August 18, 2016
As India continues to experience rapid urban expansion, public and private leaders at a national, state, and local level are looking into ways to better manage larger populations and unlock greater economic potential. Launched under Prime Minister Narendra Modi in 2015, the “Smart Cities Mission” is an ambitious multiyear effort to boost economic development, technological innovation, and sustainable growth across 100 cities. Learning from previous national urbanization initiatives, the Smart Cities Mission promises to simultaneously improve the infrastructure and built environment in India’s expanding cities while offering a new path to urban fiscal health. If successful, Indian cities will position themselves as clean, modern, and competitive places for years to come.
Considering the early stages of the national initiative, this report comes at a critical time to inform and guide future strategies and collaborations. Using three cities—Ajmer, Allahabad, and Visakhapatnam—as examples, the report highlights governance challenges, infrastructure gaps, institutional arrangements, and financial tools that policymakers must consider to reach their local ambitions. Simply put, installing digital technologies alone will not deliver the results India hopes to achieve.
India’s growing tide of urbanization necessitates significant governance reforms to successfully manage such growth. Following a variety of reforms during the past few decades—including those included under prior national urbanization programs—many regions across India have assumed greater control over managing and financing their urban development. However, states and Urban Local Bodies (ULBs) can still vary widely in the amount of control they exercise in these matters and are continually exploring new ways to drive investments. The creation of new local units to manage urban infrastructure—called Special Purpose Vehicles (SPVs)—offers the potential to guide more comprehensive planning efforts, but their long-term role must be more clearly defined.
These reforms must then be tailored to India’s unique urban needs, both in terms of what separates India from its international peers and how urban regions are on different developmental tracks within the country. The varied economic performance in Ajmer, Allahabad, and Visakhapatnam provide a useful gauge in this regard. Differences in their local industrial composition and infrastructure quality reveal the breadth and depth of India’s urban investment need. From sanitation standards to economic diversification, these three markets trail their international urban peers, and they have failed to meet federal ministry goals within the country. Addressing these shortcomings must be at the center of any local Smart City planning effort and will require significant financial capital to address a clear investment gap.
Fortunately, a series of distinct policy recommendations can help Indian cities design smart cities plans, improve their implementation, and build their economies.
First, India must focus on creating more customized solutions as part of its Smart Cities Mission, which should be shaped according to local infrastructure priorities and institutional capabilities. Essential infrastructure—including water and sanitation, but also newer technologies like mobile data—poses perhaps the most significant developmental gap in many Indian cities and should consequently be a top priority. Indian cities should also leverage their local economic strengths to develop priority industries and guide future development efforts, especially in sectors that offer higher wages and pathways to more durable growth. Projects to address these challenges must then be aligned with institutional capabilities. Given existing governance and financial challenges, Indian cities must scale their project sizes in light of practical considerations on the ground.
Second, India must look to improve government capabilities at all levels to accelerate future urban development efforts. At the city level, for instance, ULBs must modernize their overall governance approach by further clarifying their functions and by shifting some of their responsibilities to SPVs or other administrative bodies, which may possess more specialized technical expertise and a more targeted mandate. For their part, SPVs must maintain public trust and accountability while pursuing improved financing and sustainable funding. Central and state governments must continue to further empower local leaders in the development of future policies, balancing when they should lead and where more independence—such as through revenue collection or stronger mayoral leadership—has the greatest impact.
Third, India must elevate the financial standing of its urban areas, making them more attractive destinations for future investment. Across all levels of government, particularly among different city agencies, India must ensure that dependable capital is available to meet economic goals in years to come. Increased private-sector engagement should be a paramount concern, which requires more active, coordinated leadership in project management, technical guidance, and risk mitigation. India should also actively investigate ways to boost activity within its municipal bond market, which can be a significant source of financial capital if it follows best practices in other leading markets such as the United States.
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