Industrial Real Estate Infrastructure
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Manufacturing India’s Industrial Real Estate Infrastructure A CII-CBRE INITIATIVE 2 | A CII AND CBRE INITIATIVE Contents Summary 1 SECTION 1: DRIVERS OF FUTURE ECONOMIC GROWTH 2 SECTION 2: ROLE OF INDUSTRIAL REAL ESTATE INFRASTRUCTURE 4 SECTION 3: INDUSTRIAL REAL ESTATE INFRASTRUCTURE IN INDIA 7 SECTION 4: THE DELHI – MUMBAI INDUSTRIAL CORRIDOR (DMIC) 9 SECTION 5: RAJASTHAN IN THE DELHI MUMBAI INDUSTRIAL CORRIDOR 11 SECTION 6: DEVELOPMENT STRATEGIES 13 CBRE CAPABILITY 14 INDUSTRIAL ADVISORY 14 About CII 15 About CBRE 16 ASSESSING THE ECONOMIC IMPACT OF THE REAL ESTATE SECTOR SUMMARY Over the past twenty years, India’s economic expansion has largely been led by the services sector, which has provided significant opportunities for socio-economic transformation in the country. However, post the downturn in 2008-09, India has been trying to realign its economic structure and identify a new catalyst for economic rejuvenation. Manufacturing has been identified as the focus sector by India’s policymakers, which can drive the next phase of growth in the economy and also provide a significant impetus to the creation of infrastructure in the country. The manufacturing sector has played a significant role in driving economic liberalization and expansion across most of the developed world, as well as in leading emerging economies. From a generator of vast employment opportunities to a catalyst of strategic-economic influence, manufacturing is often identified as the fulcrum of global economic output. Leading Asian nations such as China, Japan and Korea have witnessed their manufacturing strengths grow by multiple folds during critical periods of their economic expansion. This has not only been driven by the presence of a strong government vision, policy support and presence of cost effective labor and markets, but by sustained development of industrial real estate infrastructure. This includes large industrial corridors, parks and economic zones, such as Shenzen in China, which have become synonymous with Asia’s industrial renaissance. India has lagged behind its Asian peers in developing a strong industrial manufacturing backbone. India’s manufacturing output has grown fourfold from 1991 to 2012, but has a much higher potential keeping in mind its vast geographical span, abundance of cheap labour and growing markets. The government has also consistently focussed on developing industrial infrastructure in the country. From industrial estates in the 50’s to export promotion zones in the 60’s, from private industrial townships to special economic zones in the early 2000’s and the national manufacturing zones and industrial corridors in the present era, the government has moved from the role of a creator to that of a facilitator of industrial infrastructure, thereby also providing an opportunity for the private sector to collaborate. It is in this context that the role of the Delhi-Mumbai Industrial Corridor (DMIC) gets highlighted as a catalyst for regional economic expansion and positioning India’s manufacturing footprint globally. Spread over a dedicated freight corridor of 1,483 km between Delhi and Mumbai, covering the states of Delhi, Uttar Pradesh, Haryana, Rajasthan, Gujarat, Madhya Pradesh and Maharashtra, the total project influence area of this corridor is about 13.8% of the entire geographical area of the country. Rajasthan has a major share in the entire influence area of this project, with two major investment regions in Khushkhera- Bhiwadi-Neemrana and Ajmer-Kishangarh, and three industrial areas - Jaipur- Dausa, Rajsamand-Bhilwara and Pali-Marwar. The state can benefit tremendously from an effective implementation of the many infrastructure proposals of this project, which have the potential to transform the socio-economic fabric of the entire project influence area. For an effective creation of the proposed industrial real estate infrastructure in DMIC, CBRE has provided certain strategic recommendations which can be useful for the government while focussing upon the implementation of the project. These include promoting private capital involvement in creation of industrial infrastructure, government to government initiatives for creating country specific industrial investment zones, giving impetus to industrial parks and developing industrial townships with affordable housing schemes. A comprehensive implementation of these policies is likely to drive India’s manufacturing potential to a higher growth trajectory. 