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Cover Story
 
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City of dreams – shaken & stirred!
While the last 30 years have seen a gain in the financial and services sectors in Mumbai, there has been a massive decline in industry. And the city still has a lot to lose.
Issue Date - 16/02/2012
 
The dilapidated India United Mills No. 1 building (of the now defunct India United Mills) at Parel, Mumbai, is one of few such buildings remaining that tell a very sobering story of a past that is long behind us; a past where Mumbai used to be a thriving hub for the textile industry globally and was known as the Manchester of the east. A lot has changed for India in general (consequently also for its financial capital) and for the better, in the past 30 years. But 1982 also marked an unfortunate turn of events that signaled the death knell for an important, albeit withering, part of the city – yes, we are talking about the Great Bombay Textile Strike led by iconic trade union leader Datta Sawant. Around 250,000 workers in the 50 textile mills (which had managed to evade decline over time) stopped work hoping for better wages. Instead, what they got was a lifetime of misery. The crux of the story was that mill owners got fed up of the impasse and a majority simply shifted their factories away from the city – leading to 1,50,000 unemployed workers and the ultimate death of Mumbai as a hub for the textile industry.

One can argue, however, with a lot of confidence, that a terribly botched up strike that helped no stakeholder involved, was part of a larger movement that affected much more than the textile industry – it (the atmosphere of widespread worker unrest) also scared away a lot of manufacturing-related investment that could have found its way into Mumbai. In fact, it is widely believed that de-industrialisation precisely made its way into the city in the 1980s and it has been largely irreversible. The militant nature of unions was one of the most widely cited reasons for the same, apart from a growing anti-organised sector tendency in the government and rising property prices in the city. Most of the new corporate entrants into the city were from the financial sector (for them, proximity to the RBI remains a clear and perennial advantage) and the services sector. A research suggests that over half of the foreign companies with offices in Mumbai today came in after 1985.

Sure enough, employment in manufacturing in the city declined from 41% of the total in 1961 to 20% in 2001. Migration also went down from 64% to 43% during the same period; although, considering the current situation of the city, that might actually be something worth smiling about! In the meanwhile, Delhi-NCR, Bangalore, Chennai & Hyderabad have visibly grown by leaps and bounds and become destinations of choice for new age industries.

In fact, the decline of the manufacturing industry has been a mandate for the state of Maharashtra in general over these years; because of investor unfriendly government policies. A Knight Frank report last year ascertained how the state is losing its manufacturing sheen in front of states like Andhra Pradesh, Gujarat, Tamil Nadu and Karnataka, particularly in its critical automotive and chemical industries. The chemical industry grew by 7-8% over the last decade compared to 17% for AP and 18% for Karnataka. In the auto sector, the state has lost out miserably to Gujarat, with Ford, Peugeot and even Tata Motors opting for the latter for their greenfield expansions. A lot of this is attributed to the drastic shortage of large tracts of land in the state, estimated at a whopping 43,604 acres.

 
Coming back to Mumbai, one glance at CMIE data for Investments announced in the commercial real estate in the city over the past one decade, and the dynamics of the Mumbai commercial real estate instantly becomes clear. There seems to be a very high sensitivity to realty cycles. Last year, the scenario in the Indian realty sector went from bad to worse, and Mumbai faced the brunt – not a single new commercial project was announced in the city as per data till September 2011 (the same happened earlier in both CY 2004 & 2005) as compared to 1500 new projects the previous year. Gone are the days of the 1980’s and the 1990’s when supply and demand for a premium-rated property in Mumbai – a vibrant and business centric city – ‘automatically’ grew year-on-year and investors readily pumped in funds to invest in commercial property on an ownership basis. A renowned Medical Director (MD) at a hospital in suburban Mumbai spoke to B&E on condition of anonymity, “Builders are not ready to sell a commercial property on outright basis. Ultimately, I am now looking at entering into partnerships for raising funds through loans worth crores of rupees to operate from a rented commercial property.” A local agent tells us that there are certain commercial projects inviting investors but receiving no interest at the moment.

Now, investors are scouting for partners to raise funds through loans in order to operate from a rented commercial property, due to the steep prices hovering at Rs.90 lakh in rent per month for a 25,000 sq. ft. space in Santacruz in Mumbai, Rs.19 lakh for 22,000 sq ft in Goregaon, and so on. Delhi compares well to Mumbai today with a maximum commercial rental of Rs.270/sq. ft./month as compared to Mumbai at Rs.300/sq.ft./month (September 2011). However, maximum rentals at Bangalore and Chennai are much lower at Rs.95/sq.ft./month and Rs.64/sq.ft./month respectively. When you look at share of market value of commercial projects under construction, Mumbai still leads with 38%, but Delhi-NCR is gaining fast with a share of 26% (JLLM Report, 2010). Russel Waugh, Managing Director, Leighton Welspun Contractors Pvt. Ltd., opines, “Gurgaon is Mumbai’s closest rival from a business perspective. Gurgaon’s advantage is that the quality of infrastructure, services to business such as hotels, and lifestyle opportunities such as quality housing, recreation facilities and shopping are excellent. As more and more business springs up in Gurgaon, business connectivity is also constantly on the upward.” Similarly, IT hub Bangalore, despite its infrastructure constraints, now promises a nice globalised work environment and an excellent lifestyle too.

          

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