German Government Shows Strong Commitment to India’s Smart City Plans

German companies snap up mammoth opportunities in India’s ambitious smart city goals, with their government’s backing.
Published: Mon 21 Mar 2016

A great deal of excitement accompanies India’s plan to develop 100 smart cities, with 20 already selected in the first, competitive round. The government plans to invest Rs. 50,802 crore ($7.6 billion) in these cities with more funding to be raised from private companies and through monetization of services. The second round of the smart cities programme starts in April. [Smart Grid Progresses in India.]

Each of the selected cities has identified areas that will serve as prototypes for other regions. These include solid waste management, security, health care, traffic management, parking and even crowd management during festivities.

Running themes across the projects are the use of IT connectivity, e-governance and citizen participation.

German gets its foot in the smart city door

Not wanting to miss out on a great investment opportunity, the German government has announced that it will support German companies that want to cooperate intensively with Indian partners in order to assist Indian cities in implementing their smart cities plan. This commitment forms part of the Indo-German working group on urban development.

The announcement made by the State Secretary in German Ministry for Environment, Nature Conservation, Building and Nuclear Safety means that German firms can help India meet its smart city plans more aggressively.  Prime Minister Narendra Modi is pushing for a more urbanized India where 100 smart cities are to be built by 2022.

German companies want to contribute in the areas of residential housing, efficient water supply, waste water management and renewable energy in Bhubaneswar in Odisha, Kerala's Kochi and Coimbatore in Tamil Nadu. These cities are among the 20 which have been earmarked  to be developed as smart cities. Germany had set up a six-member joint committee with India to identify cities which it could develop as smart cities.

This is good news for India since Germany has vast experience in transforming 'brown cities' or existing cities, into 'green cities', particularly after Germany's reunification in 1990 when projects were undertaken to reshape the cities of the erstwhile East Germany.

German officials said they expect the Indian government to put in place necessary institutional and policy frameworks to facilitate the public private partnerships between German companies and their Indian counterparts for the 'Smart Cities' programme.

The German Ambassador to India, Martin Ney says that Germany has already been working closely with India in support of Indian initiatives such as ‘Swachh Bharat’, National Mission for Clean Ganga and Atal Mission for Urban Rejuvenation and Transformation. Germany is reported to be India’s second largest bilateral donor with a commitment of €1.5 billion (Rs 11,0000 crore) agreed last year.

Other countries line up to develop India’s smart cities

Germany is not the only country which has shown a great deal of interest in India’s smart city plans. Over the last two years, countries that have so far offered to share technical expertise include Japan, Singapore, Sweden, Australia, Germany, China, France (showing great interest in Nagpur and Puducherry), and the US (Ajmer, Vizag and Allahabad) to offer assistance and funding where required. Spain’s Barcelona Regional Agency has expressed interest in exchanging technology with India.

With the country’s urban infrastructure and services sector being thrown wide open for private investment for the first time the plans have attracted the interest of several foreign governments and bilateral and multilateral agencies.

The list of organisations and multilateral agencies that have offered technical assistance include the World Bank, the UK government-owned Department for International Development, Asian Development Bank, the German government’s KfW development bank, Japan International Cooperation Agency, the US Trade and Development Agency, United Nations Industrial Development Organisation and United Nations Human Settlements Programme. Officials said that some of these international lending agencies have also offered financial assistance through loans.

Private sector to get its piece of smart city pie

Only 20% of the total funding for the smart city plans will come from central and state governments, with each putting in approximately US$7.7 billion (Rs 48,000 crore).

The state and local body’s share of funding is to be generated either through its own resources or through loans from local or external sources.

According to the the Ministry of Urban Development (MoUD), the private sector can get returns on investment by levying user charges on people for providing improved services. For instance, if they minimise distribution losses and ensure uninterrupted water supply, they will be allowed to recover water charges from users. The same goes for electricity distribution, planning new mass transit modes, constructing ring roads in a city or installing and managing CCTV cameras in public areas for ensuring safety and security.

Private sector companies and financial institutions can also be equity partners in the Special Purpose Vehicles (SPV) that will be formed to create the smart cities, provided the state government and local body are majority stakeholders. The SPVs are allowed to enter into joint ventures with other entities to raise funds. These will be autonomous bodies accountable to the city, with majority ownership held by government agencies.

The international governments and organisations will function as hand-holding agencies, one of the two means for state governments to obtain technical assistance for developing smart cities.

Keep smart city investors happy  

While the potential around smart cities is huge, there are challenges that India’s government must overcome.

Rahul Gupta, GE managing director responsible for the ASEAN region, points out that investors must be assured of “speed and plug-and-play processes before they invest a single dollar.”

Performance of projects can be slow and results are often not delivered on time and this is where better management will be needed, he adds.

Investors want predictability, said Rashi Dhir, senior partner at the New Delhi-based law firm DMD Advocates. That could be achieved with smoother ties between the central and state governments, and “new mandates for bureaucrats to be [friendlier],” he adds. There also needs to be a balance between government objectives and investor expectations. He points out: “The government cares more about social needs than profitability, but you need to make money [from smart-city ventures] to plough it back.”

Smart Cities India 2016 exhibition and conference will be held at Pragati Maidan, New Delhi, during 11-13 May 2016. The expo will connect exhibitors and speakers with government administrators, municipal bodies, industry leaders, investors, etc., who have interest in developing smart cities.