Hyperabad

It has a Hi-Tech City and several software companies for tenants. But is all the hype surrounding Chandrababu Naidu's Hyderabad worth it? With Naidu yet to deliver on his promised infrastructure projects, many of the city's new corporate guests are beginning to have second thoughts.

By E. Kumar Sharma

At first, show the door to an investor and then woo him by rolling out the red carpet to welcome him. That may sound bizarre to explain but it is still perhaps more difficult to achieve. Andhra Pradesh has done that too in wooing investors by taking a U turn to woo Infosys into investing in Hyderabad. Stunned by the initial lukewarm response, way back in 1995, the Infosys scouting team was sceptical and in two minds when the wooing began a second time.

Finally, it took the bait with Andhra Pradesh offering almost as much land as the company has in Bangalore. Chief minister N. Chandrababu Naidu, called endearingly as the CEO of the state by the corporati, is virtually escorting Infosys as it comes into the city after setting up shop in Bangalore, Pune, Bhubaneswar, Mangalore and Chennai, Mohali and Mysore. It was hardsell for the Andhra persuaders as they held a series of meetings spread over three years before the Infosys managing council was convinced and chairman & chief executive officer N.R. Narayana Murthy gave the final nod. The state's gain is an investment of Rs 180 crore and about 2,500 jobs in the next three years.

Infosys is only one example of the hard selling that is now Andhra Pradesh. ``We walk our talk,'' says Naidu to all his potential investors while holding out a mix of promise and performance. Hyderabad is being pitched as an ideal investment destination and one that fits the bill on general infrastructure, ethos, tourism, lifestyle, low cost of living and a government functioning mechanism that has an emphasis on e - governance. No city, at least the bigger ones in the country, offers its residents OTC facilities equipped with computers to pay utility bills and even pick up driving licences. Four citizen-friendly infotech programmes-TWINS, CARD, COMPACT, and Mee Kosam---are already underway in Hyderabad. TWINS (Twin Cities Information Services) provides a one-stop shop for 18 services, ranging from issuing licences to paying property-tax. CARD (Computer-Aided Administration of Commercial Taxes) helps register and value real estate. COMPACT stands for the computerisation of commercial taxes. And, Mee Kosam ('For You' in Telugu) gives details about welfare programmes together with information about the functioning of government departments. The modus operandi: use the Net and other infotech systems to create electronic networks at all points of contact between the people and the government.

Even the government departments are getting into the act. The Commissioner of Commercial Taxes is using computers to improve collections and track possible evasion. The transport department is also trying its hand at e-administration. It is ready to launch a networked solution for all transport blues. FAST (Fully Automated Services of Transport) for instance, is meant to ensure that all the services of the transport department such as issue of driving licenses and registration of vehicles are made using IT.

While the bureaucracy is gearing up to increasingly rely on the chips and bytes rather than the traditional red-band files to deal with the issues of the submerged classes, the city residents are experiencing a distinct upscaling in lifestyle. An interesting example is the number of watering holes and dance floors that emerged for New Year's Eve though it is still a no-no with Naidu when it comes to opening pubs. Shopping avenues have opened up with Shoppers' Stop picking Hyderabad for a cavernous outlet larger than it has in Mumbai or Bangalore. Says B.S. Nagesh, 42, Managing Director and CEO, Shoppers' Stop Limited: ``We see the influx of the right kind of customers in Hyderabad. We are touching the maturity curve in Bangalore in the fifth year of operations where as there is still room for growth in Hyderabad where we are in the third year.''

