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A Tale of 100 Smart Cities

Feb 25th, 2015
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Twelve kilometres from Ahmedabad, the Sabarmati river runs dry. Two buildings, 122 metres high, tower over parcels of construction-ready and waste land beneath. Newly built serpentine roads sometimes lead to nowhere. As the sun sets over Gujarat International Finance Tec-City (GIFT), construction workers make a beeline out of a nearly complete data centre.

A decade from now, the place would rock. The river would brim with clean blue water. High rises with sparkling glass facades would form a necklace around the river curve, much like Shanghai. The tallest of them all would be the Diamond Tower, 410 metres high. After trading in equities, currencies and diamonds all day, nearly a million people would chill in cafes by the waterfront, shop at craft bazaars, or just jet ski.

If GIFT goes as per plan, it could be among India's earliest 'smart cities'. India wants to build at least a 100 of them as per Prime Minister Narendra Modi's commitment to the nation. It's a monstrous ambition that is fast becoming a social and economic imperative as at least 50 per cent of Indians are set to live in urban areas by 2050, as against just 32 per cent today. India must provide for these 814 million people in cities with minimum disruption and least chaos. The existing cities have failed to do so for lack of focus or planning.

The Great Vacuum

The problem is that one year since Modi's announcement, India is still grappling with the nuts and bolts of setting up a smart city. Not a penny has been used from the Rs 7,060 crore allocated in the Union Budget 2014 "to provide the necessary focus" to smart cities. "We have not launched the scheme yet. So there is no question of any expenditure on that account. Smart city is a new concept to India... various stakeholders have to be taken on board and you have to sustain them," says Urban Development Minister M. Venkaiah Naidu.

We don't know what will constitute a smart city. We don't know who will certify them. We don't know how they will be funded. And, obviously, we haven't identified a smart city yet.

A 46-page concept note released by the urban development ministry attempts to answer some of those questions. It has come up with the mother of all definitions: "...cities which have smart (intelligent) physical, social, institutional and economic infrastructure which ensure centrality of citizens in a sustainable environment". Nobody disputes that definition. In fact, panelists at the BT-Nasscom Roundtable on Smart Cities called it the most holistic definition possible. But the trick lies in execution. And there is very little to boast of that on the ground.

"It is too early to talk on smart cities," says Babul Supriyo, Minister of State for Urban Development, biting into a chicken shawarma as he strolled in around 8.30 p.m. on January 18 for a dinner hosted by Sushma Paul Berlia, Co-founder and President of Apeejay Stya & Svran Group.

"The draft concept note has been prepared and placed in public domain. The website has been launched. The selection criteria for smart cities are at the final stage of approval. In coming days, before March, we will go to the expenditure finance committee and then it will go to cabinet and (it) will be rolled somewhere around the end of March," assures Naidu.

Many Shades of Smart

Still, there are no clear answers as to what a smart city is - anywhere in the world. It is one of India's struggles too. Most smart city definitions and, thereby its scope, are all western. Consulting and IT firms propound a tech-centric approach to smart cities; transport firms propose intense infrastructure-focus; utlility management firms propose a citizen-centric plan and pollution control firms propose a sustainability-based approach.

Technology and consulting firm IBM, for instance, defines smart cities as those that "make use of all the information available from city systems, processes and people to use resources efficiently, make better data-driven decisions, and proactively anticipate and resolve problems". But for British city Manchester, smart city means "smart citizens - where citizens have all the information they need to make informed choices about their lifestyle, work and travel options".

For many Indian municipalities, smartness thus far meant 'e-governance+', or anything a bit more than e-governance services. That view is changing. "Smart city is a place which is integrated - consumer to government to business; where there is optimal employment and growth and where you get the right skill sets. The growth being beyond survival issues of roti, kapada and makaan," says Jalaj Shrivastava, Chairman, New Delhi Municipal Corporation.

As more people migrate to urban centres for employment, cities need to get smarter about how they manage the utilities, transport and congestion, healthcare as well as education. So India's concept note has put together all these to come up with one of its own.

The ministry note defines benchmarks for various services. In transportation, for instance, the maximum travel time should be 30 minutes in small and medium-sized cities and 45 minutes in metros. The water availability has to be 135 litres per capita per day. In addition, 95 per cent of residences should have retail, parks, primary schools and recreational areas accessible within 400 metres.

Advisory firm Frost & Sullivan stitches the different pieces that make up a smart city. It highlights eight parameters that make a city smart: governance, energy, homes and buildings, mobility, infrastructure, technology, healthcare, and citizen. No city has all of these and according to Frost & Sullivan, in 2025, there will be around 26 global smart cities that will have at least five of the above parameters.

