A tale of new cities: India's push to industrialize

Reuters News
Posted: Oct 26, 2011 12:18 AM
A tale of new cities: India's push to industrialize

By Matthias Williams and Lyndee Prickitt

DHOLERA, India (Reuters) - Chotubhai Raghani's fields in a dry, salty strip of Indian coastline on the Arabian Sea never yielded much wheat but he feels like a lucky man now he's started selling them at a juicy markup.

He expects his land may one day make way for a car factory or an air-conditioned shopping mall, all part of what may be India's most ambitious infrastructure project ever.

Excitement is rising almost as quickly as land prices in his village, one of the sites chosen for building 24 industrial cities from scratch along a 1,483 km (920 mile) railway line.

The government plans to build a corridor bigger in land size than Japan, stretching from New Delhi down to the financial hub Mumbai in the west, that could help transform India's economic landscape and give its choked, teeming cities room to breathe.

"It's going to change our lives," said Raghani. "We've tilled this land for generations but we only get a small mouthful out of it."

Skeptics call the $90 billion project, known as the Delhi Mumbai Industrial Corridor (DMIC), over-ambitious. India, bogged down by corruption, staggering bureaucracy and land battles, has a long history of failed infrastructure plans.

"It's a very crucial project for supporting GDP growth," said Pratyush Kumar, President & CEO of GE Transportation in India, a company with interests from railway engines to wind turbines. So far it is not involved in the DMIC project.

"Nobody is saying that it's not moving, but the glacial pace will choke the GDP ambitions," he said. "The pace has to pick up and they need to get away from this whole decision-making paralysis of 'hey, we can't award large projects because of all the scams'."

If the DMIC fails, Prime Minister Manmohan Singh's government will have lost a golden opportunity to sell India to investors and will feed the perception that, unlike China, it lacks the will to act when it counts.

If it succeeds, the project could be the jolt Indian industry needs to sustain the country's heady economic rise.

The timing couldn't be better amid global financial strife, rising interest rates and domestic policy stagnation caused by government corruption cases that have dampened confidence.


New Delhi has earmarked an initial fund of $4.5 billion to build the core infrastructure of each city, such as roads, power supplies and sewage treatment plants, and expects a similar contribution from the project's partner, Japan.

Once the basics are there, the thinking goes, investors will be convinced of the DMIC's value and will build factories, housing and more in a public-private partnership.

The government can then sell them the land it has acquired from farmers, using the funds to start building the next city.

Despite years of economic boom, India's infrastructure is rickety and its manufacturing sector sluggish. Transporting goods is expensive and slow -- it can take more than two weeks to move a container from Delhi to Mumbai. It is hoped the new freight line will slash that to under 24 hours.

"If India does not create new cities, many of its existing cities will be slums," said Amitabh Kant, the civil servant in charge of the project.

The idea for an industrial corridor took shape in 2006 as a deal hatched by the governments of India and Japan, inspired by a similar project around Tokyo that helped Japan's economic rise after World War Two.

Work on the first hub, Dholera, is to start shortly, with Indian firms Mahindra Lifespace Developers Ltd and Hindustan Construction Co Ltd already on board.

Plans envisage Dholera being transformed from a cluster of small villages and hamlets, where cows laze to the sound of women pounding clothes in the village pond, into a city of 2 million people by 2040 with its own international airport.

If all goes to plan, Dholera will become a magnet for engineering, electronics and pharmaceutical firms, helping meet the corridor's target of doubling employment and tripling industrial output across the six states through which it runs.

"I am eagerly awaiting the day that a plane lands in our village," jokes one skeptical farmer as others around him laugh.

Although building even a single highway can be achingly slow in India, a crowded democracy of 1.2 billion, the DMIC project may have enough going for it to prove doubters wrong.

One big plus is Kant himself, a widely respected official who is no stranger to selling India's image abroad. He was the architect of a flagship 'Incredible India' tourism campaign that sought to dispel stereotypes of snake charmers and touts.

Authorities in the DMIC are also trying hard to minimize risks to potential investors while ensuring that the farmers get a good deal, obtaining clearances and negotiating land sales.

This is somewhat unusual for India, where a major deterrent for businesses is that they must first bid to build projects before wading in to acquire land or permissions from umpteen ministries, with all the hassles and delays that entails.

The DMIC is being kicked off by Gujarat state, a favorite of investors who like its lack of red tape, easy land sales and ambition to become a global industry powerhouse like China's Guangdong.

Raghani, and many others like him, were happy to sell their land -- a marked contrast to the deadly clashes over land that have happened elsewhere in India.


However, the challenges Kant faces are enormous, not least tackling the bureaucracy inside his own government. Getting permission to build even one power plant needs 44 clearances.

"Look at the number of sanctions and approvals. This page, this page," he exclaimed during an interview in his office, thumbing through pages of stapled documents.

Corruption, one of the biggest hindrances to business in India, is another. Land acquisition has not even started in Uttar Pradesh, a state of 200 million people with a reputation for kickbacks.

"Unless you bribe, they will not give up the land," said a government source involved in the project.

Graft scandals have haunted Singh's government since last year, with a clutch of high-profile politicians sent to trial amid mass street protests.

The DMICDC, the company created to steer the project, is changing its business model from being majority-owned by two private lenders to being under government control. It wants to ensure private firms are not seen as being cozy with the state, the government source said, speaking on condition of anonymity.

"It's public money being put in, so immediately people will start saying the DMICDC is nothing but a front for siphoning money," the source said.

Progress on the rail line, which is headed by a separate state-run company, is also slow.

India has a mixed record on project implementation. Stories of bribery, construction delays and filthy athletes' rooms made Delhi's hosting of the 2010 Commonwealth Games a PR disaster.

But swanky new airports in Delhi and Mumbai, a high-speed metro in the capital and some slick new highways show that the government's huge infrastructure push, with a planned splurge of $1 trillion over the next five years, is paying some dividends.

(Editing by Alistair Scrutton and Paul Tait)