Indian cities as investment destinations

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New Delhi | Published: July 19, 2018 3:02 AM

Indian states, and not Indian cities, are in control of labour, power, water supply and infrastructure related issues.Thus, cities continue to flounder when it comes to reaching out to the world.

Successive generations have exalted the virtues of their cities.

At the end of the Thirty Year War in 1648, European states arrived at a form of international order which continues to impact lives till today. The Thirty Year War ended with Peace of Westphalia, a composite term for three treaties signed in the Westphalia region of Germany. Apart from other terms for peace, it established states, and not religion, dynasty and tradition, as the basic and fundamental concept of global order. It created the concept of sovereign nation states—wherein all nation states had complete control over their domestic affairs and each nation state was considered equal. Fast forward 350 years into the 2000s, international political economists had begun to claim that such a form of nation states is fast losing its relevance due to rise of non-state actors—multinational corporations, non-government organisations, terrorists and cities. Barring the last actor, this was a timely and appropriate assessment. Cities, even before the Thirty Year War, were distinguished features of all great empires and countries. In many cases, the majority of wealth and power resided in such cities. Rome, Delhi Sultanate and Constantinople before the 17th century, and the rise of London, New York, Vienna, Berlin and Paris in the 18th and 19th centuries are some of the examples.

Successive generations have exalted the virtues of their cities. Songs like “Yeh hai Bombay Meri Jaan” by Mohammad. Rafi, “New York, New York” by Frank Sinatra, and many others are examples of the emotional impact that cities have on its residents and on the people aspiring to live in it. It could be argued that people identify themselves as “Delhiites” or “Mumbai-kars” or “London-ers” more often than with the country they are living in. The emergence of a strong city may partly depend on a robust national administration, but it is the local administration and its ambition that makes it stand out among other similar cities in the country or the world. When one moves out of their home town for pursuing their career or education, a large part of their consideration depends on the city their new job or university or college is located in. It is thus only natural then that investors looking to invest in places outside their local area of influence, would gravitate towards cities which offer ample opportunities and regulatory comfort to them.

It is interesting to note that cities around the world have now started coming forward to promote themselves as a destination for skilled labour, investments and trade. Various cities have set up dedicated investment promotion arms which actively engage with potential investors, businesses and skilled personnel from around the world. Examples of such promotion agencies include Hamburg Invest, London and Partners, Invest in Cardiff and Invest in Manchester among many others. Some of these agencies have representatives in various regions and cities around the world. Apart from promotional efforts, these agencies and their representative offices serve as a local point of contact for existing and prospective investors and businesses, sometimes hand-holding them as they plan their strategy for engaging in the city.

Against this backdrop, it is imperative to see how India attracts investment—do states take precedence or do cities matter when it comes to attracting investment. Invest India, the national investment promotional body, is structured by states and sectors. At the state level, the large-scale, summit-style model of attracting investments was mastered by then chief minister of Gujarat, Narendra Modi. The event ‘Vibrant Gujarat’ had sort of become an annual ritual watched by the entire India. The big Indian business houses and global corporations, year after year, pledged billions of dollars’ worth of investment. After the wide acceptance of successive editions of Vibrant Gujarat, now, atleast half a dozen states hold similar summits—Resurgent Rajasthan, Bengal Global Business Summit, Invest Karnataka, Happening Haryana, Progressive Punjab, Magnetic Maharashtra and UP Investors Summit. Besides the high political dividends that these events yield, there is little evidence of how much actual investment has been received as a follow-up. This leaves us to the question of why there is no single city in India—including Mumbai, Delhi and Bangalore, that has undertaken an initiative to attract global capital.

The answer is two-fold. First, the present urban governance in India is a hodgepodge of administrative overlap among mayors, municipal corporations and parastatal agencies. Very few cities have directly elected mayors with a stable tenure, a clear mandate and sufficient power to undertake initiatives focusing on cities. Second, non-fulfilment of promises of the 74th Constitutional Amendment Act (CAA) is a key obstacle. The 74th CAA provided for further decentralisation in city governance by providing constitutional status to urban local bodies and mandating devolution of 18 critical functions as defined in Schedule 12. However, the reality is that states have not fully, or even significantly, devolved these functions to the cities. Indian states, and not Indian cities, are in control of land, labour, power, water supply and infrastructure related issues. All these are critical requirements for cities to attract long term investment. In the absence of control over such issues, cities continue to remain introverted when it comes to reaching out to the world.

We must recognise that India is a complex and vast country. Investors, both domestic and foreign, could be overwhelmed by the sheer scale and size of India. Investment promotion by cities could be a great way to help them focus their efforts and give them confidence about the ease of doing business given the support of the local administration. With the global audience looking upon India as the beacon of future growth, it would be opportune for states to unshackle their cities so that they can step up and reach out to these investors and businesses proactively.


Devashish Dhar & Vaibhav Kapoor. Dhar is a public policy specialist at NITI Aayog and Kapoor is an investment director for a UK-India venture fund based in London. Views expressed are personal.

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