After a five-hour drive from Mumbai through mad traffic, chaotic suburbia and, eventually, untouched countryside, what looks like a well-organised European town heaves into view. The sign above the entry gate reads: “Welcome to Lavasa”. Beyond it, there's a helipad, a five-star hotel and, down in the valley, the main street. It seems cleaner than most cities and certainly unlike any you'll find in India.

On closer inspection there are empty buildings, boarded- up shops and unfinished construction work. But the project is not ready yet, people who live there say. Only the first part of the five-city cluster, called Dasve, is up and running. Dasve already has schools, a hospital, shops, hotels and restaurants; even a convention centre, and a city hall that looks like a corporate HQ.

Lavasa, the brainchild of Indian property tycoon Ajit Gulabchand, is being built by the giant Hindustan Construction Company (HCC) in the Western Ghats, 250km southeast of Mumbai, India’s largest city, and 65km west of Pune, a hub for IT companies. It started as a traditional real-estate project based around an idea of a resort community, but developed when the company managed to acquire more land.

On the spotless waterfront, 30-year-old Arun Varma is taking a break from his job as a hotel duty manager. He is a fan of the city’s lifestyle. “Given the choice, I would like to live in Lavasa forever,” he says. “Here, everything is well planned, there are no water or electricity shortages and everywhere is clean and tidy.”

He is not alone. Among the development's big-name international backers are Manchester City Football Club, French hotel chain Novotel and even the British golfer Nick Faldo. The creators, too, are confident that their project will be successful.

Scot Wrighton, Lavasa's city manager, hopes that it will become a blueprint for cities in the future. “One of the many strategies for our company is creating a different kind of medium-sized city that can be replicated elsewhere across India,” says the American, “so that the stream of urbanisation can be diverted elsewhere to places that are better equipped, better enabled, better financed and can provide a better quality of life.”

When it’s completed in a decade or so, Lavasa will occupy about 5,000 hectares along the edges of seven hills and, if all goes to plan, will eventually house more than 300,000 people, who will either work in Pune or in the town itself. The Lavasa Corporation is hoping to create 50,000 jobs in industries such as IT, education, health and hospitality. Wrighton calls it a long-term “urban experiment” – a place to test the latest techniques in urban living against a commercial backdrop.

“The corporation is a for-profit company that is here to stay. We are not just involved in the real estate here, but also in three dozen or so joint ventures – operating companies like restaurants, hotels, facilities management, laundry, all the commercial amenities needed to run a city. Because if this is to be sustainable in the long haul, we need to be here for the duration.”

Lavasa, says Wrighton, has come at a time when Indian cities are bursting at the seams. And the figures suggest he is right. According to the UN, the world's urban population will practically double from 3.4 billion to 6.3 billion by 2050. India alone will add as many as 400 million people to its population over the next 40 years, and most of these will live in urban areas.

Pankaj Joshi, executive director of the Urban Design Research Institute in Mumbai, says India’s existing cities cannot keep up. “If India is to grow at the rate of 8%-9% per year, but with the rural economy only growing at 2%-3%, the real brunt of the growth comes down to urban areas. The fact is that infrastructure provision, utilities and amenities are not able to keep pace. This has become more problematic in the last few years.”

A recent report by consultants McKinsey stated that Indian cities are suffering from chronic underinvestment and as a result are failing to deliver a basic standard of living. Cramped housing, congested traffic, pollution and electricity and water cuts are a daily reality for millions. The report added that India needs to invest $1.2trn (€840bn) in its cities over the next 20 years or $134 per capita per year. India currently spends $17 (€12) per capita. New York spends $292.

Wrighton says private cities like Lavasa can offer a partial solution: “To develop the cities needs a huge amount of money that the government does not have.

We think that the option for accessing those kinds of resources is through public-private partnerships. These can be sustained if they have a decent return on investment and are transparent.”

The McKinsey team agrees but says partnerships represent just one source of cash. “If India taps into five sources of funding used in cities around the world – monetised land assets, higher property taxes, user charges that reflect costs, debt and public-private partnerships, and formula-based government funding,” the report notes, “its largest cities could generate as much as 80% of the funding they require from internal sources.”