1 | A CII AND CBRE INITIATIVE 01 DRIVERS OF FUTURE ECONOMIC GROWTH As the global economic downturn recedes and the world enters the phase of gradual economic recovery, economic policy makers around the world are re-assessing the strategies for growth adopted so far. Countries are searching for answers which will define the economic growth parameters of the next decade. For the BRICS nations (Brazil, Russia, India, China and South Africa) and amidst this group, especially for India, the writing is quite clear on the wall – generation of sustained economic activities and creation of employment opportunities in the long term, to accommodate the expanding population pyramid. India’s Economic Growth over the years 20 15 9.5 9.6 9.3 10 8.5 8.0 8.5 6.5 6.9 6.8 6.1 6.5 ) 5.8 5.7 % 5.0 ( 4.8 4.4 e t 4.0 a 5 R h t w o r G 0 97-98 98-99 99-00 00-01 01-02 02-03 03-04 04-05 05-06 06-07 07-08 08-09 09-10 10-11 11-12 12-13* 13-14* -5 India Brazil China Japan European Union -10 Source: MOSPI, Oxford Economics, IMF Estimates *Estimates Post the economic liberalisation in the early 90’s, India’s growth trajectory has been primarily driven by the services sector (comprising of sub-sectors such as trade, hotels, transportation, communications, financial institutions and real estate); contributing approximately 59% to the overall economic output of the country (2012). The services sector has been led by the exports of information technology (IT) and business process outsourcing (BPO) services, which, on the back of availability of a large pool of cost effective skilled work force has resulted in India occupying a prime position in the global technology industry. However, the economic slowdown in 2008-09 have forced policy makers to concentrate on developing new growth sectors. These sectors would be instrumental in supporting the economy achieve its next phase of growth (till 2030) and also nurture India’s unique demographic advantage - a burgeoning youth population which besets the nation with an immense responsibility to generate large scale employment opportunities on a long term basis. MANUFACTURING INDIA’s INDUSTRIAL REAL ESTATE INFRASTRUCTURE | 2 The most significant growth sector for the economy in the 21st century would be manufacturing - a sector which, through value addition and technological advancement, is intricately linked to all other sectors of the economy and is recognized as the primary engine for economic growth and creation of wealth. It is also a crucial sub segment of India’s Gross Domestic Product (GDP), being responsible for creation of demand for raw materials, intermediate goods and also the final products. From the social perspective too, the manufacturing sector is expected to contribute to socio-economic transformation through provision of employment in urban as well as rural regions (especially assisted by labour-intensive industries). Further, it will also be responsible for creating downstream industrial opportunities and multiplier effects for services sectors such as information technology, financial sector, health, insurance, accounting and transportation/logistics. India’s policy makers have long realized this potential in Indian manufacturing, concentrating much of their policy making machinery towards making this sector globally competitive – through initiatives such as the National Manufacturing Strategy and the recently released National Manufacturing Policy. Rajasthan is a key state which is proactively trying to develop such industrial real estate infrastructure through a number of initiatives – of which one such major project of the state is the Delhi Mumbai Industrial Corridor. In this context, the note also summarises some of the innovative development ideas that can be put into practice by the Rajasthan Government to help further evolve the state into a hub for successful development of industrial real estate infrastructure benchmarks; such as increased private participation, role of government to government initiatives, private developer investment in industrial infrastructure, etc.; some of which have already been successfully implemented across Rajasthan. In the above context, the objective of this report is to draw the attention of national policy makers, private developers, institutional investors and global development agencies towards the role of Industrial Real Estate Infrastructure (such as Industrial Corridors, Industrial Zones, Special Economic Zones, Logistics zones, Sector Specific Industrial estates, etc.) and its importance in the expansion and evolution of the manufacturing sector in the country. 3 | A CII AND CBRE INITIATIVE 02 ROLE OF INDUSTRIAL REAL ESTATE INFRASTRUCTURE The story of India’s manufacturing sector has been a mixed one - a sector which has grown in line with the GDP of the country, but has witnessed a stagnation in its economic contribution. India’s economy achieved an average growth of about 7.8% in the decade upto 2012, with the manufacturing sector managing to achieve an average growth of 7.6% during the same period. However, this growth when seen