Smart urban infrastructure to India
Trends and opportunities
The Government of India has prioritised infrastructure development as a key policy goal due to its potential to boost economic growth and expand the provision of essential public services.
According to the government, the country will need to invest between US$1.2 and US$2 trillion dollars on infrastructure development over the next several decades. A large portion of this investment will be required to accommodate India’s growing urban population, which is estimated to reach 590 million by 2030. Expanding and improving the supply of basic services such as power, water, and sewerage will be a major focus of upcoming infrastructure development opportunities across the country.
In June 2015, Prime Minister Modi announced the launch of the Smart Cities Challenge, an initiative that encourages Indian cities to compete for central government funds for smart city development. In addition to supporting the provision of core infrastructure and services, the Smart Cities Challenge promotes projects that foster sustainable and inclusive development, a clean environment, and the application of smart solutions. In January 2016, the Ministry of Urban Development selected the first 20 cities that will each receive US$75 million over a period of five years to implement smart city development plans.
The government has been seeking to expand private sector involvement in major infrastructure projects. A review by the government of India’s Private Public Partnership (PPP) policy has highlighted the need to implement a better risk-sharing mechanism between private developers and the government, after analysing the existing PPP framework and projects in various sectors. This year, the committee proposed, amongst other items, to implement design changes to contractual arrangements under the PPP framework in line with international best practices and measures to improve capacity-building within the government for the implementation of PPP projects.
The projects envisioned under the governments’ infrastructure initiatives and the Smart City Challenge provide opportunities in a wide range of sectors including water and power supply, sanitation, public transport, affordable housing, IT connectivity, e-governance, safety and security, health, education, and the environment.
With over 300 million people still lacking access to power in India, the government is eager to expand power generation capacity and connectivity to ensure 24/7 electricity access. In 2015, a goal was announced of deploying 175 GW of renewable energy by 2022 in order to expand electricity access while also increasing the mix of clean energy in the grid. The government plans to meet 100 GW of this target through solar energy.
Smart water and sanitation
The Atal Mission for Rejuvenation and Urban Transformation (AMRUT) initiative is focused on improving India’s urban sewerage and water infrastructure. The main goal of AMRUT is to achieve universal access to tap water and sewerage facilities, promote the use of public transport, and develop green urban spaces. AMRUT is administered by the Ministry of Urban Development and covers 500 Indian cities, some of which are also competing in the Smart Cities Challenge.
In 2015, the Housing for All by 2022 initiative was launched. This project aims to invest A$30 billion within 300 cities and towns over the next six years. Projects will focus on slum rehabilitation, increasing access to affordable housing through credit-linked subsidies, and fostering house construction and enhancement.
In July 2015 the Digital India initiative was launched with the aim of improving Internet connectivity and e-governance. The major components of the Digital India initiative include enhancing digital infrastructure by connecting Indian villages to broadband and high speed Internet, establishing digital identities, and ensuring the safety and security of cyberspace.
Smart waste management
Swachh Bharat Abhiyan, or Clean India Mission, is managed by the Ministry of Urban Development and provides funds to improve municipal solid waste management.
For smaller cities
Another objective of the government is to help the smaller cities (0.1 million and below) to keep up with the pace of development. The Smart Cities Mission will cover 100 cities, while AMRUT (Atal Mission for Rejuvenation and Transformation) would extend to another 500 cities. Initial funding for this initiative is US$8 billion. AMRUT for smaller cities will be linked to urban reforms such as e-governance, capacity development for professional municipal staff, devolution of funds and functions for urban local bodies etc. Key areas for AMRUT will be water supply, sewerage facilities and septage management, storm water drains to reduce flooding, pedestrian, non-motorised and public transport facilities, parking spaces, and enhancing amenity value of cities by creating and upgrading green spaces, parks and recreation centres, especially for children.
Global financial institutions are believed to be earmarking significant amounts of funding for smart city initiatives in India. According to reports in a section of the Indian media, the Asian Development Bank (ADB) has agreed in principle to set aside US$1 billion for extending loans to smart city projects, while the World Bank has said India’s Smart Cities Mission could secure up to US$500 million in long-term loans from the bank. This follows the governments suggestion that the first list of 20 smart cities quickly apply for funding from international bodies, including the World Bank, ADB and the BRICS Development Bank. The Ministry of Urban Development is pushing these cities to expedite the planning for bankable smart city projects that can receive loan assistance.
Asian Development Bank (ADB)
ADB’s largest assistance in smart cities in the region is in India, totalling more than A$2 billion for both national and state levels. ADB’s niche areas for its Smart City program in India are water, waste water, solid waste, drainage, smart water technologies and innovative management approaches.
Other funding areas for the ADB in India include:
- A$700 million multi-tranche financing facility (MFF) loan to the National Finance Institute (IIFCL/State Bank of India) under the Accelerating Infrastructure Investment Facility in India, which will provide funding to financial intermediaries for on-lending on commercial terms to special purpose vehicles (SPVs). This project was approved in 2013.
