Costs and benefits of building 100 smart cities in India

Building 100 smart cities in India could cost $31 billion through 2020, but expected benefits in terms of gross domestic product contribution and jobs should far outweigh this huge investment.

To cope with the challenge of rapid urbanization, the government of India launched in June 2015 an investment program aiming at establishing or retrofitting 100 smart cities in India. As selected smart cities, which number has now been revised to 109, are preparing their smart city plans, management consulting firm Zinnov published a new study detailing the costs and benefits of building 100 smart cities in India between 2015 and 2020.

On an area of 3.3 million square kilometers, India has more than 500 cities with 100,000 inhabitants or more and an urbanization rate of approximately 33 percent. As a comparison, the urbanization rate of the Unites States is 82 percent, while that of China is 56 percent. But populations in India’s 500 larger cities are facing multiple challenges regarding transportation, power and energy supply, water and sanitation. According to Zinnov, crude oil imports expenditure in 2016 will be worth $62 billion but 18 percent of the total energy will be lost in distribution. Also, approximately 76 million citizens have limited access to water and 7.5 percent of the urban population uses open defecation. Technological advances including predictive analytics, smart grid and smart metering could help address these challenges.

Technology investment

Fulfilling India’s government’s smart cities vision would effectively mean a $31 billion investment between 2015 and 2020, Vinnoz estimates, with technology accounting for more than five percent of the total, or approximately $1.5-2 billion. The biggest technology cost is expected to come from transportation and power, at $870-950 million, or 33 percent of the total spend. Cumulatively, Water and Sewage (19 percent), Governance (13 percent) and Waste Management (2 percent) would account for more than $685 million.

Source: Vinnoz

For technology vendors, the opportunity will be mostly concentrated in tier 3 cities as Vinnoz estimates those will account for more than 60 percent of the technology spend. Cloud solutions vendors are set to benefit the most as cloud solutions should account for 50 percent of the total technology investment. Geographically, the consulting firm expects three states, Uttar Pradesh, Maharashtra and Tamil Nadu, to account for nearly 45 percent of the technology spend.

Impact of 100 smart cities in India

A total of $31 billion is by any standard a sizable investment, but Vinnoz expects a much positive impact from these new 100 smart cities in India. By 2020, selected cities after transformation are expected to contribute an additional $200 billion to India’s gross domestic product (GDP). The smart city initiative could also contribute to a growth of 10-15 percent in employment, leading to the creation of 10 million new jobs. In addition, savings in traffic congestion could reach $10 billion while a 40 percent reduction in energy consumption is expected from smarter infrastructure, leading to 15 percent savings in water losses.

This all sounds very promising, but there will also be hurdles along the way, including financing, organizational and leadership challenges. Technological choices will also have to be made in an area where standards are by and far still under development.

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