By Miheer Karandikar 

The Union government recently announced plans for 12 new industrial cities with a massive allocation of more than Rs 26,000 crores. These announcements follow the 2024-25 Union Budget's promise of funding for "industrial parks," not cities. Announcements like these are not entirely new. Similar projects have been proposed before: in 2014 (100 new SMART towns), in 2022 (26 greenfield development projects in various states), and just last year, in 2023 (8 new cities as recommended by the Finance Commission). The announcement leaves many questions unanswered, and issues related to policy objectives, finances, infrastructure, and governance can be significant concerns.

A fundamental issue with the current proposal is that it aims to achieve too much without a clear, concise objective. This approach goes against the Tinbergen Rule, which says that one policy instrument should have one target for it to be effective. Economic upliftment, export growth, SME development, job creation, environmental sustainability, and regional transformation are all listed goals. Similar criticism has also been levied against other flagship industrial policies like production-linked incentive schemes (PLIs). Attempting to accomplish multiple policy goals simultaneously through the same policy instruments can result in insubstantial gains. On the other hand, a policy focusing on targeted outcomes is a better use of state capacity and funds.

Financial Concerns

Financial considerations are another primary concern. The money allocated to build cities is often insufficient. NVS Reddy, urban expert and MD of Hyderabad Metro Rail, said, “... any allocation—be it Rs 10,000 crore or Rs 50,000 crore—won’t be sufficient for building a new city.”

There is yet to be a consensus on allocation. The 15th Finance Commission laid out Rs 8000 crore as a ‘seed fund’ for eight new cities in the country. For example, the Dholera Special Investment Region in Gujarat has reportedly seen investments in the range of over Rs 1,50,000 crore. An estimate said that the GIFT City initiated an initial investment of $1 billion, approximately Rs 8,000 crores.

The announcement mentions the new cities will have planned industrialisation and infrastructure will be built "ahead of demand". Such development has yielded mixed results globally. India's experience with the Delhi-Mumbai Industrial Corridor (DMIC) has shown that progress can be slow and uneven. China's Special Economic Zones (SEZs) built on this model have been largely successful but come with many caveats. According to a World Bank report, many of these SEZs are successful because they used the comparative advantage of the cities they were close to and weren’t necessarily greenfield projects.

Governance Issues

Governance and planning challenges loom large. The announcement needs to be more transparent on which agency will be charged with developing and maintaining these proposed cities. The lack of clarity on nodal agencies and their responsibilities could lead to inter-agency conflicts, as seen in Gurgaon's development. Clashes between the Haryana Urban Development Authority and the Municipal Corporation of Gurgaon have often hindered progress, leading to inadequate infrastructure and haphazard growth.

Research worldwide shows that empowered urban local bodies perform better than any other body governing bodies. A World Bank report emphasised the importance of empowering urban local bodies for urban development. The success story of Gurgaon, where private developers and companies collaboratively built infrastructure, offers an alternative model worth considering.

There are other more minor problems too. The announcement mentions that these will be “world-class greenfield” cities. Greenfield cities are created on previously undeveloped land, away from existing urban centres, e.g., Jamshedpur, built on a forest area. However, most of these cities are already reasonably close to or are existing cities. Patiala in Punjab, Agra and Prayagraj in UP, Jodhpur in Rajasthan, Palakkad in Kerala and Gaya in Bihar are established Tier-II cities. At the same time, Dighi is almost a suburb of Pune. These areas are closer to the definition of brownfield cities, built on previously used land near urban centers. However, it might be advantageous, as brownfield cities could be more practical in the Indian context.

Walk-to-Work Model

It also mentions that the new cities will be built on the “walk-to-work” model. In general, India doesn’t have a good track record of walkability in cities. While studies have shown the benefits of walkable urban spaces, implementing this in industrial settings is a novel idea. If the government also means these cities to be purely industrial or include residential areas.

The government can draw many lessons from its past attempts at building cities. The Gurgaon example highlights the necessity for coordination between government bodies. Chandigarh shows how planning consciously and keeping the future in mind is essential. The government can also look at public-private partnership models like Jamshedpur and Coimbatore and small township plans like Magarpatta City in Pune. Solving these main problems along with finances can go a long way.

Figuring out the basics beforehand will be very essential to the success of these cities. To borrow an analogy from urban development, building critical infrastructure before cities are built is much easier and cheaper than doing so after. India desperately needs these cities, too, with a rapidly urbanising population and signs of cracks beginning to show in the existing metropolises.

(Miheer Karandikar is a researcher at the Takshashila Institution, which is an independent think tank and school of public policy.)

Views are personal and do not represent the stand of this publication.