Shoppers' Stop is not alone in realising this. Lifestyle opted for the city, instead of going to Bangalore, after it opened first in Chennai. Bookshops like Crossword and Gangarams are making their presence felt. RPG group's Food World chain is growing fast enough to encourage the company to add ten to the existing twelve stores by the end of the year. ``We are very bullish on this market and the response has been very good. In fact, we plan to set up the first of our hypermarkets---a first-of-its-kind big cash-and-carry store with items priced cheaper than any super market---in Hyderabad by May,'' says Sanjiv Goenka, 40, Vice-Chairman, RPG Enterprises, which owns the Food World chain. Involving an initial investment of between Rs 10 crore and Rs 15 crore, the hypermarket would offer not just groceries and provisions but also garments, home appliances and packaged food. It is not just the supermarkets but the city now has some exclusive music shops that rival the best in Mumbai. Evidently, the Hyderabad or the neo-Hyderbadi has more money and is spending it.

On the business end, the city no longer has the look of a laid-back capital of the Nizams. House to software development centres of some of the global giants like Microsoft, Oracle and Ericsson, a home to around 20 ISPs and 287 cyber cafes registered with the association of cyber cafes, major research institutes, a knowledge park and now gearing up to create a biotech and a hardware park, the city is now positioning itself as the IT and knowledge hub of the country. The city is in fact known for its academic and research institutes. It has eight universities and 28 National Level Apex Research and Training Institutions, premier centres of excellence like Centre for Cellular and Molecular Biology (CCMB), National Institute of Nutrition (NIN), Indian Institute of Chemical Technology (IICT), National Institute of Fashion Technology (NIFT) and many more.

Naidu is credited for transforming Hyderabad to Cyberabad and is in the process shifting tourist focus from Charminar to Cyber Towers, the crown jewel of his Hi-Tec City project. The city, which played host to US President Bill Clinton, has nevertheless still a lot of catching up to do with its software exports expected at Rs 2,000 crore this year still way short of the Rs 7,000 crore that Bangalore is expecting this year.

Even within the IT sector, critics see the focus of the new investors more on tapping the back-end or opportunities in the IT-enabled services than on high-end product development. Among the recent arrivals are GE Capital (which has occupied two floors of the 10-floor Cyber Towers for its back-office IT-enabled services) and HSBC, which has set up a data processing centre at the Hi-Tec City. Yet, there is a yawning gap in crucial connectivity. Andhra Pradesh ranks only sixth in the country in terms of internet connections. As of June this year, the state had 63,902 Internet connections and therefore positioned after Maharashtra (with 4,52,948 internet connections), Delhi (2,26,587), Tamil Nadu (2,14,178), Karnataka (1,39,370) and West Bengal (1,14,221).

But still, entrepreneurs feel, while many of the investors who have already made a presence in other cities like Mumbai, Bangalore, and Chennai might want to expand their operations there, all new investors are bound to include Hyderabad on their investment map. Says Ramesh Gelli, 54, Chairman and Managing Director, Global Trust Bank, head-quartered in the city: ``The state is certainly very proactive in its approach to investors and there are many factors that favour new investments finding their way to Hyderabad as the communication infrastructure has improved significantly and the cost of living is still low in the city.'' ''However, the flip side is that the state has still to catch up on the industrialisation front simply to tap the huge employment spin-offs it offers,'' he says.

Incidentally, the Gellis have just signed up with the state government to set up a Global Institute for Insurance and Finance (GIIF), with an initial investment of Rs 10 crore. The institute is in the process of tying up with some leading international organisations to provide a wide range of programmes and content in insurance education.

Officials, however, argue that in the din of developments in IT, the state has not glossed over the needs on industrialisation. ``There is lot of action as there are number of projects that are coming in the field of agro-food processing, compressor manufacturing, auto, bio-technology or textiles,'' says State Principal Secretary (Industries), Sheela Bhide, 52, who sees Hyderabad also emerging as a major compressor manufacturing centre in the country. She refers here to Tecumseh Products, an American Company which is the world's largest independent compressor manufacturer has one of its plants in Hyderabad manufacturing 400,000 compressors per annum for the domestic and international markets. It has invested Rs. 1000 million (US $23 million) in the unit it took over in 1997. It is investing another Rs 2,000 million (US $46 million) in a phased manner. Then there are two other compressor manufacturers also located in Hyderabad---BPL with a capacity of 700,000 compressors and Electrolux with 350,000 compressors a year. The Swedish white goods giant Electrolux has entered into a joint venture with Voltas to manufacture state-of-the art refrigerators at their factories in Hyderabad and at Nandalur in Cuddapah district 600 kms away.

