Hyderabad calling

With billions of dollars being pumped into it, Hyderabad has become one of India’s fastest growing and most exciting metros. 

The age-old Chinese proverb, “may you live in interesting times” aptly describes the current world economic scenario.

With record levels of bankruptcies, job cuts and stimulus packages, developed economies that are struck with recession are desperately trying to stay afloat. Then there’s India. As one of the fastest growing markets, India is presented with unique opportunities in the current economic slowdown and is already showing signs of recovery due to its huge domestic demand and sheer lack of infrastructure.

The huge infrastructure deficit of India, which has been a concern for local and foreign investors in the past, is turning out to be a blessing in disguise. It is also a massive opportunity for India, as the government has decided to spend US$500bn in infrastructure over the next three years. Sharing the opportunity with private investors, the Indian government has opened up 30% of the total investment for private investors through public-private partnerships (PPP). According to the 2008 McKinsey infrastructure report, a bulk of the opportunity lies in the transport sector and amounts to approximately U$90bn.

Source: KPMG

 

Development boom

 

Hyderabad is the state capital of Andhra Pradesh and with a lion’s share of 12.66%[1] of the total infrastructure investment planned in the country, it is getting as famous as its delicious Hyderabadi biryani. It is currently the most favoured destination for infrastructure investments from the government as well as global private investors.

 

 

With markets in developed economies currently shrinking and the improving infrastructure of India, there could not have been a better time for investors to put money into the third largest and the second fastest growing Asian economy which is expected to grow at 6.5% to 7.5% in 2009-10[2]. Realising the potential, investors are not only penetrating existing Indian markets, but are also gearing up to go beyond traditional centres like Mumbai and Delhi. In order to beat the rising costs and drive out of recession, companies are getting adventurous and exploring new markets within India by making inroads into emerging future markets located in low cost regions.

 

As the fifth largest metropolitan city and the fourth largest economy in India, Hyderabad has emerged as the most promising, popular and safe region in India in terms of infrastructure, proactive government, availability of skilled labour, high purchasing power and cost effectiveness. The city also provides an ideal potential market with the highest population density level in the Andhra Pradesh as the population consists mainly of highly skilled individuals with increasing incomes and substantial disposable income with a relatively high purchasing power. As the largest contributor to the gross state domestic product (GSDP) of Andhra Pradesh, Hyderabad is expected to be a US$300bn economy in the next couple of years.[3]

 

 

Why Hyderabad?

Different people give different reasons as to how and why Hyderabad emerged from being a sleepy city into a buzzing business and economic hub. K. Praveen Kumar, sector head, AP Invest, an agency that was set up to promote Andhra Pradesh as India’s best business state, credits the location. “It is Hyderabad’s central location in the Indian subcontinent which offers great logistic strength for many investors to locate their facilities here,” he says.

According to S. Kannan, CII, Director and Head Andhra Pradesh, there are three key reasons why the city attracts global investors. “Firstly, proactive government policies, secondly, progressive infrastructure development and thirdly, the quality of human resource i.e. educated, highly skilled and professional which is also affordable,” he states. 

Hyderabad’s phenomenal growth has even led to a number of skilled individuals relocating there from different parts of the world and has also lured quite a few NRIs, who are happily back to settle down there. Harish Chandra Prasad, Chairman, CII Andhra Pradesh says: “Hyderabad has developed and opened up to PPP model thanks to the professional, pushy and die-hard entrepreneurs especially high net worth individuals and NRIs who are the real agents of change.”

Powered by increasing infrastructure investments core sectors like cement and steel are buzzing with energy and are generating growth in other sectors too. The Indian stock market, Sensex crossed the 11,000 mark, which is the highest since October 2008, interest rates are down and increasing liquidity and inflation is up to 0.56. Regaining their interest Foreign Institutional Investors (FIIs) invested US$1.3bn in April alone. India has started building its way to recovery in order to flyover the stumbling block of economic slowdown and eventually become a stronger economy in future.

