Sunday, May 13, 2007

Nagpur in the New York times

Its time for Tier-2 cities to make their mark in India. I've been to Nagpur recently and was surprised at the cleanliness and the lack of traffic and crowds in this winter capital of Maharashtra. The main issue here is not Malls or movies but basic infrastructure like water and power. In nearby Vidarbha villages, farmer suicide rates are at historic levels due to failing crops and drought. In the name of development, under the guise of SEZ's, the Congress govt. is causing a spiral in real estate values in obscure villages and towns of India. When the music stops, I just hope retail investors are not left holding the bag. Looking at the UP result and the rout of Congress, I think the an NDA style govt at the center is a distinct possibility. I think this will be last straw that breaks the camel's back and we will be back to more realistic growth levels of 5-6% in the foreseeable future.

NY Times article below

NAGPUR, India — A year ago, this relatively small, forgettable city in the heart of India did not have an air-conditioned cinema. In the sweltering heat of summer, the rich would fly one hour to Mumbai, India’s financial hub, to see a movie and stock up on Levi’s jeans, Domino’s Pizza and other big-city treats that they could not find at home.

But if the government has its way, Nagpur will become a destination city itself. In an experiment that is highly unusual for this most unplanned of countries, the government is doling out money to Nagpur and other “second tier” cities to help them modernize — fast.

The plan is to provide the kind of modern conveniences, and infrastructure, that will attract more international investors to India. In doing so, the government is following the lead of China, where the government has invested in infrastructure such as roads and airports, taking a build-it-and-they-will-come approach that has drawn foreign corporations helping to fuel the country’s boom.

India’s government is also hoping its plan will stop disasters in the making in its largest, teeming cities as more people move there in search of jobs and a more urban lifestyle.

“One hundred million people are moving to cities in the next 10 years, and it’s important that these 100 million are absorbed into second-tier cities instead of showing up in Delhi or Mumbai,” Montek Singh Ahluwalia, the Indian government’s chief economic planner, said by telephone.

Already, Nagpur, with an estimated population of about 2.5 million, is a changed city. So far, the government has allocated $280 million for projects and has paid for everything from lush parks to new roads. And investors — drawn by the hope of a boom — have built several malls and a multiplex cinema, complete with air-conditioning.

A renovated airport will become the cargo hub of India, with a terminal that will be 100 times larger than the existing one and will handle at least 100 jets at a time instead of the current five.

The government is planning an ecofriendly mass-transit system to absorb an expected surge in road traffic, years before many residents even own a car.

The government is also building a special economic zone with ready-to-use water, electricity and fiber optic cable, in the hope of attracting 100,000 technology jobs to a city long dominated by coal mining. It is providing tax breaks for companies who set up businesses there.

Since its independence from Britain in 1947, the city-building philosophy of India has been, to put it gently, laissez-faire. Except for the recently developed technology hubs of Bangalore and Hyderabad, India has not added cosmopolitan, globally connected metropolises to its old ones: Calcutta, Delhi, Madras and Mumbai.

And those cities have shown the strain as more people have poured in from the countryside in recent years.

In Mumbai, a majority of the more than 15 million residents live in slums, and a river of sewage passes through the middle of the city. Delhi is chronically short of clean drinking water and electricity.

So far, the government has pledged to spend $29 billion over seven years to upgrade 62 cities besides Nagpur. Grants are given only to cities that can show good fiscal controls and enact business-friendly policies like scaling back rent control.

No one knows if India has the stamina to make Nagpur a truly international hub, and then transform scores of other cities. But many experts say that the plan to remake smaller cities could be a key to India’s continued economic growth.

“Much of India’s future will undeniably be made in the second-tier cities,” said Ashutosh Varshney, a specialist on Indian political economy at the University of Michigan in Ann Arbor. The existing metropolises “will reach saturation points before long, or have already reached such points.”

The second-tier cities could address the needs of local and foreign corporations that have complained about soaring land prices and increasing wages in the country’s most modern cities.

Experts say the government plan could also provide a boost to home-grown businesses. More international airports, for instance, could help raise incomes for the country’s hundreds of millions of farmers by making it easier for their produce to reach export markets.

Nagpur has a head start on most of the other cities expected to receive government money. Because the government selected it as the air cargo hub for the country, skeptical investors have more hope that this obscure city will eventually rank with the busiest air centers in the world.

Today, the Nagpur airport is an airstrip. Visitors deplane and walk across the tarmac to enter the terminal. It takes 30 seconds to traverse the entire terminal from arrival gate to taxi stand.

The blueprints foreshadow radical change. Nagpur got its first international flight just 18 months ago, but it is already planning a second runway long enough for jets like the Airbus A380 superjumbo. A new terminal, already being built, is designed to accommodate 14 million passengers a year.

Next to the airport is a vast special economic zone, an enclave of relative economic freedom designed to attract investors. Boeing is already setting up a maintenance hub there and in an adjoining technology park. Indian companies that do outsourcing work for American and European companies like Satyam Computer Services and HCL Technologies are buying land.

Some worry that all the change — which has already caused real estate prices to soar in the city — is fueling a bubble economy that could burst. Alok Tiwari, the executive editor of The Hitawada, the local newspaper, said a boom cannot last unless more jobs are created, increasing buying power.

“We’ve got to create opportunity, not just take land and build a mall there,” he said.

Yet others say such development will eventually take on a life of its own, driving the economy by raising people’s expectations and willingness to work hard to afford the new luxuries appearing before their eyes.

Vishwas Chaknalwar, a developer, put it this way. “Once you wear Pyramid clothes,” he said, referring to the new Pyramid mall here, “you cannot wear anything else.”

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