India is trying hard not to ignore the problem, and its urban development ministry aims to create seven cities, spanning six states, between Delhi and Mumbai. The result is the Delhi Mumbai Industrial Corridor Development Corporation (DMICDC), a colossal infrastructure scheme being developed with the Japanese government. The first phase of the project is due to be ready in 2018. DMICDC is also developing seven new cities in overpopulated states such as Madhya Pradesh, Gujarat, Uttar Pradesh, Maharashtra, Haryana and Rajasthan.

The first of these cities is likely to be in Gujarat, about 100km from the state capital Gandhinagar. It’s a different model from Lavasa since the project's core infrastructure will involve public investment – but when completed, it plans to operate as an independent economic region with private-sector backing.

There are other, purely commercial developments in the pipeline too. Sahara Prime City is planning nearly 100 new townships across the country and Satind Infrastructure, Aqualand India and Maharashtra Valley View intend to build hill stations not too dissimilar to Lavasa in the Ghats region.

Then there are projects such as Aamby Valley, a hugely ambitious city development that cost billions. It was originally billed as a new style of urban living with grand visions of self- sufficiency, but turned out to be a little more than a luxury gated community and holiday-home hub for the rich.

Admittedly, building new cities is not cheap. Lavasa, for instance, has so far spent nearly $800m (€560m), and the cost of the entire project is estimated at roughly $8.9bn. Executives, however, are adamant that the investment will be worth every penny, since the company is keen to show how to build a new governance model for cities. Many of the services will be based around public-private partnerships, says Wrighton. “For instance the water and sewage plant is today owned by Lavasa, but tomorrow we may bring in an international water services company and they can own a minority stake in the venture.”

Lavasa Corporation says it can assume many of the functions a town can have. It already employs private security guards and raises funds from home sales, rentals and revenue-sharing agreements with businesses. But this is just a start, says Wrighton. “Eventually we hope to propose to the Maharashtra [state] government a slightly alternative model of governing that fits into our plans. Hopefully this can attract the kind of public-private partnership necessary for this and other similar developments.”

But is it ethical to build private cities in a country where the majority of people live in filthy slums, often without clean water or sanitary facilities, and where many are struggling to get by with less than €1.50 a day? No, says Joshi, who believes that cities like Lavasa widen the gap between the rich and poor. “The fact is that Indian cities are complex by nature, they are places where everybody has a space – the economically challenged, the lower middle classes, the middle classes and the rich. Enclaves like Lavasa are aimed at particular sections of society, those who can afford to invest in it. The project doesn’t translate as what qualifies as a city because it lacks rights and democracy.”

The cheapest apartments in Lavasa sell for about €12,000. In truth, this is out of reach for most hardworking middle-class Indians, so it is highly likely that Lavasa’s apartments will be bought out by private investors hoping to make a quick buck on the back of the buzz the town has created. Even Lavasa’s most ardent fan, Arun Varma, can't afford to buy an apartment in his dream city. “I would like to buy but right now it is out of my reach,” he admits. “Maybe some time in the future I can afford a studio apartment.”

Wrighton says the company will be offering affordable rental apartments for labourers and domestic staff for about 1,500 rupees (€24) a month. But few housemaids or construction workers can even afford that since most get paid around 150 rupees a day. “In reality,” notes Joshi, “many of the informal sector workers will end up commuting to gated cities, since even rental prices are bound to be out of reach for them.”

Being criticised for excluding large segments of the society is not Lavasa’s only headache. Most real-estate developments in India often end up mired in controversy because of a confusing land acquisition system and convoluted laws. Lavasa has been caught up in a legal wrangle with activists who claim that HCC coerced farmers into selling their land at rock-bottom prices. The company denies any wrongdoing.

Lavasa bosses like to call their city an experiment. No one really knows if it's the shape of things to come. But one thing is certain: India's urban planning needs to change, or its major cities will become intolerable – turning them, as the country's Economic Times has warned, into “a sea of slums dotted with a few islands of planned development”.