“Today, the steel industry is back to full capacity production and that is one basic mother industry, which actually feeds other industries,” said Kamal Nath President of Confederation of Indian Industries (CII) in an interview with CNNibn.

“Around 75%-80% of India is back on track and nothing stops us from doing the infrastructure investment that we need to do, and will happen in due course,” he added. Economists and investment bankers expect the Indian economy to recover by December 2009 at the latest. According to the Economist Intelligence Unit (EIU), the foreign direct investment in India is expected to catapult from US$23bn in 2007 to US$60bn by 2012.

Ranked at the top in the World Bank’s report Doing Business in South Asia 2007, Hyderabad is an established ideal global investment destination that is ripe with opportunities, which given the current economic scenario, investors want to invest in and reap immediate benefits. With a good track record of its proactive state government, which has delivered rapid growth in the past by providing world class infrastructure across all sectors Hyderabad has a clear advantage over other Indian states.

 

“As always, topping the state government agenda is infrastructure, especially in terms of roads, power and environment, in order to achieve and maintain fast paced industrial growth,” Mr. Kannan says. “While other Indian cities like Mumbai, Delhi and Bangalore have a shortage in power supply, Hyderabad has surplus power and is ready to meet the increasing future demands.”

 

 

Past, Present and Future

 

More than 400 years old, the city of Hyderabad has been described in a variety of ways depending on the cultural and economical stage that the city was experiencing.

 

Before independence, Hyderabad was the largest and wealthiest princely state of India, frequently described as the ‘City of Nizams’. Due to the sheer wealth accumulated by the nizams of Hyderabad, one of the first industries in the city was in gems and jewellery. Even though there is no sea near the city, most of India’s pearl dealers are based in Hyderabad, making it the ‘City of Pearls’.

 

After independence, Andhra Pradesh merged with the Indian Union and has been predominantly an agricultural state with more than 65% of the population employed in this sector. Following liberalisation, unlike many other Indian states, subsequent state governments, which came into power, gave the highest priority to growth and efficiency and boosted industrial development by investing in infrastructure. The state government of Andhra Pradesh is one of the first governments that implemented PPP for various infrastructure projects across the sectors. Hyderabad, being the state capital received the largest chunk of these infrastructure investments and slowly and steadily the dependence on agriculture balanced out with industrial development.

 

 

 

Cyber city

 

In the 90s, the IT sector was fastest growing industry in India and the various policy and fiscal reforms taken by the state government showed rapid results in this sector. And so the IT revolution began in Hyderabad with heavy investment in the semi conductor and hardware industry and the government pitched in by investing in infrastructure like water availability, power reforms along with investment in various IT/ITES SEZs and software parks.

 

However, the biggest boost and the turning point for Hyderabad’s major economic growth was when Microsoft set up its largest product development centre, outside its headquarters in Redmond Washington, called Microsoft India Development Centre (MSIDC), sprawling across 54 acres. Then Oracle built its state-of-the-art development facility on 7.3 acres.

 

The development of HITEC City, the largest IT facility in India, prompted several other IT and ITES companies to set up operations in Hyderabad, which in turn led many software firms, call centres, business process outsourcing (BPO) firms, dealing with IT and other technological services to set up a hub in the city. Soon, Hyderabad became known as ‘Cyberabad’ due to the aggressive promotion and growth in the sector.

 

Since the mid-90s, several Fortune 500 companies like Amazon, HP, GE, IBM, Accenture, Google, Motorola, DuPont, Deloitte and Touche and Dell as well as Indian giants like Infosys, Wipro, Satyam, Cognizant Technologies, Tata Consultancy Services, Polaris and Infotech Enterprises have settled down in the city. Hyderabad was named the number one investment for IT/ITES companies by NASSCOM, with the city’s IT exports crossing US$4.65bn, which is 15% of India’s IT/software exports. Today, Hyderabad is famously known as the second Silicon Valley of India, the first being Bangalore, although Hyderabad is expected to overtake Bangalore very soon.

