This paper builds on institutional theory to understand the role that the institutional environment plays in emerging economies which encourage citizens to create Internet of Things (IoT)-based interventions. The research included a field-based study in Hyderabad, a south Indian smart city, using a qualitative explorative research methodology. The research found that, although a supportive regulatory environment helps to create a positive regulatory and cognitive institutional context, normative institutions continue to discourage the positive environment that this context has created. Such a scenario may lead to a ‘talent-in and talent-out’ situation that reduces the entrepreneurial potential of the cities. Thus, city governments in emerging economies need to focus on building not only a regulatory environment, but also create a conducive environment for the key stakeholders in the ecosystem to encourage and promote citizen-led IoT interventions that would result in building inclusive smart cities.