Smart Cities and Thoughts for Karnataka

Karnataka held its annual global investors meet last week. On its sidelines, Rajya Sabha MP Dr Rajeev Gowda launched Resurgent Karnataka, a publication by Raintree Media. I shared my thoughts on smart cities and urban governance with them. Full text below.

Q1. How, why and when will Indian businesses invest in making cities smart? What policies should the government adopt to facilitate the creation of the right investment climate for private investment in building smart cities? What are the business models being used to monetise investments and what is the customer value proposition? How will Return on Investment be measured and will a holistic approach being taken to measure value creation?

Pavan: Indian businesses will invest in making cities smart when the government provides public goods, ensures the rule of law and is faithful to contracts. Often, contracts signed by Indian municipal authorities are not upheld, and government authorities change their mind at will, making it exceedingly hard for businesses to work alongside governments with integrity. City governments should also modernise land titles, property tax records and make it easy for private entities to do business in the city – reducing the time it takes to get electricity and water connections, construction permits and more. When the private sector finds that cities do not add to business uncertainties and could actually lower them, then the investment will flow into the cities steadily.

Q2. Apart from private investment, are there other innovative financial instruments that could be adopted in funding a city’s transition to smartness? What is the value and the source of funding for the smart city projects? What business structures may have to be established e.g. PPP, JVs?

Pavan: It is a myth that Indian municipalities are poor. All Indian municipalities have numerous assets at their disposal – including land and properties that are at various stages of development. Municipal corporations do not do accrual-based accounting and have asset registers of differing qualities. Most municipal budgets are not even audited regularly. Thus, they have a weak understanding of the assets at their disposal and liabilities they have to manage.

A smart city is one that professionalises its accounts, and uses innovative means to extract sustainable incomes from their assets. For example, if a 2-storey government building sits on prime land, a smart city government is one that gets a 15 storey building built and leases out the other 13 floors of real estate. A smart city is one that professionally manages its advertisement and property tax revenues by using technology and intelligent contracting.

A smart city is also one that pursues economic development explicitly, works towards attracting businesses and job creators with dedicated staff to do so. While this is not a financial instrument per se, it certainly can be an innovative way to increase city finances.

Q3. Do cities in India have a vision, clear objectives and quantifiable targets (KPIs)? More importantly, how will citizens get ‘smart’ in adopting technology? When and what will prompt this behavioural change and how long will this process take? What is the role of traditional and social media in promoting smartliving?

Pavan: We often say that cities are the nation’s engines of economic growth. However, in India have no idea how well these engines are doing – what their horsepower is, how many pistons they have, how efficiently they run, and more. To truly understand how well our cities are doing, India needs to start measuring city or metropolitan-level GDP. Cities are also natural units of economic activity, and with some effort India can start measuring GDP yearly for all million-plus cities. All high income countries – including China and other Southeast Asian countries today measure city GDPs.

In order for India to sustain an 8 percent GDP growth, Indian city GDPs need to be growing at 20 percent or more per year. By understanding how well each of our cities do year on year, policymakers and the public will get a better handle on how our cities are doing, and what public and private inputs are transforming into meaningful outcomes. Measuring GDP along with other standard parameters like municipal finances and service delivery levels are vital to the health and development of India’s cities.

Citizens will become ‘smart’ in adopting technology the moment it makes sense for them to do so. While governments might complain that citizens are not using technology efficiently to communicate with government, the reality is that citizens have rapidly adapted to shopping online on e-commerce stores, using mobile payments and e-wallets for transactions, taxi-aggregators for transport and more. If governments start delivering better services through tech and mobile-enabled means, then citizens will start using them quickly.

Q4. How can medium-sized cities in Karnataka (Shimoga, Belgaum, Mangalore, Davangere, Hubli) achieve ‘smartness’ in the areas of Governance, Economy, Mobility, Environment and Living? What smart city services will be developed? What are the proposed benefits resulting from the services?

Pavan: Medium-sized cities in Karnataka have a great opportunity in avoiding many of the problems that a megapolis like Bangalore already suffers from. ‘Smart’ ideas can be more readily implemented in medium-sized cities – be it developing a complete digital ‘road history’ of all works that take place above and below city roads; or a professional GIS-linked property-tax system; a forward-looking FSI or building height-restriction policy and more.

Karnataka has performed poorly compared to its neighbours Tamil Nadu, Maharashtra and Andhra Pradesh when it comes to developing multiple centres for urban growth. After Bangalore, other Karnataka cities are still around 1 million people or less in population. The development of industries that create thousands of jobs is vital to developing new centres of growth – rather than focusing primarily on IT.

Q5. What were the regulatory market conditions in Europe (international best practices) that fuelled innovation, technology transfer and largely promoted indigenous manufacturing of affordable smart technology? What are the key legal and regulatory policies that have had a material impact (positive/negative) on the development of pilot projects? Can these be replicated in India under P.M Modi’s ‘Make in India’ initiative? What is the future for smart ICT? How can Indian companies successfully navigate the ‘valley of death’ phenomenon /seed funding constraints?

Pavan: India’s smart cities mission should look to the Charter cities concept that has been championed by the economist Paul Romer. The idea of charter cities is to create a ‘policy window’ for select charter cities – where they can experiment with local rules and laws that are not encumbered by complex regulation that usually exists in other parts of the state or the country. Karnataka’s urban governance laws require significant reform – from allowing private buses to formally recognising the role of taxi aggregators to having functional ward committees and more. Such reform can take a long time, and partial reforms can often show limited outcomes. Charter cities are like the opposite of SEZs – where instead of a tax break, these areas get a break from some of the laws that can pose an impediment to the development of smart cities. And thus they get a chance to develop new laws and rules and test them out.

The smell test for such rules is asking yourself whether the state would be better off if the laws in the charter cities were to be universalised across the state.