 

Source: AP invest

 

Pharma capital

In order to attract large global investors, the state government has not only been promoting Special Economic Zones (SEZ) for various industries, but it also invests in the city’s infrastructure in terms of power, roads, rail, seaports, airports and urban management to help companies achieve logistical cost efficiencies.

The rural areas of Hyderabad, Ranga Reddy and Medak, are where a majority of the SEZs are located. They range from sectors like IT, pharma, bulk drugs, biotech, automobile and auto components, petroleum and petro-chemicals, chemicals and fertilizers to apparel and textiles, gems and jewellery, research and development and energy saving devices. Multinational giants across each sector, like BPL, Electrolux, Mahindra and Mahindra, Skoda, and Dr. Reddy’s Laboratories also have significant presence in these areas.

 

Due to the availability of trained manpower, world-class research and development institutions, infrastructure, funding agencies and public infrastructure, Hyderabad also dominates the pharmaceutical, biotech and bulk sectors. Contributing to one third of country’s bulk drug production, Hyderabad has at least 2500 companies in the pharmaceutical and bulk drugs sector. They include the Hyderabad Eye Research Foundation, Matrix Laboratories Ltd and Hetero Drugs Ltd, earning Hyderabad the title of the ‘Bulk Drug Capital’ of India, as well as the ‘Pharma Capital of India’.

 

After achieving major feats in the IT, pharmaceutical and bulk drugs sector, Hyderabad focused on the biotech sector. Today the biotech industry in Hyderabad is worth Rs.455crore and contributes to approximately 10% of the size of the industry in India and accounts for 24% of the total biotech revenue generated by companies in south India. Known for its unique and highly skilled breed of entrepreneurs, according to the BioSpectrum-ABLE Top 20 survey (2005), out of the top 20 home-grown biotech companies, six are from Andhra Pradesh, namely Shanta Biotechnics, Bharat Biotech, Krebs Biochemicals, Indian Immunologicals, Biological E, Dr Reddy Labs which contribute approximately Rs.280crore to the industry.

 

Mr Kannan says: “As one of the most sought after destinations in the pharmaceuticals and biotech sectors, the state government is focussing on both these sectors and also plans to emphasise other sectors such as food processing, chemicals, marine, textiles, IT, communications and hi-tech manufacturing for the next three to five years. Healthcare, pharma and agriculture sectors are not hit by the slowdown,” he adds.

 

The Indian pharmaceutical sector is positioning itself to be among the top five centres of global innovation as the Indian pharmaceutical industry is expected to grow from US$5.5bn to US$25bn by 2010 and to a whopping US$75bn by 2020. The Department of Pharmaceuticals foresees annual investments of about US$2bn, under the PPP model.

 

Besides massive investment plans taking place in the Pharma Capital of India, due to the strong presence of world class healthcare providers and hospitals in every area of specialisation like the famous Apollo hospitals, medical tourism has emerged as a major opportunity too. In the next two years Hyderabad also plans on setting up two premier biotech institutes - the Centre for Stem Cells Research and the National Animal Resource Facility for Biomedical Research.

 

Manufacturing in AP

 

 

 

Adding another jewel to its crown, Hyderabad opened India’s first exclusive semiconductor manufacturing SEZ, FABCity with an investment of US$3bn in 2008. FABCity is India’s first state-of-the-art biotech cluster spread over 600sq km. Genome Valley is another example of committed progressive governance. This facility provides world-class infrastructure to over 100 biotech companies including Nektar Therapeutics and United States Pharmacopeia and is a true sign of the times ahead.

