Look beyond India’s economic hotspots…

Rakesh Mohan and Anu Madgavkar look at the Indian maze and suggest we should look beyond the usual growth stories.

India is way too varied to fit in one basket:

investors seeking the best growth opportunities will have to search beyond states’ headline figures and scrutinize India’s districts more closely, especially urban clusters and their hinterlands. We have identified 49 such high-growth clusters, located in 183 districts nationwide. In 2012, these areas accounted for half of India’s population, 70% of its GDP, and 71% of consumers. They are also home to 250 of India’s 450 cities with populations above 100,000.

Interestingly, one-third of these clusters can be found in states that have delivered low to medium economic performance, or are located close to smaller, lesser-known towns in better-performing states. The Nellore cluster in Andhra Pradesh, for example, has paddy, tobacco, groundnut, mango, and sugarcane farms. The Bikaner cluster in Rajasthan is rich in oilseed and the quarrying and production of Makarana marble and limestone. The more diversified Aurangabad cluster, in Maharashtra, is home to some of India’s largest seed companies, an active automotive, pharmaceutical, and sugar-manufacturing industry, and a tourism hub that includes the Ajanta and Ellora caves.

The location of these lesser-known clusters underscores the point that investors, seeking low-cost real estate and a skilled workforce, should look more carefully at India’s economic geography when deciding where to place their operations. These locations could eventually become knowledge-based industry or services hubs, similar to those of large Indian cities such as Bengaluru, Hyderabad, and Pune – only cheaper.

As they continue to develop, India’s dynamic economic clusters will themselves need to invest in modern sanitation and water systems, education and health, airports, railways, and road links. As such, they offer investors opportunities in many sectors, including consumer goods, financial services, housing, and infrastructure.

Given their structural advantages – including proximity to large urban centers for some – these clusters could generate some of the best returns on investment anywhere in India. Companies hoping to catch India’s next growth wave might want to consider areas that seldom feature on investment lists, but that might offer better value than marquee destinations.

All hese clusters have been known for a while and have done well without the necessary attention. With economists now focusing on them, is it time for their downfall 🙂

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