By: Anshuman Magazine, CMD, CBRE South Asia
Track2Realty: As we move closer to the Union Budget 2015–16, India’s real estate sector is hoping for certain key expectations to get implemented. Following the Government’s announcements of building SMART Cities in the Budget last year, the industry seeks more clarity on the exact definition of one in the Indian context, fund allocations for, and city/Greenfield location identification of such development. The implementation of such ambitions would ultimately result in national wealth creation—to help our cities become sustainable and livable urban centers of growth.
Current scenario
Although it has received a lot of attention in the last few years, the SMART City concept is still nascent in India. In recent times, several cities—such as Chennai, Hyderabad, Coimbatore, Bengaluru, Mangalore, Jamshedpur, Kanpur, Delhi and Mumbai—have begun deploying smart technologies to efficiently provide civic services.
These efforts include advanced communications systems, metro rail systems, traffic management systems, smart meters, GPRS for solid waste management, GIS to manage property tax, online water quality monitoring, and online building plan approval schemes, among others. Certain new cities—such as the Kochi Smart City, the Gujarat International Finance Tec-City, and Lavasa—are also currently being developed as model cities through private sector participation.
In terms of funding, the Central Government had allocated Rs. 7,060 crore for initiating SMART City development in the last Budget. Meanwhile, options such as infrastructure bonds, Public–Private Partnerships (PPP), and the municipal bond market are also being considered for funding avenues.
The opportunity of private sector participation is being considered too, along with a Special Purpose Vehicle (SPV) to execute the project. A first concept note prepared by the Ministry of Urban Development (MoUD) has estimated the project development cost over 20 years to be around Rs. 6.86 lakh crore, of which it proposes to earn Rs. 39,000 crore from a slew of ‘Green’ taxes.
Funding SMART cities
Direction is sought from the upcoming Budget announcements on funding such massive infrastructure, which is a major issue requiring urban planning overhaul. India needs upto INR 40 lakh crore to develop urban infrastructure and another INR 20 lakh crore to maintain such urban clusters in forthcoming decades. Apart from Central and State Government resources, therefore, the initiative would also require private sector participation and international funding.
A high powered investment committee has estimated at least INR 7 lakh crore to be required for creating basic infrastructure over a period of two decades. Building PPP projects for creating SMART Cities is also important in the Indian context. The Government has been mulling over inviting private players to come forward for this national initiative. For building SMART Cities through the PPP model, the government is expected to be able to provide viability gap funding, while facilitating all necessary support mechanisms. Announcements to this effect are anticipated in the next Union Budget.
Challenges ahead
A key impediment to developing such large scale urban built environments is the issue of land acquisition, wherein private participation has been discouraged owing to stringent conditions concerning social impact assessment and mandatory approval from majority land owners. Recent initiatives by the Central Government in relaxing land acquisition procedures have been a welcome step. The Ordinance with the latest amendments to the Land Acquisition Act, 2013, however, is yet to be finally passed in Parliament. One hopes that the new Act will be implemented soon, together with more incentives for the low cost/affordable housing segmentin the Budget announcements.
State level initiatives, such as land pooling in Delhi and Andhra Pradesh, can be a major success factor for developing smart cities as well. More importantly, however, more clarity is sought on the Government’s SMART Cities initiative in terms of monetary allocation, specific timelines, finalized locations and the broad plan of action, going forward.
Effective urban planning holds the key to promote SMART Cities in India, and make them a distinct reality. The lack of proper policies to manage planned urban development may jeopardize the nation’s physical, economic and social growth. More clarity is sought, therefore, on promoting planned development, and working with all stakeholders in a coordinated and collaborative manner for leveraging sustainable and inclusive growth of local municipal communities—and by extension, the federal states and the nation.
