Important News : Linking India’s financial centre with its IT hub

The Bengaluru-Mumbai Economic Corridor, as an anchor of the U.K.-India partnership, is set to change the economic landscape of the region it passes through

The corridor will start from Bangalore, passing through Tumkur, Chitradurga, Hubli, Dharwad and Belgaum in Karnataka), Kolhapur, Sangli, Satara, Karad and Pune and end in Mumbai (in Maharashtra). 

If there is a developing centrepiece of the U.K.-India economic engagement, which the coalition government of David Cameron has been active in promoting, it is perhaps the agreement on the joint development of the Bengaluru-Mumbai Economic Corridor. 

The decision to cooperate in developing the projected 1,000-km corridor that will link the two cities — with provision for creating manufacturing hubs along the route, developing the towns and their hinterland, and creating both investment and job opportunities along and around its route — was part of the joint memorandum that was signed between the two countries when Mr. Cameron visited India in February this year. 

The tender for the feasibility report for the project was issued this month, with a December 26 deadline for submissions. Officials from the Indian High Commission involved in the negotiations believe that progress has been remarkably fast for a project of this size and scope — a sign of the importance that the Indian government attaches to the project, as well as of British investment interest in the project. 

An “exciting flagship for wider collaboration on infrastructure” is how Barry Lowen, Director, U.K. Trade Investment (India), which leads on the U.K. side, described the project to The Hindu. “The U.K. has expertise on innovative ways to raise funding and promote green technologies in promoting infrastructure,” he said. 

The 95-page tender for submitting the project’s feasibility study lays out the scope of the project. The funding for the study is to be underwritten by India, and is itself expected to run into millions of Great British Pounds. 

The vision for the BMEC, as set out in the terms of reference of the feasibility study is of a “global exemplar both for commercially viable sustainable development and for attracting investments into manufacturing and clean infrastructure (potable water, clean energy etc).” 

To achieve “comprehensive, accelerated and sustainable economic development with green technology and regional industrial and urban agglomeration, diffusing the regional population along the length of the corridor”, the BMEC will boost “regional industry agglomeration... attracting companies in the value chain of existing companies to the corridor, attracting particular industries where the corridor has geographical advantages or has advanced infrastructure for such industries.”

The project looks to create advantages for industrial development along the corridor, creating linkages that will provide quick access to production units in a way that will reduce transportation time, costs of logistics and inventory. 

The corridor will start from Bangalore, passing through Tumkur, Chitradurga, Hubli, Dharwad and Belgaum in Karnataka), Kolhapur, Sangli, Satara, Karad and Pune and end in Mumbai (in Maharashtra). 

“It represents a fantastic opportunity to develop the engagement between the two countries,” said Amarjit Singh, Associate Solicitor in Dutton Gregory LLP and Head of India Business Group in the UK, who also accompanied Mr. Cameron on his visit to India in February. 

“Significantly, the corridor will link Mumbai, the financial centre of India and Bangalore, the country's IT hub. The U.K.’s capabilities in both sectors are world-class,” he added.

The model for the corridor is the Delhi Mumbai Infrastructure Corridor that is currently under development with Japanese funding. The nodal agency on the Indian side is the Department of Industrial Promotion under the Ministry of Commerce and Industry. Once chosen, the company/consortium must meet an eight month deadline to submit a Perspective Plan for overall development of the BMEC region along with a concept report for the greenfield megacities conceived as part of it. Foreign companies can apply. 

Actual work on the project is unlikely to get off the ground before 2015, and even that is an optimistic expectation given the challenges that lie ahead.

Hurdles

The first hurdle relates to the political environment: the new government that will be elected in the 2014 Lok Sabha elections must ratify the agreement. Assuming that the new government does so and allowing for possible changes to the corridor route dictated by political or other reasons, the project must get the critical environmental clearances. Only after this can the thorny issue of land acquisition be taken up. 

It should be recalled here that Posco, the Korean steel giant cancelled its plans for a $ 5.3 billion steel mill development project near Dharwad in Karnataka primarily due to popular opposition to land acquisition for the construction of its plant. 

Secondly, if past experience is a guide, land prices along the route will explode once the plan is announced, creating dispossession on the one hand and speculation by land sharks on the other. Third, the BMEC corridor passes through relatively less industrialised areas when compared to the Delhi Mumbai Industrial corridor. Analysis of the trends in foreign direct investment indicates that DMIC States cater to 52% of total Foreign Direct Investment equity inflows in to the country. Mumbai and Delhi regions together constitute 92% of total FDI equity inflows amongst the project States. 

Even with these advantages, the DMIC, which was conceived between India and Japan in mid-2007 and projected to cost $90 billion (Rs. 4,23,000 crore), is still years from completion. 

Sources close to the project in the U.K. Foreign Office told The Hindu that one of the primary concerns on the British side relates to the multiplicity of Central and State laws that will have to be negotiated, a process they fear could cause delays. The BMEC, when it finally does see the light of day, will undoubtedly change the economic landscape of the region it passes through, a process that Britain will doubtless reap the financial rewards of. What India’s gains will be depends entirely on how the benefits and losses of this game-changing project will be shared.