India's Hot Cities

Suddenly, they're outshining much bigger towns--without the blight

Ten years ago, the South Indian port city of Madras was so quiet that most of its inhabitants were asleep by 9:30 p.m. No more. Now, restaurants such as Senor Pepe's Tex Mex and Pizza Corner draw diners until midnight, and people of all stripes dance into the wee hours at the trendy Gatsby 2000 disco. Some 60 new software development companies have sprung up, lured by the city's promise of an educated, industrious workforce. Booming businesses making auto parts, trucks, textiles, and chemicals have created 2.7 million jobs in the area. With more than $11 billion of proposed new investment--surpassing even Bombay--Madras is becoming an industrial powerhouse.

To many investors, India these days may look like a mess--paralyzed by fractious politics and a cumbersome bureaucracy, its economic growth slowing along with the rest of Asia. Yet cities such as Madras are generating good news in bad times. Several of India's once sleepy provincial cities are emerging as new lures for investment. Madras, Pune, Hyderabad, and Ahmadabad are among the hottest destinations around. Together, they have lured about $18 billion worth of new investment projects--nearly five times as much as India's capital.

What these cities have in common are lower real estate prices, quality universities that produce educated professionals, less-bureaucratic local governments willing to take risks, and dedicated workers. They lack the overcrowding and other urban blights of New Delhi, Bangalore, and Bombay, and they have room for expansion into outlying areas. With national politics paralyzed by instability, these cities are seizing the moment and cutting deals that will spur their growth for decades.

FOREIGN TIES. Much of the boom is driven by entrepreneurial, outward-looking companies. These businesses are boosting exports and forging ties with foreign partners. Pune-based Thermax Ltd., for example, is an environmental engineering company that has joint ventures with Fuji Electric Co. and Culligan International Co. to make water- treatment systems. With foreign sales of $20 million last year, the $185 million Thermax plans exports of $100 million in the next few years.

Not that they don't have their problems. Earlier generations of bureaucrats ignored urban needs and let infrastructure crumble. But now, cash-strapped city governments are working to enhance revenues to alleviate traffic-jammed streets, improve sewage systems, and encourage affordable housing.

Yet these cities want to earn a place on the world economic map. "Pune is not just competing with Bangalore," says Neela Khandge, of the Pune-based Maratha Chamber of Commerce. "It's completing with Dublin, with Boston, with Tel Aviv." That assessment may be optimistic, but early investors are convinced others will follow. "We are on the frontiers," says Sam Singh, managing director of Thapar Dupont Ltd., which commissioned a $100 million industrial nylon plant near Madras. "Those of us here right now can take pride in being the pathfinders."

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