Some suspect that one day a definition could be imposed top-down from Delhi. The Bureau of Indian Standards is working on a smart city standard. And while standards are generally voluntary, nothing stops the government from making them mandatory.

"We are struggling with the definition. As a country we are struggling because it's not one definition that can fit across the country," says Banmali Agrawala, President and CEO of GE, South Asia. One cannot have a common definition of what constitutes smart mobility, for instance. For a hill city, says S.B.S. Bhadauria, Secretary of Sikkim's Transport Department, smart mobility means ropeways, and not trams or buses.

Your Smart City Versus Mine

The next challenge is: how will smart cities be identified? "(The) selection process will be through competition. The willingness of the city to be reformed and willingness of its leadership to undertake reforms and bold actions [will be assesed]," says Naidu.

The government plans to identify 20 smart cities in 2015, 40 in 2016 and another 40 in 2017. Naidu says there will be a cap of two-three smart cities per state. Though, given India's federal structure, states will have a significant say in identifying the smart cities they wish to focus on. "At the end of the day, it is the central government, state governments and urban local bodies [which] will be involved in finally identifying the cities," says Naidu. "We don't want to dictate from Delhi [as to] which city should be made smart city in a particular state. The states will decide."

The government has to pick its 100 from 4,041 towns and cities and the Ministry of Urban Development chose a consultative approach to decide on the criteria. In January last week, it organised a workshop with the states. A city challenge programme has been announced. Cities now have to compete on several parameters to be eligible. There will be a two-stage selection process. In the first stage, cities that can compete will be picked. The selection at this stage would be based on vision, progress under the Swachh Bharat Mission, payments of salaries to municipal staff on time, information and grievance redressal mechanisms as also an e-news letter. As competition intensifies, the government will look deeper into issues such as self-financing abilities of the cities, service levels and track record in implementing reforms. That's stage two. The first leg of the city challenge programme is expected to be completed in about nine months; the central government may make some financial commitments to around 20 cities, officials in the know told BT. Once the cities are selected, they would either be guided to redevelop or retrofit.

Private city developers watch out. Your projects will not qualify for the "smart city" label in Naidu's scheme of things. "If it is a business proposition, he is on his own. What does he require from me? If he wants me to pat on his back, I will definitely do it," says Naidu. So despite Infosys CEO Vishal Sikka's assertion that the company's Mysore campus will be India's first smart city, that will not be the case. "They have some technology wherein they can reduce the cost of energy by 40 per cent... I will be suggesting to different cities that these are the avenues and the opportunities. They have to take part in open bidding," explains Naidu. HCC Group, which is developing Lavasa city in Maharashtra, recently made a pitch to the urban development ministry that is being assessed, though the Lavasa website claims it is "first of Indias 100 new cities". "The government comes into picture where there is government investment. If they [private companies] follow the town planning and environment rules, banks will fund them," says Naidu.

On its part, the Centre is suggesting various cities to various countries that are coming forward to participate. To the US trade agency (USTDA), "I suggested Visakhapatnam, Ajmer and Allahabad. Their team has gone there," says Naidu. Japan is interested in Varanasi. Singapore is studying the model for the new capital city of Andhra Pradesh - Vijayawada-Guntur. "Australia, Germany, Sweden and France are interested. We are engaging them," says Naidu.

There are global examples to look up to. Barcelona, for instance, prides itself in being a liveable city. Its citizens are at the centre of the smart city strategy. "They were trying to protect the quality of life for Barcelona citizens and for tourists who come there. Smell sensors were put in garbage bins - if bins smell, it will impact the tourist," says Anil Menon, Cisco's President of Smart+Connected Communities and Deputy Chief Globalization Officer.

The Financing Conundrum

As per the urban development ministry's estimate, the 100 smart cities (and rejuvenation of 500 other cities with population of 1 lakh and above) will cost more than Rs 40 lakh crore over 20 years. That includes infrastructure such as water supply, sewerage and transportation.

Clearly, the government does not have the resources to fund all of it by itself. So, the concept paper has proposed public-private partnership (PPP) to set up these cities. While there has been wild speculation about how the cities will be managed, Naidu goes a step further to confirm that he's likely to follow the GIFT model of setting up a special purpose vehicle (SPV) to manage and fund PPP projects.

