Inside Lavasa, India's First Entirely Private City Built from Scratch

The All American Diner plays 1950s rock'n'roll through a tinny speaker, the retro booths are traditional red and the burgers are suitably oversized. The period decor and details are all right, but it all just feels so wrong.

The restaurant is 8,000 miles away from where the "diner" was born on the northeastern coast of the United States in the late 19th century. It sits on another continent, in a city that until recently didn't exist, and now, a decade since construction began, sits just one-fifth finished.

Outside the window, it is not small town America that is viewable, but the rolling, verdant Sahyadri mountains of western India. On an August afternoon, it's the permanent downpour of monsoon season – not late summer sunshine – beating on the sidewalk outside. The soundtrack is a tired collection of rock'n'roll, a dozen or so songs on repeat. Smartly dressed waiters greatly outnumber their clients and watch customers' every move like hawks. There is no folksy smalltalk. When you take a sip of water, your glass is refilled before you have the chance to set it down.

American diner folklore traces the birth of the roadside "lunch wagon" to Rhode Island, 1872. Around the same time, the British Raj was establishing itself in India. Among the signature institutions of British imperial rule were "hill stations" – conurbations built high in the hills for colonial officials tired of the mad hustle and bustle of Indian cities.

Since independence in 1948, no new hill stations have been constructed – until Lavasa, the first city in India to be built whole cloth by a corporation, and where this simulacrum of an American diner sits. Officials in the city say they have already entertained official delegations from China, Latin America and Europe, keen to see if this might be the brave new world for 21st century cities.

Lavasa is the $30bn (£20bn) baby of Ajit Gulabchand – a high-profile billionaire industrialist known as much for his mega-projects like highways and dams as for installing a helipad on his office building in Mumbai – and his powerhouse Hindustan Construction Company (HCC). It is an ambitious, and deeply controversial, project to build an entire private city from scratch. The name Lavasa is the invention of a US branding firm, having no meaning, but meant to conjure up images of mystery and exoticism with its abstract poeticism and hint at Hindi.

According to the project's promotional materials, life in Lavasa – two hours from IT hub Pune, and four hours from Mumbai – "has been envisioned as energetic yet calm, aspirational yet affordable, hi-tech yet simple and urban yet close to nature". A promotional brochure describes it as a "stirring adventure," "an enterprise that will redefine the very notion of a city as we know it." (Upon entering Lavasa, you must brace yourself for an onslaught of corporate bromides.)

India is certainly rapidly urbanising – hundreds of millions of people are expected to move into India's overcrowded cities over the next 25 years. For ambitious property developers, the city-building game is a potentially big profit-making opportunity. The success of Lavasa as a model will have a big impact on how the process of rapid urbanisation in India, and further afield, plays out.

When fully built, Lavasa intends to consume 100 sq km – about the size of Cardiff or Brighton and Hove in the UK – and will cater to a total population of up to 300,000 in five "towns" built on seven hills. The first of these is Dasve, which is still under construction after delays the development's planners blame on government approval being temporarily withdrawn shortly after building started.

Next to the All American Diner is the Waterfront Shaw apartment-hotel complex. Working behind the counter is Sakrita Koshti, originally from Ahmedabad, the capital of Gujurat state. Koshti, 22, says she works nine-hour shifts seven days a week – out of choice. She saves her days off so every two months she can get a week back home with her family.

"I wouldn't live here if I wasn't working here," she says. "The main reason is there are no schools out here. If I get married and have children, they cannot get settled here in Lavasa." This highlights one of the major problems for Lavasa – how does it turn itself from a quirky weekend getaway into a fully fledged "smart city" where people live and work full time?

Lavasa is supposed to be modelled on principles of New Urbanism, the urban design movement that promotes walkable communities with much of the land set aside for green and open space. The corporation claim 80% of the population will be able to access Dasve town centre with a 15-minute walk, for example. Lavasa's other influences reportedly include the picturesque Italian fishing village Portofino in the Italian Riviera, which lends its name to some of the city's streets and buildings.

With the American diner and a nod to Europe, it is clear that the planners are trying to create Lavasa as far as possible from traditional Indian cities, in name, style and architecture. The corporate strapline could easily be "Escape India".

The temporary withdrawal of planning permission by the government of India, as well as unforeseen problems in building on the greenfield site, has held this up, and now that it's monsoon season, construction has to be suspended. The concrete innards and steel girders of various buildings to be finished at some time in the future, added to the lack of humans in the streets, give the place a strange ghost town atmosphere.

Portofino Street follows the edge of a serene man-made lake at the centre of Dasve. Along the waterfront, a grand glass-fronted building houses the Lavasa Information Centre. The building is completely empty but it is full of corporate-speak. Promotional posters shout "Lavasa … Life is full" and "Recharge your BODY", alongside the instructions to "Explore. Enjoy. Learn. Discover." A small screen offers a presentation about the city. "Driven by an obsession with its customers," it says, Lavasa allows them to "Live, learn, work and play in harmony with nature."

But like much of Dasve, when you scratch the corporate surface, it doesn't quite look so sweet underneath. Climbing up to the fourth floor, there are numerous rooms that have been left to decay, some full of junk, others with walls held together with Sellotape and walls left unpainted. Electrical fittings hang loose from the walls, wires are strewn across the floor. In some places the ceiling has huge damp marks across it.

