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Smart(ing) Cities - Outside View by Nitin Gregory

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Smart(ing) Cities
May 4, 2017

World Bank data estimates that 54% of the world population lives in cities. For India, the number is 33%. These numbers are projected to increase dramatically, especially in Asia and Africa. The 'urbanisation' trend is well underway - and will continue for a while. Cities today are economic powerhouses; roughly 63% of India's GDP comes from cities.

People migrate to cities in search of opportunity. This creates a problem...and an opportunity. City infrastructure is stretched and inadequate. People are looking to save time, avoid congestion, and lower costs. This means a large consumer base (with purchasing power) is looking for solutions. Technology and capital are being channeled here to solve the problems of these vital cities.

What makes us smarter?

The definition of a 'smart citiy' is vague. Discussions about smart cities mention 'information', 'communication', 'connectivity', and other jargon like the 'internet of things' (I still don't know what that means). Some consulting firms have even come up with 'frameworks' and 'parameters'. I am going to skip all that. I will use a few example projects that make cities smarter and lives easier.

Vishakhapatnam is investing in a fiber grid network that will connect households, businesses, and government offices. It will increase connection speeds and productivity. Jaipur has installed smart street lights that adjust brightness based on 'traffic activity'. These are projects that improve productivity (the magic sauce). These and various other initiatives including better governance modes (apps and websites that provide government services/information) and infrastructure investments contribute to the well-being of the city and its populace.

These examples are finding ways to improve existing facilities to make them faster, cheaper, and more convenient. This is the intuitive direction of all progress - smart or otherwise. But we're still no closer to understanding 'smart cities'...

India and smart cities

Nevertheless, India has announced its vision to make a hundred of them. Sixty 'smart cities' have been approved and are on their way to implementation. Some of the projects that will presumably turn these cities into 'smart cities' include:

This is by no means a complete list of the government's projects, but it's a fair sample and it's a fairly standard list of city improvements. These are necessary and will definitely have a positive impact. Not sure if they make us 'smart' though.

Total funding per state is Rs 1,000 crore. The Ministry of Urban Development will provide Rs 500 crore over five years to a selected city, which the state government will match. The cities can generate additional funding through private sector participation, municipal bonds, etc.

What is in a name?

The capital investment (per capita) of India is seven to ten times lower than most large economies. The lack of capital investment has been a significant drag on the Indian economy. Increased investment by the government in housing and infrastructure is very desirable. Increase investment results in jobs, business activity and increased purchasing power. The Chinese model has seen very high capital investment levels in the last two decades (45% of GDP was invested as capital in 2015).

Smart or dumb, the naming hardly matters. The conversion of the proposed funds into 'real work' on the ground will have some positive impact. It is estimated that roughly 7% of all approved projects have started. Progress is still early stages, so we eagerly await the benefits of a 'smarter' India.

This column is authored by Nitin Gregory. Nitin, who graduated from IIM-Calcutta, is currently pursuing a finance role with an automotive major. He has a deep interest in Macroeconomics and pens a blog at Gregonomics.

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The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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