 

 

 

 

 

 

 

 

 

 

 

 

 

Existing SEZs in Andhra Pradesh (picture heading)

 

                          

 

Source: AP invest & FICCI (SEZs in 2007)

 

 

With global leaders and business delegates, like George W. Bush, Bill Gates, Bill Clinton and Tony Blair making regular visits to Hyderabad and with many conferences and meetings taking place in the city, Hyderabad features as a preferred MICE venue on the global map. In order to encourage more visitors, in March 2008, Hyderabad began operating Rajiv Gandhi International Airport (RGIA), one of India’s largest green field airports. It is spread over 5,400 acres and has already been named as one of the best airports in terms of service.

 

Despite the economic slowdown, “Hyderabad is a happening place,” insists Mr. Kannan, describing the city in light of the plethora of developmental activities currently taking place in every sphere of economic activity.

 

In the beginning of 2009 the state government opened the first phase of the city’s main road called the Outer Ring Road (ORR) with an estimated cost of Rs.6786crores, in order to ease traffic congestion. Other projects in the pipeline include the Elevated Expressway Project (EEP) costing Rs.600crores, which is expected to be completed by mid 2009, and by 2012 the Rs.12132crores Hyderabad Metro Rail Project (HMRP) is expected to reach completion.

 

Currently, the SEZs investment in India is the second highest area of investment after infrastructure, which is 36% in total private infrastructure investment. “It is not surprising that Andhra Pradesh has received approvals for 99 SEZs in various sectors, which is the highest amongst all Indian states,” says K. Praveen Kumar. These SEZs are expected to bring in an investment of US$31.25bn. The resultant employment generation, both directly and indirectly, should be over 4 million.

 

Mass media

 

As prospects of the Indian Media and Entertainment (M&E) sector are estimated to grow to about US$11.6bn by 2013 – twice its current size - global media and entertainment companies such as Walt Disney, The Warner Group, Viacom, Sony Pictures Entertainment, The Financial Times and the Dow Jones are getting ready to enter the market by either acquiring a stake or partnering with an Indian counterpart.

 

Hyderabad currently has the second largest film industry in the country, called Tollywood and is home to the world's largest film studio, the Ramoji Film City. Hyderabad also has plans to set up India’s first ‘Digital Entertainment City’ where animation companies, film production houses, music/TV studios, training academies, regulation support office and an entertainment complex will all be present under one roof. S.K. Joshi, secretary to government, Information Technology and Communications Department is confident this will cement the city’s position in the M&E sector. “The Digital Entertainment City will facilitate the development and establishment of a world-class infrastructure to encourage the growth of the media industries in the capital state of Andhra Pradesh.”

 

In other sectors, future investments include a textile park, an aero park and an auto park. Changing the city’s skyline will be the tower of Andhra Pradesh Industrial Infrastructure Corporation (APIIC). The 450-metre tall, 100-storey building will be the tallest in India and is due for completion in 2010.

 

 

Investor hotspot

 

The impact of economic growth has positively reflected on human development and with more resources available in sectors like health, education and nutrition the state expects to improve living standards by emphasising on inclusive growth for both urban and rural areas and plans on achieving full literacy by 2015. With a projected population of 7.5 million by 2015, unlike other Indian states, the economic and infrastructure development of Hyderabad is growing hand in hand and making the city greener and cleaner with time.

 

With these projections Mr Kannan is full of optimism for the future. “As an investor friendly state we have provided the best infrastructure, best location and best state policies for prospective investors in all industrial sectors in the past and have achieved high economic growth. We plan on keeping up the good work and achieve major sustainable growth and development in future too.”

 

Named the model city of India, Hyderabad is a perfect cocktail of history, culture and architecture shaken and stirred with a thriving IT revolution, topped with a wave of pharmaceutical and biotech companies. Hyderabad offers not only unlimited opportunities, but also a cosmopolitan way of life amidst the traditional and the contemporary, making the city a hotspot


[1] Assocham 2009 – Associated Chambers of Commerce and Industry of India

[2] ICRA – Credit Rating Agency of India

 

[3] AP invest – Government body which facilitates investments in Andhra Pradesh

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