- A$500 million MFF loan for the states of Gujarat, Maharashtra, Tamil Nadu and West Bengal under the State-Level Support for National Flagship Urban Programs. ADB is working with the Department of Economic Affairs and Department of Finance for these projects. This will support flagship National Flagship Urban Programs in Gujarat, Maharashtra, Tamil Nadu, and West Bengal with high demand for urban services, high urban poverty ratios. The proposed projects could be used as a model for the entire country for innovative and efficient infrastructure services delivery. Subprojects will be developed under the program to improve urban infrastructure and to introduce effective practices in infrastructure design, procurement, and construction.
- The ADB has allocated A$505 million loan and grant financing with a A$215 million contribution from the Government of India for the Visakhapatnam-Chennai Industrial Corridor Development Program. This project will support policy reforms and institutional development in the state’s industrial sector and priority infrastructure investments in the Visakhapatnam-Chennai Industrial Corridor. The Department of Industries and Government of Andhra Pradesh are the executing agencies.
Australia is recognised as one of the most urbanised countries in the world with two thirds of the population living in capital cities. Australia’s comparative advantage exists in the packaging of integrated approaches to sustainability in which urban environments are treated as interconnected ‘ecosystems’. The Austrade focus on presenting an integrated approach to Indian projects will bring together urban strategy and planning for sustainable and smarter cities and includes interconnected modes of urban transport, education precincts, health infrastructure, green space, urban and industrial water solutions for water sensitive cities. The smart city work being undertaken by Austrade is a cross sector collaborative approach between the South Asia infrastructure, water and health teams.
Australia’s capability and competitive advantages include:
- sustainable urban, precinct and building planning, design, construction productivity and technologies
- infrastructure sustainability and green building/communities standards, policies and rating systems
- innovative water resource management, industrial and urban water recycling and treatment systems, engineering and technologies that address extreme climate, water security, environmental management, public health
- intelligent transport systems and transit oriented development (TOD’s)
- integrated transport planning, master planning, city regeneration programs
- road design within city’s including road safety systems (i.e. minimising pedestrian harm in high density urban traffic environments)
- robust systems, designs and capabilities for reliability, resilience and natural disaster preparedness
- health infrastructure: hospital design and systems, aged care management systems and training
- PPP expertise: governance and legal frameworks, risk management and procurement systems, and financial modelling and controlling.
A major challenge facing private sector participation in Indian smart city projects is access to large scale infrastructure financing. For instance, municipal bonds are generally not an option for raising project financing due to the limited capacity of Indian cities to issue bonds and the lack of a strong municipal bond market in India.
India also faces challenges in attracting private financing through Public-Private Partnerships due to historically poorly structured concession agreements, low bureaucratic capacity to implement complex infrastructure projects, and a complex legal and regulatory management framework. The cost of capital is generally high in India and domestic public sector banks are reluctant to extend additional credit because of existing commitments to major infrastructure projects. International funding for projects is a key aspect to generating additional large scale infrastructure development in India.
In addition, Australia faces strong competition from other countries that are able to offer more attractive financing terms for smart city projects. For example, Japan is able to secure large-scale infrastructure projects by offering below-market interest rates. This has generated considerable positive press for high-profile projects such as the high-speed rail project between Delhi and Mumbai which has been proposed by the Japanese government.
Marketing your products and services
A number of cities are in the process of appointing project management consultants (PMCs) under the AMRUT and Smart Cities Mission. These PMCs will be responsible for identifying and tendering for project execution. The best way to approach these projects is to work through PMCs and profile your technologies or capabilities to these organisations. Austrade can facilitate engagement with appropriate PMC companies based in India.
All government projects are tendered online and submission of tender is also online through the e-procurement portal.
The general terms and condition of procurement mandates submission of copies of previous contracts as proof of experience of doing similar works. All the documents to be submitted in India for bidding should be certified by a Justice of the Peace (JP).
Often the best approach to the Indian market is through a local partner. The local partner can be a distributor or agent or an Indian company having similar expertise or complimentary skill sets.
There are a number of ways to access the India market including:
Entry strategy one
- Partner with Indian company in a JV or consortium to share only the pre-qualifications required to qualify for tenders.
- Indian company to pay all the tendering cost including the bid bond guarantees. On success- Indian company will pay a consulting fee (two - three per cent of the project cost (negotiable)) and project execution will be carried out by Indian company.
- Investments / financial requirement on part of foreign partner: None
- There is a reputational risk but this can be mitigated by partnering with an established players in the market.
Entry strategy two
- Partner with Indian company in a JV or consortium to share the pre-qualification for tenders and take up the project supervision role and Indian company will do the project execution. On success the Indian company will pay a consulting fee.
- Investments / financial requirement on part of foreign partner: Investment in proportion to the percentage of the project component.
Entry strategy three
- Partner with Indian company in a JV or consortium and bid for project jointly, share the financial cost associated with the bidding process and get involved in project execution.
- Investments / financial requirement on part of foreign partner: Investment in proportion to the percentage of the project component
Links and industry contacts
Atal Mission for Rejuvenation and Urban Transformation (AMRUT)
Institute of Urban Transport (India)
Ministry of Urban Development
National Institute of Urban Affairs
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