India Finally Tackles Its Cities.

Traffic jams. Delayed flights. Crowded trains. That is the reality of any big city in India. The future could be much worse. The country's cities are expected to grow by an additional 250 million, mostly young people, over the next two decades. Without massive investment and thoughtful planning, chaos will ensue.
Or not. McKinsey, in an unprecedented nearly two-year study of Indian cities, envisions a way for India over the next 20 years to turn that influx of young population into a quadrupling of per-capita income. This growth hinges on adequate investment in cities so they can handle the surge in people and the simultaneous increased demand on services. The urban migration, if properly handled, could generate 70% of net new jobs and produce 70% of India's GDP.
To meet their needs, McKinsey suggests that India must build--every year for the next 20 years--between 7 billion and 9 billion square feet of real estate (the equivalent of one Chicago) a year; 220 to 250 miles of metros and subways (more than 20 times what it has built in the past decade); and between 12,000 and 15,000 miles of road lanes (nearly equal to all the road lanes constructed in the past decade).
That's a pretty ambitious task, given India's infamous bureaucracy, corruption and a sketchy track record on accomplishing large-scale projects. Ajit Mohan, the lead author on the McKinsey report, says for the first time there's some recognition in India that urban development has to become a priority. It could take one success in a single city to create the momentum for a national push, he says, comparing the current lack of infrastructure investment to the way the IT sector was developed in India. "When Bangalore became successful, other cities started to emulate it," he says.
The major changes will happen, adds Chetan Vaidya, head of the National Institute of Urban Affairs in New Delhi. "We can already see bits and pieces of that falling into place," he says.
Multiple infrastructure investment programs have launched in the last handful of years. One is the Jawaharlal Nehru National Urban Renewal Mission, which is putting $28 billion into 65 cities over a seven-year period starting in December 2005. Once it runs its course, it could be replaced by a similar program. The government of India is also in talks with the World Bank for a $3 billion infrastructure loan.
India's federal treasury is increasing its grants to cities and states from the $960 million they received annually for the past five years to $5 billion each year over the next five years as long as they meet a nine-point agenda. The conditions attached to receiving funds in both programs are similar and focused on land and tax reforms, among other mandates. The idea is to improve governance and creditworthiness of cities, says Vaidya, and lead to commercial or market-based financing in urban investment.
Multinationals like Aecom, Veolias and Bombardier are in the process of bidding for various projects, including building portions of metro rails in Chennai and Kolkatta and supplying rail cars to Delhi's expanding metro network. Aecom was recently awarded a contract to do the master plan for two of the six satellite industrial cities India plans to build along the 1,700-mile Delhi-to-Mumbai corridor. Each city will house 5 million people.
"This is a huge investment opportunity, but you need to cherry-pick your cities," says Vaidya. He recommends focusing on tier-2 cities like Pune in Maharashtra and Surat in Gujarat and investing in projects like ports and special economic zones (which typically build sector specific manufacturing or research hubs), and in affordable housing, as 90% of the demand is for those. He expects an average investment period to range from three to five years before investors can exit and move on to the next batch of cities.
Mohan, the author of the McKinsey report, too sees opportunity for the private sector (and multinationals, to boot) to provide services like water supply and waste management. "But," he admits, "the question is will we do it fast enough--and that's a political choice. That will determine how dramatic the pace of the change will be and up until now no one has stepped up to champion that."
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