A study by BMI Research, a firm belonging to rating agency Fitch, says bureaucracy and land issues could negatively impact Narendra Modi government’s ambitious plans to build 100 Smart Cities.
BMI, which provides macroeconomic, industry and financial market analyses covering 24 industries and 200 global markets, said in a study that these key challenges have to be tackled by the government to see the projects through successfully.
The proposed Smart Cities will provide significant investment opportunities across different segments of urban infrastructure as they aim to develop urban centres that rely on information technology to improve efficiency, with a strong focus on developing infrastructure.
Ministry of Urban Development has acknowledged that 10 elements of infrastructure have to be fulfilled for a city to be classified as ‘smart’: adequate water supply; assured electricity supply; sanitation, including solid waste management; efficient urban mobility and public transport; affordable housing, especially for the poor; robust IT connectivity and digitalisation; good governance, especially e-Governance and citizen participation 8. sustainable environment; safety and security of citizens, particularly women, children and the elderly; health and education.
The government has allocated Rs 480bn (USD7.4bn) for the plan, and Rs70.6bn (USD1.1bn) was also allocated in the union budget in FY2015/16. However, this still falls short of the USD1trn which will be required based on estimates by KPMG – as reported by Reuters.
It is noted that with domestic infrastructure players having high levels of debt, local players are not in a good position to capitalise on the large project pipeline.
Although many foreign companies have expressed strong interest in the project, BMI Research does not discount the numerous challenges and risks that companies will face.
As of October 2015, companies from 14 countries including US, Canada, United Kingdom, France, the Netherlands, Spain, Italy, Belgium, Norway, Japan, Singapore, Hong Kong, South Africa and the UAE have been selected for preparation of city level Smart City Plans for 42 of the identified cities.
A key challenge will be obtaining a coherent development plan for the cities, given the coordination that is required of the different ministries, which includes: urban development, IT, power, road transport and highways, water resources, labour and employment, human resource development and consumer affairs, food and public distribution.
Bureaucracy and red tape remain a stumbling block to companies obtaining relevant clearances for projects, and without a central government body guiding and selecting investment, the 100 Smart Cities plan will not be an exception, the research report said.
“We have also highlighted land acquisition as a major hindrance to development projects (particularly given the recent step-back in the land reforms),” it said adding that this could lead to delays and cost overruns.”