Everything inside Lavasa – apart from the post office and police station – is run by a corporation. There is no state footprint at all. There is no mayor, just a city manager, appointed by the board of Lavasa Corporation Limited (LCL), a private enterprise.

"The company has sweeping rights over nearly all aspects of the life of the residents," warned Persis Taraporevala, a researcher at the Centre for Policy Research in New Delhi in a 2013 article. "It has the right to evict, to tax, to determine the use and design of land, to change the governing body and to change the rules while controlling the rights of people to object to these processes."

On the ground, this set-up creates a Truman Show feel – where the all-seeing watcher is the Lavasa Corporation, an opaque institution that wields power from the Town Hall.

"This private corporation is running the city transiently, but eventually this will have to be a democratic city," said Mukund Rathi, the highest executive power in the city. "But not until city has been developed – then there will have to be some statutory body which will be operating."

In Davse, familiar corporate names such as Baskin Robbins – alongside more unknown Indian companies such as (bakery) "Granma's Homemade" and (vegetarian fast-food joint) "Hungry Hippo" – run coffee shops and restaurants, but also municipal buildings and services. There is a hospital run by Indian company Apollo; there is a school, run by Christel House which also has schools in Mexico and Indianapolis; there is even a Ecole Hôtelière de Lausanne, a private university teaching hospitality management.

Early on, Lavasa announced "tie-ups" with Sir Nick Faldo for a golf course and academy, Manchester City Football Club for a football academy and Sir Steve Redgrave for a rowing academy. Talk of these deals has got markedly quieter in recent years, as construction has gone slower than expected.

It is unclear how any sense of organic community will develop. Rahul Moon, a 29-year-old teacher has been in Lavasa for five years, working as a teacher in a government school that predates construction on Dasve. Hailing from nearby Solapur, he says he came to the area mainly for the financial benefits. "I don't want to stay forever, I want to go back to my village," he said. "I will work for three years more, then I will leave. I don't have friends here … It's not a proper life."

While Lavasa is privately built, it has also received state support. Lavasa was made possible by the state government of Maharashtra introducing what is called "enabling legislation" to encourage building of new hill stations as a strategy to boost tourism. The hill station legislation literally cleared the way for Lavasa. In the process, 3,000 villagers from more than a dozen villages were reportedly displaced.

Prime minister Narendra Modi, seen by many Indians as being in alliance with the big corporates in the country, has made the creation of so-called "smart cities" one of the totem policies of his administration, although it is hard to make out what a smart city actually is.

"As long as people feel happy and proud of the place, then it's a smart city," said Suresh Pendharkar, Lavasa's chief planner, who was previously part of the development authority of Navi Mumbai, the 1971 project to depopulate the west-coast megacity. "It is a catchphrase – in order to really fire up the imagination of people and make them do something new."

Lavasa has much in common with the old colonial hill stations of the British Raj. The New Cities Foundation, a Swiss non-profit focused on "the 21st century global city", describes the benefits of Lavasa as those "distinctly lacking in most current Indian cities: abundant access to nature, a cosmopolitan lifestyle, good schools, a functional and clean city, an uninterrupted power supply, high-speed internet, e-governance, drinkable tap water and a walkable city in which the need for cars is minimal".

It is, however, not designed to help India's urban poor. The least expensive apartments in Lavasa now sell for between $17,000 and $36,000 – out of reach for most middle-class Indians. Gulabchand says the company has modified its plans to include affordable rental apartments for young professionals, as well as "starter homes" that will rent for as little as $11 a month, a price he says labourers and domestic servants can pay.

Lavasa's planners insist that construction on all five towns will be finished within 20 years, although walking around Dasve, that looks ambitious. It still looks half-built.

Back along the road to the centre of town, there is more construction works with posters declaring: "This summer, the coolest indulgences await you at Lavasa!" Flat concrete expanses stretch out on either side of the road on top of which gargantuan puddles collect the rainwater. Over the bridge traversing the Warasgaon Lake is the Lavasa International Convention Centre, the biggest building in the town, and meant to be a major draw for international events. It's closed this week, and has long black damp stains across its roof. Not the kind of place – yet – you can imagine as an international events hub.

Up from the convention centre, on the way out of town, sits the Dasvino Town and Country Club, a vast complex with a gym, spa, snooker room, table tennis room, squash courts, outdoor swimming pool looking out across the water and a restaurant. But it also has very few people.

Jenny Peiray is a guest relations manager at the Club House. She never expected to be working in hospitality. Originally from the Indian state of Manipur in the extreme east of the country, Peiray moved for work. In Lavasa, after deductions, she gets around 13,800 rupees (£137) a month for her six days of work.

Back at the Waterfront Shaw, Dhaval and Vidhi Shah, a couple from Mumbai, are just leaving. "Because of the rainy season, the weather is very good," says Dhaval, an engineer. In Lavasa – hard for a Brit to comprehend – the constant downpours are a draw. "In Mumbai, it's very hot, but you can relax here." He added: "We found out about Lavasa from our friends and relatives – they said everything is planned and works. Nothing in India is planned; this city is efficient and clean."

His wife, Vidhi, chimes in: "It doesn't solve the problem of Indian cities – it's very expensive. This is more a holiday place for most people. I would move here if I had the money, but the facilities are not great. The hospital and education are not the biggest. For living here, it's not that suitable."

If Vidhi is right, it will have huge implications for the future of urban development for decades to come – and make one Indian oligarch considerably poorer.