development of the new Andhra Pradesh capital city. It is also facilitating study visits to Singapore by Indian officials to share their urban management and governance experiences.
  • Germany has agreed to partner with India in developing three smart cities.
  • Hamad Bin Nasser, Prince of Qatar, plans to invest GBP10.4bn in at least 10 smart cities. He plans to invest in real estate, sea ports and airports projects.

Other countries showing interest in this project include Malaysia, Australia, Netherlands.

Concession Agreement: ‘Concession Agreement’ or ‘Concession’ refers to a legal document or any arrangement in which a non-government entity obtains, from the government or a government agency, the right to either provide a particular infrastructure service or control access to (whether linked to obligations to develop, construct, renovate, operate and/or maintain or otherwise) one or more infrastructure facilities, effectively on an exclusive or dominant basis. Concession agreements under various Indian statutes use the following principles: ► Agreement between a non-government entity and a government authority or government agency ► Relates to an infrastructure project; and ► Regulates private participation in the project. As per Indian legal framework, concessions could be granted using any of the following methods: ► Direct Negotiations between state agency and the proposed concessionaire ► Competitive bidding process ► Swiss challenge process. MoUD intends to issue Model Concession Agreements for all infrastructure services envisaged under the Smart City Programme.

Funds release and distribution: Funds can be used as follows –Project funds – 93%, State/ULB (Administrative & Office Expenses) – 5%, MoUD (Administrative & Office Expenses) – 2%, Advance of Rs. 2 crore to shortlisted cities to prepare SCP. First year Rs. 200 crore, thereafter Rs. 100 crore every year. Funds release – timely submission of Score Card, satisfactory physical and financial progress as shown from UC and Score Card, achievement of milestones in the Proposal – to be certified.


Development of infrastructure, human resources, industry, technology, education, health and medicine, banking and finance, retail, tourism and heritage structures, art and culture, and natural resources utilization. Increased opportunity for domestic investors, foreign investors, developers, buyers, industrialists, employers, etc. Huge FDI as a result of investor friendly policies. Higher GDP contribution from smart cities due to increase in investment, tourism, and employment, and expansion of industries/ corporates. Cost reduction due to adoption of smarter initiatives in sectors such as transportation, energy, water, security, etc. Creation of crores of jobs Annual revenue generation for state and central government. Vadodara, Agra, Nagpur, Ajmer, Amritsar, Gwalior, Thane and Thanjavur are some of the other cities that have been named to be developed as smart cities. The 27 cities will require investment of Rs 66,883 crore. According to urban development ministry’s estimate, Rs 1.44 lakh crore investments have been proposed by the 60 cities that have been selected so far under their smart city plans. So far, the Ministry of Urban Development, GoI has selected 60 cities in three rounds and has covered 27 states and Union Territories. Only nine more states and UTs are still to get on board including Uttarakhand and Jammu and Kashmir.Urban Development Minister, GoI, M. Venkaiah Naidu said that money coming from the governments and ULB will act only as the seed money for each Smart City Plan and that cities will have to “be creative in raising the required finance”. On average, 90% of the financing in developing countries is self-financed by the consumers and this fraction if changed causes destabilization for sustenance and has scope for further study (Joshua et al., 2007). Countries with higher self-financing ratios grew significantly faster than countries with low self- financing ratios (Joshua et al., 2007). Financial integration may have facilitated diversification of assets and liabilities, but failed to offer new net sources of financing capital in developing countries.

*Special Mention to Mr. Kumar V. Pratap, the economic advisor of MoUD, GoI; UKTI , Ministry of Urban Development, GoI; Ministry of Power, GoI, CISCO for reference the data.

Author 1: “Surya Dev Prakash is a young Indian Smart Cities Specialist, having expertise of several Management Consulting projects, 4 International Research papers in Smart Cities & has honorable mentions at several prestigious organizations for his talent & skills. You can approach him on email id- suryadevprakash@gmail.com. “







Author 2: “Samridhi Chaurasia is a young Indian Smart Cities Specialist, having expertise of several Management Consulting projects & has good experiences with prestigious organizations for her talent & skills. You can approach her on email id- samridhichaurasia.1994@gmail.com   “



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Author: Surya Dev Prakash

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