Indian non-metros lure global investors

The abundance of skilled talent, robust business environment, infrastructure growth and attractive state government policies are driving global investments into non-metro cities.

November 15, 2018

Global companies have invested billions of dollars across Telangana after its new industrial policy was released in 2015

State specific investment policies, investor friendly climate and talent pool are differentiating one state from another

As per the latest World Bank report on Ease of Doing Business, India has been ranked in the top 100 countries in 2018

The Ease of Doing Business ranking of Indian states is led by Andhra Pradesh, Telangana, Haryana, Jharkhand and Gujarat

In the three month period between April and June, 2018, Karnataka, and more specifically Bengaluru, saw foreign direct investment (FDI) inflows worth US$1.7 billion. This is not surprising as the state saw a four-fold increase in FDI inflow at US$8.5 billion in 2017-18 over US$2.1 billion in 2016-17, thanks to funds flowing into the start-up and IT ecosystem that Bengaluru is known for. According to data published by the Reserve Bank of India (RBI), bulk of the FDI came into the services sector, closely followed by computer software and hardware, and telecommunications.

Interestingly Hyderabad, the capital of the newly formed Telangana state, which also boasts of a strong IT software and services sector, is proving to be a strong contender. The Hyderabad office of RBI (which includes reporting from both Andhra Pradesh and Telangana) has reported FDI inflows of US$1.5 billion in the April-June 2018 quarter, which is already higher than the US$1.2 billion for the complete year of 2017-18. Global companies invested billions of dollars across Telangana after its new industrial policy was released in 2015. Services, telecommunication and financial technology led the spike here.

Clearly, India’s cities, other than the large metros, are well poised to lead the FDI charge. State specific investment policies, investor friendly climate and a remarkable talent pool are differentiating one state from another.

Strong metrics attract startups

With a thriving start-up scene and unabated interest of venture capital funds, the growth in Bengaluru, popularly called India’s Silicon Valley, looks unstoppable. Karnataka’s Startup Policy focuses on single window clearances while providing entrepreneurship support and world class infrastructure facilities. This coupled with the Government of India’s Startup India mission, is showing results. Bengaluru today has the fastest growing cluster of IT and biopharmaceutical companies. In fact, the city is on the path to becoming the largest IT cluster worldwide by 2021.

The hard-to-ignore demographic dividend of India keeps growing exponentially. As data from the ministry of statistics and programme implementation shows, more than 38 per cent of the Indian population is below the age of 35 and highly educated. This has remarkably increased India’s appeal among global investors. Many Indian cities are reflective of this growing trend. They are quickly becoming worldwide hubs for global brands in India. Hyderabad is one of them.

The city ranks among the top 10 in terms of incubators and supporting new businesses. A fast track 15-day industry clearance policy and innovative models like THub are enticing international companies to set up their operations in the state. T-Hub is a global startup catalyst that powers entrepreneurship and deal flow.

As per the latest World Bank report on Ease of Doing Business, India has been ranked among the top 80 countries

Global healthcare services and insurance company Anthem has recently announced its plans to set up operations in Hyderabad. United Health Group, one of the world’s biggest insurance companies is already present in Hyderabad, occupying more than 830,000 square feet space in the city.

Micron Technologies, the global semiconductors manufacturer, recently announced an investment of US$41 million, while leasing almost 1,80,000 lakh square feet in Hyderabad. Skilled human resources, the state government’s pro-business policies and related skill training and development initiatives is making Hyderabad a destination of choice for global investors.

Upcoming projects in non-metros

Similarly, Vishakhapatnam, the coastal and capital city of the newly defined Andhra Pradesh, is waiting in the wings. A strong coastline and shipping industry beckon manufacturers to set up their Asia bases here while financial technology firms have their eyes on the highly skilled local talent. The government-sponsored, Indian Institute of Digital Technology in the nearby city of Tirupati provides a steady stream of immensely talented and specialised workforce for the technology companies who are basing their data and blockchain practices here.

Fintech Valley is an innovative global ecosystem, partly funded by the state government, which provides a launch pad for global firms. It is a self-sustained model of entrepreneurship with excellent infrastructure and government support which has managed to attract 28 global companies till 2018. Following in their footsteps, Conduent Incorporated, a US business process provider, opened its ninth office in India. More than 5000 employees are expected to be hired to handle its Indian operations. Pena4Tech, the Indian arm of Pena4 Inc, has its largest facility in the city.

The upcoming Metrol Rail project and the proposed Visakhapatnam-Chennai Industrial Corridor is making Vishakhapatnam an even more investment attractive destination. Not far behind are cities like Ahmedabad. According to data from the Department of Industrial Policy and Promotion, the state of Gujarat and the city of Ahmedabad received investment proposals worth US$10 billion in 2017. Besides the Ahmedabad Mumbai high speed corridor, Gujarat is also building a GIFT (Gujarat International Finance Tech) city with a multi-service SEZ and an exclusive domestic zone. This is expected to be a fully integrated city with top of the line facilities – people, connectivity, technology and legal support.

As per the latest World Bank report on Ease of Doing Business, India has been ranked among the top 80 countries in 2018. Quite significantly, this is the first time, India stood first among all 64 South Asian nations. In this worldwide study, World Bank objectively compared more than 180 countries under various parameters and business regulations to measure the ease of doing business. Within India, the state of Andhra Pradesh topped the charts.