India's emerging cities

Cities are engines of economic growth around the world, and India is no exception. Some recent reports from international consultancies shed light on India’s emerging cities, and the huge role they will play in the country’s economic future.

The established metros – Mumbai, Delhi, Kolkata and Chennai – are traditionally top-of-mind for foreign companies wishing to enter India. These have been joined by relative new-comers like Bangalore, Ahmedabad and Pune as attractive business destinations. But India’s urban landscape is much larger than this. India has 42 cities with a population of more than 1 million people. By comparison, Europe has 35.

For New Zealand companies attracted to India, it makes sense to look at opportunities outside the top tier of Indian cities. With the more developed markets of the big metros comes stiffer competition and higher costs (rents, professional services, traffic congestion). And the scale needed to serve these markets may be beyond the reach of many New Zealand companies.

Fortunately, India’s has host of thriving tier-II and tier-III cities with buoyant markets, and increasingly well-developed infrastructure. In May 2010 Ernst & Young published a report on emerging cities in India, detailing their rising purchasing power and new consumption patterns.

Tier-II and tier-III towns account for 73% of urban consumption. Recently, new mall openings and sales of refrigerators and washing machines been growing twice as fast in non-metro cities as they have in the metros. Advertising expenditure has also been ramping up in non-metro cities, from 30-35 percent of the urban advertising spend in 2007 to 40-50 percent today.

In contrast to their former conservatism, Indians in tier II & III cities are increasingly willing to flaunt their new-found wealth. In the city of Aurangabad, in north-west Maharashtra, wealthy entrepreneurs and car enthusiasts came together earlier this year to place an order for 150 Mercedes-Benz cars. At Rs. 65 crore (about NZ$20m) it was the highest-value car deal ever in India. Recently, the same group booked 101 BMWs, to be delivered in January 2011.

India’s urban transformation is only just beginning. Earlier this year the McKinsey Global Institute has also reported on India’s urban development. Among the highlights:  

• 590 million people will live in cities by 2030, up from 290 million today
• 70% of new jobs created between now and 2030 will be in cities
• cities will account for 70% of India’s GDP by 2030
• India’s cities will require USD 1.2 trillion of capital investment to meet their development needs.

If you want advice about opportunities in India’s emerging cities or where to locate your venture in India, contact us.