Modi’s plan to build 100 smart cities could pump US$1 Trillion in India’s urban infrastructure

Over the next 15 years, India’s population is projected to increase by 200 million people, placing tremendous pressure on the country’s urban infrastructure to cope with this rapid growth. In response, the Modi government announced a programme in July to build 100 smart cities, which has the potential to transform India’s global competitiveness within 10 years and boost the country’s long-term potential economic growth rate, says the latest analysis from IHS (NYSE: IHS), a global provider of critical information and insight.

In his Asia Letter titled Can Modi’s ‘Smart Cities Strategy’ Drive India’s Economic Rebound? IHS Asia-Pacific Chief Economist Rajiv Biswas noted that the total investment associated with the development of 100 smart cities in India could be far in excess of US$1 trillion with a significant share of this investment likely to be from foreign government and private sector inflows.        

“This is the first comprehensive effort by an India government to upgrade India’s urban infrastructure across the country,” Biswas says. “The development of India smart cities with modern, highly efficient infrastructure for electricity, transport and IT, will create a new competitive landscape for the subcontinent that will be much more attractive for foreign direct investments by global multinationals.  

“The potential economic impact effects from the development of India’s smart cities development will act as a significant catalyst for economic growth through a number of drivers, including increased FDI inflows, accelerated REITs (Real Estate Investment Trusts) development, increased competitiveness, and job creation.”

Modi’s track record of infrastructure development while he served as chief minister of Gujarat demonstrates his commitment to implementing such infrastructure projects and attracting foreign investment inflows, says Biswas in his Asia Letter. For example, he notes, one smart city planned during that time that is already under construction is Gujarat International Finance Tec-City (GIFT) which is designed to be an international financial services and technology hub.

The estimated total investment for the Delhi Mumbai Industrial Corridor (DIMC) project (US$90 billion) and the GIFT smart city (US$10 billion) together amount to US$100 billion, so the total investment associated with the development of 100 smart cities in India could be far in excess of US$1 trillion. A significant share of this investment is likely to be from foreign government and private sector investment inflows.

“If his BJP-led government can successfully roll out the smart cites programme across India, it could significantly improve India’s potential growth rate, boost the country’s international competitiveness, and generate millions of new jobs over the next decade,” Biswas says. 

Although until now India has lagged far behind other Asian industrial economies, such as China and South Korea, in developing smart cities, these new projects are already creating initial momentum for smart city infrastructure development in India, says the report.

India smart city projects include:

• Under construction is GIFT designed to be an international financial services and technology hub.
• Dholera Special Industrial Region located in the DIMC with US$90 billion in projected investment as a joint Indo-Japanese project with a 26% equity stake from the Japanese Bank for International Co-operation in the DIMC Development Corporation. 
• Singapore’s Ascendas India Development Trust with Japan’s Mizuho Corporate Bank and JGC Corporation have signed an memorandum of understanding with the government of Tamil Nadu to build a smart city (integrated township) 50kms south of Chennai for Japanese industrial firms such as automakers and electronics firms.
• In Kochi, the government of Kerala and Dubai Holding subsidiary, Dubai Tecom Investments, are developing SmartCity Kochi.

These projects are also attracting leading global technology partners, such as Siemens, Cisco Systems, Microsoft, ABB, NEC, Toshiba and IBM, as well as India’s own IT giants, such as Infosys, TCS and Wipro.