Financing India’s Smart Cities: The Case for Public-Private Partnerships

By Simone Schenkel

Old Delhi as seen from the Jama Masjid mosque minaret. Source: 2ose’s flickr photostream, used under a creative commons license.

India’s finance minister Arun Jaitley allocated $1.2 billion for Smart Cities in the 2014-2015 budget. Yet recent estimates revealed that a startling $1 trillion is needed to finance these cities by the 2022 target. As Prime Minister Narendra Modi continues to pursue vigorous economic diplomacy abroad and discuss his larger urban development agenda, two major questions arise in regard to the smart cities concept – first, how is a “smart city” defined, and second, how will Modi’s vision of 100 Smart Cities be financed by 2022.

While observers wait for a comprehensive answer to the funding question, some resources have already been committed both from within India, as well as from international partners. Many of these investments have materialized from public-private partnerships, which have emerged as one stream of financing that could reduce the gap. The Indian government should build on its early success and continue to promote this type of investment platform for Smart Cities in order to gain diverse industry insights on “smart” urban planning.

The details of these international investments reveal some interesting trends in allocations towards the Smart Cities project. Under Modi’s “People Public Private Partnerships” (PPPP) model, the private sector has been encouraged to mobilize capital, technology, know-how, and other resources. This will help offset pressure on the government to bring in the incremental revenue necessary to help finance these cities. Such partnerships could potentially outfit these cities with “smart” technology capabilities and facilitate a sustainable and efficient stream of public goods and services.

Prime Minister Modi’s recent three-country tour to France, Germany, and Canada resulted in new smart city commitments and underscored the integral role public-private partnerships can play in financing India’s smart cities. A number of public and private sector actors have already announced their intention to invest. The nature of such investments range from technical assistance, capacity building, and logistical planning to allocations for research and development (R&D), and information and communication technology (ICT) services.

Below is a breakdown of some of the commitments that have been made thus far.

Country Partnership Investment
United States U.S. Trade and Development Agency (USTDA) + IL & FS Energy Development Company ·        Grant agreement of nearly $2 billion for innovative Wind Integrated Solar Photovoltaic Energy Storage (WISES) projects.

·        Investment includes waste management projects in three cities – Ajmer, Vishakhapatnam, and Allahabad.

·        Smart Grid Workshop series.

U.S. Department of Transportation + Indian Ministries of Railways; Road Transport and Highways; Shipping; and Urban Development ·        A Memorandum of Cooperation for a Transportation Partnership, including an inter-ministerial working group to address transportation elements of smart cities, such as safety and multi-modal planning. Anticipated cooperation on vehicle fuel efficiency standards, and promotion of freight corridors specifically for movement of goods from India’s ports to its major cities.
Cisco + ILFS Technologies Ltd (ITL) ·        $90 billion flagship public sector infrastructure project, and develop ICT master plan for four pilot smart cities.
Bloomberg Philanthropies + Indian Ministry of Urban Development ·        Strengthen citizen engagement in selecting and carrying out Smart City projects across India.
Singapore International Enterprise Singapore + Infrastructure Corporation of the Andhra Pradesh government  ·        Master plan to design and develop 7,325 sq. km for the new capital of Andhra Pradesh; 8 sq. km development where Singaporean companies will develop utilities.
Spain Spanish Secretariat of State for Research, Development and Innovation, Ministry of Economy and Competitiveness + GITA ·        Industrial R&D Proposal launched in November 2014, and proposal submission deadline was April 15, 2015. To fund smart energy systems, building sustainability, intelligent transport and mobility.
Spanish Minister of Foreign Affairs and Cooperation+ India’s Ministry of Urban Development ·        Drafted Memorandum of Understanding to develop Delhi as a smart city
France France + Government of India ·        About $2 billion over three years allocated for sustainable urban development ventures such as the Kochi metro network slated to begin in 2016.
Germany Essel Group + Wind and Sun Technology Group/FeCon GmbH + Passavant Energy and Environment GmbH + Schneider Electric Infrastructure Ltd. ·        Develop 12,500 MW of solar and 4,000 MW of wind energy projects and wastewater infrastructure and management systems
Japan and Germany Hitachi India Ltd and Siemens Ltd + Confederation of Indian Industry   ·        Partnership under CII Smart City Initiative, with MoU signed for pilot smart cities projects.
Japan NEC Corporation, NEC India Pvt. Ltd and Innovative Telecom & Softwares Pvt. Ltd. + Surat City Police ·        Distributed NEC’s NeoFace® Watch for Live CCTV surveillance and NeoFace® Reveal to streamline forensic criminal investigation to Gujarat’s Surat City Police.

There is a sense of demographic urgency that accompanies the ongoing discussion of smart cities in India. The reality is that India already has 25 of the world’s 100 most rapidly urbanizing cities, where many municipal services, such as electricity and water, are treated as public goods. By making infrastructure and services “smarter,” urban planners hope to maximize these scarce resources. Ultimately, leveraging limited public funding to address challenges with the delivery of such resources in Smart Cities remains an obstacle. Strong multi-stakeholder partnerships are integral in order to implement the good governance strategies that can ensure the delivery of goods and services and make these cities truly “smart” as well as sustainable.

Ms. Simone J. Schenkel is a researcher with the Project on Prosperity and Development at CSIS.


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