Business Today

Second option cities

As state capitals get crowded, businesses are scrambling for newer destinations within and outside their home states. Happily for India Inc., there are quite a few cities to choose from.

By Krishna Gopalan | Print Edition: August 26, 2007

With Bangalore's infrastructure continuing to crumble and real estate prices sky-rocketing, Infosys and Wipro, two companies synonymous with India's capital, are leading the flight of it firms to cheaper tier-II locations across the country. While Infosys already has a 300-acre campus in Mysore (including its much-vaunted leadership institute), it has also acquired 300 acres in the coastal town of Mangalore, 350 km west of Bangalore, while cross-town rival Wipro is also among the pack of around 20 companies heading to these two emerging locations. "There is no space for us to expand in Bangalore," quips T.V. Mohandas Pai, Director (HR), Infosys Technologies.

Following in Bangalore's footsteps: Infosys' leadership institute in Mysore

Since the 90s, breakneck growth in metros such as Mumbai, Delhi, Bangalore, Kolkata, and Chennai has left the cities overcrowded, while their infrastructure hasn't kept pace at all. With the result, mega cities have long expanded into suburbs. Delhi, for example, has clawed into Gurgaon and Noida.

What's happening now is that businesses are looking beyond the suburbs and farther into smaller cities such as Agra or Meerut, or, if you are in Mumbai, then Nashik and Nagpur. There's frenetic development taking place from Siliguri to Mangalore and from Ludhiana to Durgapur. It's not just offices that are coming up, but residential complexes, malls and entertainment centres. By all accounts, India's story over the next decade will be about these cities and how they morph into tier-I cities themselves.

Why we need alternative cities

The reasons are many and predictable.
Housing Crunch: Proper housing has become increasingly expensive and, therefore, scarce for a large number of city dwellers. Smaller cities tend to offer better housing at lower costs.
Better Infrastructure: It's easier to build bigger and better roads in small and less populated cities than in bigger cities, where unplanned expansion may offer little scope for urban changes.

Better Urban Planning: Zoning, which doesn't seem to exist in any Indian metro, can be better introduced and followed in smaller cities, and thereby, offer better standard of living to the people.

Better Civic Life: Municipalities tend to be inefficient and corrupt in the larger cities. In smaller cities, where the municipalities tend to be smaller and less sclerotic, there is opportunity to ensure better delivery of civic services.

Lower Cost of Living: For both employers and employees, the lower cost of living in smaller cities is a big attraction. Their coming, in turn, multiplies wealth in the local economy.

The IT Effect

One industry that has done more than others to turn around fortunes of smaller cities is IT and ITEs, especially in South India. Take Mangalore, for example. This coastal city is a big attraction for the BPO industry. MphasiS (now part of EDs) is looking to hire 3,000 people for its facility here, and there are other players as well looking to get a toehold in the city. Madurai is another city that's benefiting from the IT boom.

There's wine too: M&M plant in Nashik

A historic city more than 2,500 years old, Madurai was once synonymous with TVS and Madura Coats. Today, it is busy giving its bigger cousin, Chennai, a run for its money. An it park of 7 million sq. ft within an integrated township is slated to come up in the city in the next four to seven years. "While we envisage that manufacturing will take off in a bigger way four years down the line, we think that we can trigger growth rates by bringing in it," says Ligi George, past Chairman of CII's Madurai zone. Honeywell Technologies already has a base in Madurai.


What the City Offers:

  • Easy access to state capital Bangalore

  • Significant IT development with Infosys' 270-acre campus being the big story

  • Access to local talent pool and lower costs

  • 21 new IT projects in the pipeline, including one of TCS 


What the City Offers:

  • Existing manufacturing base, courtesy M&M's plant 

  •  Huge potential for the wine industry, given the wineries that exist

  • An emerging IT/ITES destination and is in list of the selected tier-II cities for BPO/IT companies

  • Has five industrial zones around the Nashik area and its outskirts 


What the City Offers:

  • Is home to a large population of educated middle class with rising aspirations and consumption

  • Has-and is acquiring-a very solid educational and medical infrastructure (including higher education institutes, AIIMS and other institutes)

  • Is well connected to metros like Delhi and Mumbai and other cities by road, rail and air (has an airport)

  • The forthcoming software and hardware technology park expects to give a fillip to the IT industry 

Within Tamil Nadu, Coimbatore is another city that is angling for a ride on the IT bandwagon. For years, it has been home to industries like textiles and auto parts, apart from educational institutions that include a host of colleges. Although a latecomer to the IT party, it has managed to excite it majors like Cognizant Technology Solutions. More such players may troop in, if the city's plans of upgrading its infrastructure bear fruit. Under the Jawaharlal Nehru National Urban Renewal Mission (JNNURM), Coimbatore will get Rs 3,000 crore to modernise its infrastructure. It plans to invest that money in six-laning its major roads and improving sewerage and civic services.

Even cities in north and central India that have traditionally depended on manufacturing industries, are trying to woo it companies. Bhopal, for example, plans to set up a software and hardware technology park that is expected to host companies like Genpact, Fujitsu, and Taurus Microsystems (an American custom design engineering firm). The city has already seen growth in the market for technology products as is evident in the presence of a large number of hardware and software vendors at Maharana Pratap Nagar, a major commercial area. It's not hard to see why Bhopal wants it. Although investments by it companies tend to be small, the wealth they create per employee is vastly greater than what blue-collar industries do. Therefore, the economy that such jobs create is far more affluent.