In other areas, there are projects such as Kirby Building Systems, a company based in Kuwait has set up a unit for the manufacture of pre-engineered steel structurals near Hyderabad at a cost of Rs 500 million (US $12 million). Though Hyderabad in particular and Andhra in general missed the auto boom to Chennai, within the state, there are today large- and medium-scale auto-component manufacturers producing a range of components such as leaf springs, pistons, cylinder liners, nozzles, delivery valves, starter motors, alternators, electronic regulators, high pressure die castings, clutch covers, fuel filters, front axle for tractors and automobiles, and electrical components. Most of these components are presently being supplied to the leading automobile makers Ashok Leyland, Honda, Maruti Suzuki, Kinetic Honda, Mahindra and Mahindra, Escorts, Kirloskar and Bajaj.

The only major automobile plant is that of Mahindra and Mahindra at Zaheerabad, 108 kilometres from Hyderabad. It can make some 10,000 Light Commercial Vehicles a year. A project to manufacture battery-operated 3-wheelers has been taken up by this unit and the first 3-wheeler rolled out in January, 2000. An example from the agro sector is the project by Krafts Food, a world leader in the manufacture of food products, which is setting up a unit to manufacture sugar-based soft drink "Tang" with an investment of Rs 800 million (US $18.4 million). The construction of the factory building has started and it is likely to go in for commercial production in March, 2001. ``The key point to remember is that we are today among the top few states in terms of attracting investments,'' says T.S. Appa Rao, 48, Commissioner of Industries, Government of Andhra Pradesh. "Our base in terms of investments in the private sector is still low at Rs 70,000 crore (as against say over Rs 2 lakh crore in Gujarat) and our aim is to achieve a figure of at least Rs 1 lakh crore by 2003 and emerge at the top in the next few years. (See Box on Partnership Summit).

More importantly, the city is now focussed on some of the major infrastructure projects, which could very well change the look and feel of the city. They include: the Rs 750 crore Integrated Convention Centre complex with an 18 hole golf course, a MoU for which is to be signed shortly, most likely with ITC; a 5,000 acre Rs 1,000 crore hardware park to be located next to the proposed international airport; a 130-acre financial district coming up near the new mecca in town ``the Hi-Tec City'' to house financial institutions, insurance companies and their back offices and involving an investment of between Rs 50 crore and Rs 60 crore by the Andhra Pradesh Industrial Infrastructure Corporation (APIIC); and the Hyderabad Metropolitan water supply scheme project with a project cost of Rs 175 crore.

``We are currently involved in drawing up the contours for many of these projects with the help of professional agencies and setting up a framework for private sector investment and gearing up so that we accelerate the process,'' says APIIC managing director R. Chandrashekhar, 47. For the proposed international airport project for instance, Tata Economic Consultants of Mumbai, along with their foreign partner, Speed Wing, a division of British Airways, have been appointed as consultants for assisting the state government in selection of suitable partners for development of the International Airport at Hyderabad and Visakhapatnam. The consultants are evaluating the bids of GMR Vasavi Infrastructure Ltd., India along with Malaysian Airports holdings Barhard; and Zurich Airport alongwith Siemens Germany and L&T India and the government's decision will be out before the end of this financial year.