EXCLUSIVE INTERVIEW: Minister of Urban Development M. Venkaiah Naidu discusses the progress of building 100 smart cities Contrary to belief that the Centre will fund these SPVs, the Centre's funds will purely be used in viability gap funding (VGF). Interestingly, Naidu says the only area that will be funded directly by the Centre will be the 'digitisation' of each smart city. VGF, in turn, will depend on ratings each city secures on parameters such as sanitation, infrastructure, transport, education facilities, open public space and credit worthiness. "We will be engaging CRISIL and a lot of [ratings] organisations. Certain states already have credit ratings," says Naidu.

An SPV model will typically have three-four equity partners - the central government, the state government, municipal bodies and the private sector. A city can have multiple projects. Each of those projects can be dealt with by an SPV, which would become the nodal agency. But forming project-specific SPVs has its own challenges. It would mean devolution of power from the municipal commissioners, MLAs and other government officials to the person heading the SPV who will have executive powers. "SPVs should be delegated powers to plan, develop, execute, implement, operate and maintain. All six are equally important. Some people will not be comfortable with relinquishing their power but ultimately, the government's job should be restricted to making policies," says a government official who does not want to be named.

"As far as PPP is concerned, they can go for joint interest in which private sponsors consisting of a consortium of private companies will contribute equity to the JV [joint venture]. The model memorandum of understanding for the establishment of JV will be provided as part of the guidelines only. Capacity building will be provided by states, and cities for establishment of SPVs and JVs," says Naidu.

How will you finance brownfield projects is a million-dollar question, especially when sanctity of contracts is not respected? That's a question posed by many potential investors worried about the policy flip-flops. "If I am signing a 25-year contract, the bureaucrats will keep changing. So will the political parties, and their perceptions. I always run this risk in a country like India that my contract will not be honoured," says Harry Dhaul, Founder and Director General of the Independent Power Producers Association of India.

For the rest, many models have been suggested for financing the capital and operational investments. Brownfield projects can have three sources of income: land monetization in cases of redevelopment, user charges or squeezing out inefficiencies in the current system so that they can pay for investments. The returns on investment can be generated through land monetisation by increasing FAR - floor area ratio or total floor area of a building in comparison to the size of the land upon which it is built.

In fact, the government's concept note talks about the revision of laws governing land. "Land in cities is at a premium and the existing FARs does not permit development of high rises, which results in high cost of housing. To ensure availability of affordable housing for every citizen, the existing FARs and bye-laws needs immediate revision," the note points out.

Too Many Cooks, No Chef

No less than eight ministries need to work together to build a smart city, says B.K. Sinha, Head of Civil Engineering at the Bureau of Indian Standards. These are the ministries of urban development, IT, power, road transport and highways, water resources, labour and employment, human resource development, and consumer affairs, food and public distribution. Policies at the central level are being framed by the urban development ministry but there is no single point clearing house for contacts private investors look for.

Worldwide, there are examples of inter-departmental coordination to make things happen. The Chicago mayor's office has two positions that help different city departments work in cohesion - the Chief Technology Officer (CTO) and the Chief Data Officer (CDO). While the CTO guides the mayor in technology choices, the CDO guides policy decisions based on spatial data. "He also has the strategic role of creating the city's open data policies, and is a prime liaison with the community. For Chicago, this community liaison role is particularly important as a significant proportion of the smart cities work in Chicago lies at the boundary between government, the community and private sector stakeholders," states a research paper by the UK's Department of Business Innovation and skills.

Smart cities also call for a new mindset, and both citizens and the government need to get used to new ways of dealing with private companies. The government may also need to collapse its departments to create a new structure. The private sector has solutions but it doesn't know who to sell into in cities. In most cities, the traffic, sewage system, electrical systems, and roads are each managed by different agencies. Even at the central government level, many stakeholders need to work in unison.

But in creating new solutions, it's the brownfield cities in India that face a bigger challenge. Retrofitting an old city with smart solutions imply incurring a capital cost. The government expects that most of it will be taken up either as complete private investment or through PPP.

"There are institutional platforms to discuss things openly in the presence of others. The government needs to be cautious against additional reporting structures that push up the cost of compliance," says Vishal Dhar Co-Founder of iYogi, which offers technology support services as well as services in smart housing. There are enough examples of PPP projects, especially in the infrastructure sector, not doing well in the past few years. "PPPs succeed with minimum interference," he adds.

Some point to Reliance Infrastructure's dispute with Delhi Metro Rail Corporation (DMRC). In July 2013, Reliance Infra said that Delhi Airport Metro Express, its SPV, terminated the Concession Agreement with DMRC for the Delhi airport metro line. Reliance Infra said that DMRC failed to "cure substantial defects in the civil structure designed and built by DMRC, within the period prescribed under the Concession Agreement."