What the City Offers:

  • Very big in industries like pumps, textiles and auto components

  • Has an IT potential since there are at least 30 engineering colleges

  • International connectivity with Silk Air offering flights to Singapore

  • Proposal underway to convert major roads into six lanes 


What the City Offers: 

  • Access to Kolkata, which is about 200 km away, and to the Haldia port

  • Established manufacturing base that includes industries like steel and petrochemicals

  • High levels of realty and retail activity in terms of malls and shopping centres

  • Big focus on developing the road network around the city 


What the City Offers:

  • It is the gateway to the North East
  • Huge potential for commodity goods since there will be exports to China
  • Main growth has been in the services sector apart from the small-scale industry 


What the City Offers:

  •  Located along the GT Road, Ludhiana is well connected with Delhi by road and rail

  • Has a large manufacturing base, skills and entrepreneurial talent

  • One of the cities with highest consumption expenditure

  • Proposed textile and apparel parks and international airport are expected to give a boost to Ludhiana's competitiveness

Manufacturing: Mass Employer

Already a prosperous city: Ludhiana has all the trappings of a metro

That's not to say manufacturing is passé. It is still a key focus at cities like Nashik, Durgapur and Ludhiana. Nashik, for example, already has a significant auto industry thanks to Mahindra & Mahindra. That apart, it has a thriving wine industry that is getting noticed globally. Interestingly, Nashik is also the base for the National Treasury Printing Press apart from housing five industrial zones on its outskirts. "I have been watching Nashik for over a decade and it has changed from a one-horse town to one offering a multitude of shopping options and entertainment," says Rajeev Samant, MD, Sula Vineyards, which owns more than 300 acres in Nashik. The proximity to Mumbai has helped Nashik a great deal. According to Akshay Kumar, MD, Park Lane Property Advisors, beyond Mumbai and Pune, one cannot afford to ignore Nashik as far as Maharashtra goes. "It is cheap, has a population that is well educated and offers a good talent pool. The infrastructure, too, is reasonably good," says Kumar.

Speaking of manufacturing, West Bengal's Durgapur is another interesting story. It was in the late 50s that the place got its first major industry-a state-owned steel plant-that changed its fortunes. Following several periods of struggle, the city is now looking at new opportunities in the fields of metalwork, engineering, petrochemicals and telecommunications. "This vibrancy of Durgapur can be attributed to the revival of the iron and steel industry in the area," says Nirupam Sen, West Bengal's Commerce and Industries Minister.

Today, the Durgapur-Asansol belt has over 30 iron and steel units. The city of Durgapur, on its own, has a swanky Durgapur City Centre spread over an area of 3.7 lakh sq. ft, and a multiplex, to name a few things. If that's not enough, there is a Ginger hotel (of Roots Corporation) that has just come up in the city. Says Roots' CEO, Prabhat Pani: "Tier-ii and tier-iii cities are growing across the country. This belt is probably growing the fastest because this is backed by an extremely vibrant manufacturing and engineering industry."


What the City Offers:

  • It's a port city that has historically been wealthy
  • The IT industry has a significant presence thanks to HSBC and Satyam, among others
  • A pharma city is coming up; players like Dr Reddy's and Divi's are investing in SEZs
  • Tourism could be a big one with the city's beaches and weekend resorts 


What the City Offers:

  • Vicinity to the university town of Manipal
  • Base for BPOs with players like MphasiS having some big plans
  • Overhaul of the New Mangalore Port will increase capacity
  • ONGC's SEZ is coming up which can bring in investments of up to Rs 1,00,000 crore 


What the City Offers:

  • Well located with the Tuticorin port, which is just 110-km away

  • All important roads getting out of the city will have either a four- or six-lane connectivity

  • Manufacturing is already a big story, thanks to companies like TVS and Fenner

  • An IT park is coming up and it is expected to be bigger than Chennai's Tidel Park

Duragpur's peer in West Bengal, Siliguri, is catching up, too. Situated interestingly at a place where the borders of four countries-Bangladesh, Nepal, Bhutan and China-are in the vicinity, the region is often referred to as the Gateway to the North East. At one point, it was all about tea, timber, tobacco and tourism.

Already a prosperous city: Ludhiana has all the trappings of a metro

Today, there is a lot of activity on the services front in addition to small-scale industries that are coming up. The Siliguri Jalpaiguri Development Authority (SJDA) has set up a truck terminal, two satellite towns and several bridges. "We want more private investors and business houses to come into the region and we are looking at sectors like infrastructure, tourism and agri-based industries," says West Bengal's Urban Development Minister, Ashok Bhattacharya.

A bit of everything is what Visakhapatnam offers and that could well be its USP. It has a pharma city in the works, although drug companies like Divi's Labs has an SEZ in operation since last year and Dr Reddy's is planning one, too. It's also got it, thanks to HSBC, which has a group service centre here, and Satyam that has set up an 800-seat facility.

As Park Lane's Kumar puts it, "In the next 10 years, all the tier-ii and tier-iii cities will look completely different. The momentum of the Indian economy along with that of the local economy is what will work well for these cities." Let us hope he's right.

(With Rahul Sachitanand, E. Kumar Sharma, Ritwik Mukherjee,
Nitya Varadarajan and Kapil Bajaj)

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