An important source of concern for the state at the moment is its problems on the power sector. Though it was among the first in the country to initiate reforms in the field and get the World Bank to fund the project, the subsidies and losses of the SEB is still a major drain on the state's resources. In the current year for instance, the drain on the state exchequer by way of payment to the SEB is to the tune of Rs 2200 crore. This is after an increase in power tariff, effected recently to yield around Rs 500 crore and assuming the SEB achieves operational efficiency but cutting down T&D losses to result in savings to the tune of Rs 500 crore. In short, the SEB is receiving around Rs 140 crore per month from the state exchequer. Today generating 1,000 MW, which means around 15 per cent addition to the state's generating capacity, could cost Rs 3,500 crore-4,000 crore (about 25 per cent of the state budget). The state is no wonder attracting private investors and has unbundled the SEB into a generating (APGenco) and transmission (APTranco) companies. But still, it has a tall order to achieve with its Vision 2020 document projecting a need for an installed capacity to produce 36,000 MW by 2020. This is as against the present installed capacity of 7341 MW comprising of 5612 MW of its own capacity, 897 MW of share from central sector, 273 MW from joint sector, and 560 MW from private sector. The peak demand met in 1998-99 was 6480 MW. The total number of consumers is about 11millions of which 1.8 millions are agricultural consumers. At present, the cash strapped state is trying to juggle around with its state budgeting strategy where it plans to move from the conventional method to zero-based budget and probably back again to the conventional mode from the year thereafter.

There is also a lot of catching up to do on the urban infrastructure front. The city's general infrastructure is still wanting though it no longer is the laid back city of the 1970s and 1980s. Urban planning is still to cope with the growing numbers with urban agglomeration having some 60 lakh residents. There are number of flyovers but the plan is to go for a mass rail transport system with some international funding. The state has recently signed a MoU with the Railway ministry to take up a Multi-modal Suburban Transport System (MSTS), the phase I of which, involving an investment of around Rs 60 crore, is expected to be completed within a year after receiving the approval from the Railway board. In terms of the general infrastructure, the density of cars and other vehicles on the city roads is higher than in most cities. Incidentally, the numbers of cars sold in the city have been steadily increasing. ``In fact, when the all India sales of Maruti cars dropped by about 20 per cent, the drop in Hyderabad was just 11 per cent,'' says Vinay R. Saboo, 48, Managing Director, RKS Motor, and a Maruti-dealer in Hyderabad. In fact, Hyderabad has almost caught up with Bangalore in the sale of Marutis. While Bangalore put 977 new Marutis on the road in 2000--2001 Hyderabad has put 946 so far. Three years ago Bangalore sold 1,248 cars that are almost twice as much as Hyderabad sold (675) that year.

One distinguishing feature about Hyderabad is the rapid change in lifestyle and the perceptible improvement in the quality of life. But then the real estate prices are dropping after the surge in 1999 and early 2000. Leading realtor firm Cushman & Wakefield says that between January and October, 2000, over 0.5 million square feet office space has been absorbed in Hyderabad, with 60 per cent of this absorption coming from IT and related companies. Significantly, it finds that despite the continuing expansion in the market a majority of MNCs and domestic firms continue to prefer leasing instead of outright purchase of office space.

The city is making a very good attempt to catch up with some of the other industrially advanced regions of the country, feels CII director general Tarun Das, 62. ``In my view there has been a significant change in the perception of Hyderabad. It is in my view a dream city to work for its government's openness to new ideas, willingness to work together and the speed of decision making,'' says Das. A case in point, he says, is the CII's green business centre project to pursue initiatives relating to renewable energy, environment protection, water conservation and use of recycled products. A joint initiative of the CII and the state government with the technical support of USAID, the project spread over 5 acres near the Hi-Tec City is to show case the latest world class green technologies and offer services such as green technology audit, green process certification and social audits. It is to commence operations by the end of the year. To extend the concept and set up real examples of green technologies, products and services, the CII officials mooted the idea of a green park, the chief minister, according to Tarun Das, not only understood the idea quickly but realising the significance instructed his officials to arrange to allot some 1,000 acres for the project.

For a city, which is neither a Sarnath nor a Gaya but has successfully hosted a Lumbini festival last year in the backdrop of the Hussain Sagar lake that now has at its centre the tallest monolith of Buddha in the world, a structure sculpted in the 1990s, the landscape may not be picture perfect as yet but is surely changing very fast.

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