India's New 'Motor City' Rises from the Dust

April 30, 2012
In the western state of Gujarat economic growth hit 10.5% in 2010-2011 compared with 8.4% due to automotive companies and their suppliers.

The first sight of India's newest "Motor City" is a collection of giant blue-and-grey structures, windowless boxes in corporate colors that are the hallmark of modern manufacturing. The warehouses and machining plants, walled in on an enormous site of more than 1,000 acres, are owned by Tata Motors (IW 1000/185) which moved to the western state of Gujarat in 2008 to start producing its Nano small car.

A short distance up the road in Sanand, an hour's drive from the state's biggest city Ahmedabad, teams of laborers, drilling rigs and trucks are preparing the foundations for a new $1.0 billion Ford (IW 1000/16) facility.

Rising from the dust opposite fields of swaying wheat is a new global car-manufacturing hub, the sort of industrial project which politicians in India often talk about creating but have seldom delivered. Michael Boneham, an Australian who heads Ford in India, lists the reasons for investing in Gujarat and in the process highlights some of the failings of other states. The easy availability of land was "critical" -- Ford did not want to risk the sort of protests that have blighted industrial projects elsewhere -- and he has nothing but praise for the local government.

"I'd call them business-like. We've set up a two-weekly and now monthly meeting with key project leaders," the India managing director said. There are assignments, timings, and there are commitments that are met, which is what impresses me. The government also has transparency which is important for us, and accessibility."

Reliable power supplies, decent infrastructure and ports by Indian standards, and the availability of educated labour were the other factors that tipped the decision on where to locate Ford's second Indian plant, which will open in 2014.

Accompanying the Detroit-based group will be 19 automotive suppliers who are set to build factories and train workers, in the process creating the sort of corporate ecosystem that looks set to attract other manufacturers.

Further up the road, French car manufacturer Peugeot (IW 1000/43) has chosen a plot of land for its first factory in India -- a proposed $850 million investment -- but its plans are on hold due to the debt crisis in the eurozone.

Maruti Suzuki, India's biggest car manufacturer, is pressing ahead with a factory elsewhere in Gujarat -- in Mehsana, close to the Mundra port -- while motorcycle group Hero has also picked the state for its fourth factory.

"Power was a big consideration (in choosing Gujarat)," Shinzo Nakanishi, Maruti Suzuki chief executive, told AFP in an interview at the India auto show earlier this year.

"Other than Gujarat, states have a problem of power supply," he added. "Also the quality of the manpower is good... and it was close to the port, our own port."

Maruti's operations have traditionally been focused in northern Haryana state, while the other main Indian car-making hub is in southern Tamil Nadu where Ford, Hyundai (IW 1000/27), Renault-Nissan (IW 1000/73) and Michelin already have factories.

The arrival of global car manufacturers has been a boon for Gujarat's ambitious chief minister Narendra Modi, a right-wing Hindu nationalist who holds a much-hyped annual "Vibrant Gujarat" summit to attract investors. His record as a no-nonsense business-friendly leader is expected to be part of his eventual pitch to become prime minister -- a task made difficult by his association with religious riots in 2002 that left more than 2,000 dead.

Gujarat will soon have Asia's biggest solar park and a state-sponsored scheme to build a banking and finance hub with more office space than the financial districts of Paris, Tokyo, London and Shanghai is underway.

Economic growth in Gujarat has consistently outpaced India's as a whole over the past decade, hitting 10.5% in 2010-2011 compared with 8.4% for the country, official figures show.

Critics say Modi's achievements during his 11-year rule are not what they seem, however, relying too heavily on undisclosed and over-generous inducements to attract companies. The Caravan current affairs magazine reported in March that Tata will retain the money it owes in taxes from its factory and only start paying it back after 20 years -- at an interest rate of 0.1%. But if the chief minister's economic record and methods remain contentious, few doubt his vision.

An estimated two thirds of India's vast 1.2-billion population continue to scratch out an existence on small family farms. Creating a thriving manufacturing sector is vital if the country is to raise incomes and offer job opportunities to its increasingly numerous and young workforce whose aspirations are changing, economists and government planners say. "We need to create eight to 10 million jobs every year over the next decade to absorb the expected growth in the labor force," Indian Prime Minister Manmohan Singh reminded delegates at a recent emerging markets summit.

Copyright Agence France-Presse, 2012

Popular Sponsored Recommendations

Voice your opinion!

To join the conversation, and become an exclusive member of IndustryWeek, create an account today!