India: emerging cities

http://blogs.ft.com/beyond-brics/2012/10/19/india-emerging-cities/#axzz29km8vThW

October 19, 2012 2:18 pm

by Avantika Chilkoti

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India’s established metropolises are saturated with investment activity. Now, tier-two and tier-three cities are emerging as investment destinations and a new report from Cushman and Wakefield explains how much money is going into what – and where.

India’s 2011 census recorded 53 urban centres, each with a population over 1m. Cushman & Wakefield’s report has now identified the top ten emerging cities in India (click table to enlarge) ranked by corporate investment by local groups and foreign. The volume of investment into these centres has grown sevenfold since the beginning of 2010. The report explains:

Tier II and III cities offer a number of attractions for businesses such as talent pool at a lower cost, sizeable and economical land and real estate options and conducive business environments created by state and local governments.

There are, of course, many differences between India’s cities, but when it comes to corporate investment all are in the chase:

Almost all the cities have strong government support which seeks to broad-base the local economies… Given their size and needs, almost all the cities are looking at improving their infrastructure.

Take Ahmedabad and Visakhapatnam as examples. Attracting 39 per cent (Rs 712.7 bn) and 32 per cent (Rs 581.8 bn) of all investment into these ten emerging cities since 2010 respectively, these two cities have their differences.

Where Visakhapatnam hosts shipyards, fisheries, and steel works, Ahmedabad has automobiles, engineering and pharmaceuticals companies. Ahmedabad has a population of 7.2m against 1.7m for Vishakhapatnama.

Yet both centres possess the traditional building blocks for urban growth. They have strong transport infrastructure – Ahmedabad is home to India’s seventh busiest airport and Visakhapatnam has two ports, housing the Indian navy’s eastern naval command.

Government policies have attracted investment to both cities. The government in Visakhapatnam has been driving physical and social infrastructure projects, such as widening roads and industrial parks. In Ahmedabad, the IT sector has been cultivated using stamp duty and electricity duty exemptions for units in IT parks and special enterprise zones. Similarly, biotechnology projects have been targeted with a Rs 500m biotechnology fund set up at the state level.

The metals industry has been responsible for 39 per cent of investment volumes in these locations since 2010, followed by power companies with 16 per cent and chemical and petrochemical companies with 11 per cent. IT and IT enabled services, despite their significant contribution to GDP, have been responsible for only 3 per cent of investments (click table to enlarge).

Charting the growth of these new urban centres is important as they are microcosms of India. Sanjay Dutt, executive managing director at Cushman & Wakefield India, says: “The emergence of Tier II and III cities, is significant for the growth of the country’s economy as it ensures continuity and rationalisation of business over a period of time… These emerging locations represent the possible growth trajectory India’s economy will follow in the next few years.”

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