Will Smart Cities Help India Grow?

A nation's future development is mostly determined by the extent of its urbanisation. The National Democratic Front government at the Centre seems to recognise this. On Thursday, the Centre unveiled a list of 98 smart cities. The largest number of smart cities are in Uttar Pradesh (13; 12 cities were announced in Uttar Pradesh. The remaining one is yet to be decided) and Tamil Nadu (12) . Union Urban Development Minister Venkaiah Naidu said that the government would offer smart cities as areas that are safe for investment. As smart cities will have superior infrastructure, the returns from investing in the smart cities, the government hopes, would be high.

Will these cities help India grow? Here is a look at what the government could do to make the smart city mission a success.

Building smart cities would work only when these are the zones where new reforms are proposed. Often, like in Special Economic Zones (SEZs) , governments hand out concessions to companies in the new zones that they create. Economist Paul Romer once said that a good rule of thumb is to ask these questions: Would you be happy if the policies in a special zone last forever? Would you be happy if such policies are extended to a whole country? If the answer to both these questions is “Yes”, the creation of a new zone should be considered a reform, and not a concession. When governments offer handouts to firms, instead of helping a country prosper, they allow certain areas to grow and prosper at the expense of others. Such policies do not have good long-run effects either.

There are two ways in which India can urbanise. One is to extend existing cities such as Delhi, Mumbai, Bengaluru and Kolkata. The government can also simultaneously build new cities, where urban extension is possible. In a city like Mumbai, for instance, reform process would be difficult. Building political consensus to change existing policies is often hard. The Brihanmumbai Municipal Corporation's (BMC) Mumbai Draft Development Plan 2034, for example, was an excellent reform proposal, but it faced strong opposition. The BMC had to agree to revise it. In new cities, it is easier to implement policies, as the odds of great opposition would be far less. If the government finds such areas for urban extension, India can urbanise faster.

The government is expecting companies to invest in cities because land and necessary infrastructure would be in place. In most Indian cities, infrastructure is not enough to meet the basic needs of people. For examples, metro lines are extremely rare in India. Asian and European cities tend to have more of a dominantly monocentric structure that makes individual transport difficult. (In cities with a dominantly monocentric structure, much of the economic activity will be concentrated in the city centre and the areas around it.) Indian cities are also extremely dense, which allows mass transit to be profitably run. But, one major constraint mass transit faces is that though Indian cities are very dense, the built up area of a city is spread over a very large area. Concentration of urban activities is essential for major transit stations to function. This is a result of poor planning, because this is rare in the developed world.

Urban planning in India does not take real estate prices into account. But, without studying real estate prices, urban planners will not be able to decide the density levels and land-usage policy of a city. For instance, if land prices are extremely high in Delhi's Central Business District Connaught Place, this means that building density here should also be high. If building density in Connaught Place is low, and high in areas like Dwarka (a residential area) , more people would move to fringes of the city. The price of apartments in Dwarka would rise, making homes less affordable even in areas farther from the city. Such policies skew the price of real estate in India. The average commute also becomes longer, making it extremely difficult for low-income individuals to accept many jobs open to them. 

For smart cities to work, the government could consider the impact its land-use policy and infrastructure-development plan would have on markets. The government should plan smart cities in a way that transportation, water and sewerage, land and residential developments are built with greater consistency in goals.