India's 100 Smart Cities plan to contend with bureaucracy and land issues

Successful implementation will lead to significant opportunities.

It has been noted that India's 100 Smart Cities plan will provide significant opportunities across multiple sectors.

According to a research note from BMI Research, this will include urban transport infrastructure, water utilities, renewables and residential buildings, with strong foreign interest underscoring the project's potential.

However, bureaucracy and land issues will be key challenges to the successful implementation of this initiative.

Here's more from BMI Research:

India's 100 Smart Cities drive will provide significant investment opportunities across different segments of urban infrastructure. First announced by Prime Minister Narendra Modi in 2014, the Smart Cities plan aims to develop urban centres that rely on information technology to improve efficiency, with a strong focus on developing infrastructure.

According to the Ministry of Urban Development, 10 elements of infrastructure have to be fulfilled for a city to be classified as 'smart': adequate water supply; assured electricity supply; sanitation, including solid waste management; efficient urban mobility and public transport; affordable housing, especially for the poor; robust IT connectivity and digitalization; good governance, especially e-Governance and citizen participation 8. sustainable environment; safety and security of citizens, particularly women, children and the elderly; health and education.

In September 2015, the government released a list of 98 smart city candidates, with two cities yet to be finalised. Of the 100 cities, 20 will be selected in 2015 to receive financing from the current fiscal budget in order to kick-start developments. Over the coming two years, 40 cities will be selected to receive funding each year.

Funding will be a major bottleneck for the implementation of the government's '100 Smart Cities' initiative, and we believe foreign investment will be crucial to the successful implementation of the plan.

The government has allocated INR480bn (USD7.4bn) for the plan, and INR70.6bn (USD1.1bn) was also allocated in the union budget in FY2015/16. However, this still falls short of the USD1trn which will be required based on estimates by KPMG - as reported by Reuters.

Furthermore, we highlighted in April 2015 that with domestic infrastructure players having high levels of debt, local players are not in a good position to capitalise on the large project pipeline.

While the fact that many foreign companies have expressed strong interest in the project attests to the plan's immense potential, we do not discount the numerous challenges and risks that companies will face. As of October 2015, companies from 14 countries including US, Canada, United Kingdom, France, the Netherlands, Spain, Italy, Belgium, Norway, Japan, Singapore, Hong Kong, South Africa and the UAE have been selected for preparation of city level Smart City Plans for 42 of the identified cities.

A key challenge will be obtaining a coherent development plan for the cities, given the coordination that is required of the different ministries, which includes: urban development, IT, power, road transport and highways, water resources, labour and employment, human resource development and consumer affairs, food and public distribution.

Bureaucracy and red tape remain a stumbling block to companies obtaining relevant clearances for projects, and without a central government body guiding and selecting investment, the 100 Smart Cities plan will not be an exception. We have also highlighted land acquisition as a major hindrance to development projects (particularly given the recent step-back in the land reforms), likely leading to delays and cost overruns.