Navigating the obstacle course of India’s SimCities

October 31, 2011

The Indian government is belatedly waking up to the fact it needs to build new cities and industrial hubs in order to sustain the growth that is supposed to propel the country to super economy status in the 21st century.

But it might be a case of too much, too late as India sets out to build 24 new, industrial cities along a planned dedicated freight corridor from the political capital, New Delhi, to the financial capital, Mumbai priced at a cool $90 billion. Costs aside, it’s a big ask in a country known for its mulish bureaucracy and maddening red-tape, its violent protests over land, and endemic corruption. Even building a bridge (like the Mumbai Sea Link) or highways (like the Golden Quadrilateral) in India can be a struggle.

Dholera, Gujarat: spot of a future Indian city

But a handful of Indian civil servants tasked with making the SimCity dream a reality seem determined to chart a path through the obstacle course of Indian development projects.

Here are six reasons why they might be successful.

De-risking Indian infra projects

“There is no poverty of funds in the world to my mind,” said Amitabh Kant, who heads the Delhi Mumbai Industrial Corridor (DMIC) project. “There is a poverty of well-structured projects.”

In India that means two things: getting the land in place first – the number one hurdle for any development project – and then trudging through the slow process of getting the clearances, like the 44 clearances needed for a single power plant.

His DMIC agency is trying to de-risk the projects by getting as much land in place first and clearing all the approvals before putting the projects out for tender. With that, he’s confident investors, domestic and foreign, will come.

“In India no well structured project has ever faced a financial problem.”

They built this city on rock and salt

As for the land the DMIC has specifically picked wasteland for its “greenfield” cities – barren land farmers would be less passionate about holding. Dholera in Gujarat, which is likely to be the first completed city, contains acres of salty, cracked earth that farmers are happy to let sell, especially if it means getting manufacturing into the area.

Too pricey for the government? No problem, bring on big business.

The biggest problem is funding. Unlike neighbouring China, which has created dozens of new cities over the past few decades, the Indian government doesn’t have the kind of money needed for super-infrastructure projects and is reliant on private investors.

“Originally it was felt that the whole project could be done in the PPP mode, but now it was felt that certain core infrastructure was not PPP-able. It has to be done through the government to spur (investment) activity, to provide proper impetus to the whole activity,” said industry secretary RP Singh.

The idea is the government will pay for the core infrastructure – a main highway along with power, water and sewage plants – and then invite investors to help them build the rest.

Putting its limited money where its mouth is, the Indian cabinet has pledged $4.5 billion to the project. That’s supposed to be matched by Japan, who helped India conceive the idea during trade talks five years ago.

Opposites Attract – Working with the Japanese

It could be argued that India and Japan are poles apart in many spheres. But their inverse proportion also makes them a good fit. India has high interest rates, Japan does not. Japan likes to invest in long-term projects, India infrastructure projects can take years. India has a plethora of engineers that need to sink their teeth into cutting-edge technology; Japan has state-of-the-art tools that need to be consumed. The list goes on, but somewhere at the top is also Japan’s desire to support a counter-balance to China’s growth and dominance in Asia.

But that still leaves the project $80 billion short. Can public-private-partnership really make up the rest?

Detailed planning

Unlike the haphazard developments of places like Gurgaon, the satellite city that has recently sprouted outside of New Delhi, these DMIC cities are being planned in excruciating detail by some of the world’s most renowned urban planners, like Halcrow and AECOM. Economic and feasibility studies are assessing the ideal industries for each new city plotted. Detailed environmental and engineering studies are being carried out to make sure there is no back-lash from either the environmental ministry or Mother Nature.

For instance, choosing wasteland usually comes with a price. Dholera is prone to flooding. So the first bit of construction will be two bunds (small dams) and a canal to protect the new city.

Dealing with corruption

That’s a big beast to tackle. Planners promise transparency in the bidding process, most likely by putting all bids in an open website. Some accountability is likely to be addressed by making sure there is separation of power between the planners, the developers and the enforcers of planning laws. All the project financing is likely to go through the DMIC Project Implementation Trust Fund, which will then release it to the DMIC Development Corporation. The idea being it might be easy to influence a single CEO, but it’s less easy to sway an entire decision-making board.

Such careful thinking and unprecedented planning is likely to reassure potential investors and stake-holders. But there is a risk such a glacial pace of preparation might also make them wary.

“The pace has to be picked up. There has to be dependability of decision making, which translates into bankability. So once they say something of the time line, give or take, it will be good to have them deliver on that time line so private companies can plan and actually get involved,” said Pratyush Kumar, President and CEO, GE Transport South Asia.

For the main feature story on the DMIC, click here

For video package on India’s grand ambition, click link.reuters.com/xub64s

For video interview with the man in charge of the DMIC, click link.reuters.com/hyb64s

For video interview on India’s dedicated freight corridor, click link.reuters.com/gyb64s

To see the location of the proposed new cities, click reut.rs/vK5bhP

 

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This would go a long way to de-congest the cities.

http://www.chapter18.wordpress.com

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