If the private sector invests, is there a visibility on returns? Companies are unsure if citizens will pay more for a better or value-added service. If there is a capital investment in say GPS systems for buses, will citizens at least pay for the operational costs in terms of higher bus fares? Or will they pay for better-quality water?

Naidu insists there are no free lunches and that the government is looking to get citizens to pay for better services. "Correcting service charges requires political stamina for a leader because all these years, we are used to free services. We made people to think sab kaam sarkar karega, hum bekaar baithe toh chalega. We politicians have developed this attitude over the years. Keeping that in mind, first of all, we have to change the mindset," he says.

"The key to rolling out is how we get our act together in terms of consolidation at the government level, the institutional frameworks, the roll out plans, how innovative we are in drawing the funds and keeping citizens engaged. Citizens can make or break it," says Karuna Gopal, President, Foundation for Futuristic Cities, at the BT-Nasscom panel discussion.

Despite the host of issues, a large number of private players are keen to play a role in India's smart cities story. The government's concept note says companies including KPMG, PwC, IL&FS, Accenture, Microsoft, IBM, Cisco, Wipro, TCS, Infosys and Tech Mahindra have made presentations to the ministry. All these companies bring in a wealth of global experience, and globally, some brownfield cities have managed to cut through the maze of city department silos. In Boston, there is a Mayor's Office of New Urban Mechanics, which acts as a bridge between the government and citizens. Formed in 2010, the body "builds partnerships between constituents, academics, entrepreneurs, non-profits and city staff".

Retrofitting Cities

Once the cities are selected, they would either be guided to redevelop or retrofit. Retrofitting, for instance, will be done in areas such as Defence Colony in New Delhi as the locality is in a good condition and will need less work and investment. "That locality might require widening of roads, making cycle tracks, improvement in waste management system, Wi-Fi facilities. In this case, the cost has to be borne by the citizens," says an official of the urban development ministry. Redevelopment, on the other hand, will require large-scale changes.

For example, in a congested area like in Delhi's Daryaganj, where there's not much scope of improving the infrastructure, the plan will be to demolish, and build vertically. "In such cases, the citizens will be rehabilitated to some other location for a brief period," the official says. An example of this is Kathputli Colony in West Delhi where about 2,800 families will resettle for about two years in semi-permanent structures in Anand Parbat. The slum is being redeveloped. "Redevelopment is inevitable because greenfield projects take time," says N.S.N. Murty of PricewaterhouseCoopers. He says that for redevelopment, the government should first pick up either waste land or land holdings with PSUs within cities.

"You have to create an engine that will propel itself. One principle lever is FSI in a city. When Chandrababu Naidu was the chief minister of Andhra Pradesh, they were looking at widening roads. The method then was to decide on how much had to be widened and acquire the land. The new method was to give extra FSI to build. So people demolished their building and went vertical," says Nasscom President R. Chandrashekhar.

"People are thinking that smart cities can be created like this," says Naidu, snapping his fingers. "You cannot rebuild the entire city. It all depends upon the criteria, willingness and preparation of those urban local bodies. For example, if you are going for metro [project]. Metro is going to cost Rs 200 crore per km. Somebody has to study it otherwise companies will not come and invest here. Some feasibility study has to be made. Then, [it is] people's willingness. It will be put to general body discussion in corporation. There will be project monitoring units which will evaluate smart city proposals for extending VGF," says Naidu.

Almost every month, there is a smart city conference in New Delhi; consultants trumpet their global experience, self-styled smart city experts lecture on the path India must take, companies crowd to talk about their expertise. Those carrying out the civil work of roads construction, laying pipelines and fibre may bag the biggest chunk of the yearly spending that is expected to be required for just the infrastructure work - water supply, sewerage, sanitation and transportation. "Typically, in a project, around 85 per cent is construction cost," says Jagdish Salgaonkar, Senior Vice President at programme management company AECOM. Construction costs include labour, material and equipment. In smart cities, equipment such as routers, cameras and sensors can add up to a significant cost. "Only about 15 per cent is non-construction cost. That is what consulting, architect, civil engineering, programme management, ICT planners, and legal services companies among others can bag," Salgaonkar adds.

Consulting, design, engineering and construction companies have been making a beeline to Nirman Bhawan, the hotbed of smart city brainstorming. Many of them are a frustrated lot after a year of chasing the government. But the reality is, you can't fault the Centre for moving slow on the smart cities initiative. It is, after all, a work-in-progress. Here, as well as anywhere else in the world. And despite the various models in action around the world, India will have to develop its own unique model of smart cities that will prioritise local issues in body and soul. The earlier it does that, the better it will be for the great urban push.

By Goutam Das and Manu Kaushik