Tier II, III cities to power future growth: Cushman & Wakefield

R. Y. Narayanan Coimbatore | Updated on October 29, 2012 Published on October 29, 2012

With the economic growth in seven top cities in the country beginning to saturate, a number of tier II and III cities have come into reckoning as the growth engines of the future.

What is aiding this is the increasing disposable income of the people that has created immense opportunities for companies looking out for new markets to grow, according to a study by Cushman & Wakefield Research.

Per capita GDP

In its report ‘Top 10 Emerging Business Destinations in India’, C&W said that facilitated by a host of factors like globalization, rapid economic reforms and robust growth in domestic and international markets, Indian economy has undergone a metamorphosis. It had taken India, as pointed out by a recent study of the American National Standards Institute, a mere 16 years to double its per capita GDP where as United Kingdom took 200 years, and the US around 50 years, to do so.

The report attributed this to the growth recorded by the services sector which contributes nearly 57 per cent of the GDP. Indian economy has now become a `case study for understanding how an economy can bypass the conventional models of economic growth to move from an under-developed / developing economy stage towards a developed economy stage’.

Urban centres

C&W report pointed out that much of this economic development had been powered by the urban centres of India. The 53 cities with a population of more than a million each (as per 2011 census) were the catalysts for the economic activities including manufacturing, trading and services. While the top seven cities- Bangalore, Chennai, Delhi (National Capital Region), Hyderabad, Kolkata, Mumbai and Pune- accounted for a large share of the development, there were other cities showing economic momentum. But as the top seven top cities have “started to saturate”, many industries catering to manufacturing and services sectors were looking at other cities for growth.

What drew the companies to these smaller cities was the availability of talent pool at a lower cost, reasonable real estate prices and a “conducive business environment” created by State and local governments. The fast industrial growth and increase in growth of services sector activities has led to higher disposable income and changing lifestyles. This has created greater opportunities for diverse industries as they evaluate newer opportunities.

Tier II and III cities, because of “outstanding performance” in skill-based manufacturing industries such as automotive, consumer and capital goods, engineering, textiles, pharmaceuticals and sectors such as biotechnology and  IT/ITeS, have witnessed further industrial growth paving the way for rapid urbanisation. 

Parameters considered

Cushman & Wakefield Research to identify the top 10 emerging cities took into consideration aspects like demographics, physical, social and real estate infrastructure, current level and scope of economic activities and government support and initiatives to determine the growth opportunities. This resulted in Ahmedabad, Bhubaneswar, Chandigarh, Coimbatore, Jaipur, Kochi, Indore, Nagpur, Vadodara and Visakhapatnam coming up trumps as the winners.

Referring to Coimbatore, the report said as it has more than 25,000 small and medium enterprises (SMEs) and has “one of the most vibrant economies in southern India”. Apart from being home to a large number of textile, engineering, foundries, pumps and auto component industries, it is “emerging as an alternative IT/ITeS and biotech destination” in the southern region. 

The report said each of these top tier II/III cities had “unique profile and inherent advantages” that were specific to the needs of an industry or business. They offered “tremendous diversity” in terms of location, size, demographics etc. For instance, while Visakhapatnam was suitable for industries such as mining, heavy manufacturing etc, Kochi  has emerged as a strong IT/ITeS and trading destination. While Ahmedabad was attracting investment in the manufacturing sector Jaipur was seeing significant service sector investments. 

Strong govt support

But what binds these cities was the strong government support to broad-base the local economies with strong policy support. Almost all of them are planning to improve the urban infrastructure by upgrading airports, building better mass rapid transport systems such as BRTS and/or metro rail etc.

However, the report cautioned the industries against adopting the same approach to all cities and advised a customised strategy tailored to the needs of each of them. These cities were at a “critical juncture to leapfrog into the forefront of attracting investor interest and demand”. There was scope for new entrants as well as existing players to prosper since many of the bottlenecks faced by entrepreneurs in the top seven cities were absent in these promising tier II and III destinations, it concluded.

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Published on October 29, 2012
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