India Dispatch: Companies based in the UAE have long been interested in expansion into the subcontinent and increasingly, despite the difficulties many face, they are willing to make the effort. The potential benefits are a tempting lure.
Clearing the hurdles may be well worth the effort in India
In Kochi, a port city on the Arabian Sea coast in the Indian state of Kerala, a Dubai company is trying to replicate an element of the emirate in the subcontinent.
Based on the models of Dubai Internet City and Dubai Media City, the 20 billion rupee (Dh1.37bn) SmartCity development, being built by Dubai's Tecom Investments, is designed as a hub for information technology, media and finance companies.
Tecom is just one UAE company striving to tap India's growing economy. Other major investors in India from the Emirates include Dubai's DP World, a ports operator, and Emaar, a property developer.
But doing business in India is far from easy.
"It is indeed challenging to do projects in India," says Baju George, the managing director of SmartCity, India.
"The system is more mature and rigid."
The 1.1 million square metre project has faced repeated delays since it was first announced in 2005 over obstacles including protests and disputes about land. But its investors say the development is going ahead and the first phase of the business park is expected to be operational within two years. A detailed masterplan for the entire development is scheduled to be ready in about month, Tecom says.
The "acceptance enjoyed by Tecom among the stakeholders in Kerala and progressive image of UAE in India has helped the project to tackle all challenges with a win-win outcome", says Mr George.
"The opportunity in India also is immense, especially in the knowledge-industry sector."
The project is 84 per cent owned by Tecom, while the remainder is owned by Kerala's government. It has the potential to directly create 90,000 jobs, its developers say.
The UAE is the 10th-biggest investor in India in terms of foreign direct investment, having injected US$2.2bn (Dh8.08bn), according to the Indian government.
DP World is the biggest container terminal operator in India, investing substantially in the country to capitalise on its economic and foreign trade growth in recent years. It declined to provide an investment figure. The company employs more than 2,200 staff in India.
"DP World has invested significantly in India's port infrastructure," the company says. "Our portfolio stretches across ports in Gujarat, Maharashtra, Kerala, Tamil Nadu, Andhra Pradesh and a new project in West Bengal.
"There is no other operator with the geographic reach and scale of investments we have in the country."
But DP World has also faced its fair share of difficulties in India.
The Dubai operator's Vallarpadam terminal in Kerala has struggled since it opened in February last year because the port was developed on an understanding that foreign ships would be able to transport container cargo between ports in India.
The necessary changes to the shipping law to allow this trade, however, have yet to be made and there is no indication of when, or if, this might happen.
Other companies have been badly burnt while operating in India.
Etisalat opted to leave the Indian market after the country's supreme court cancelled 122 second-generation, or 2G, licences, this year. They were issued to companies in 2008 but were cancelled because of a corruption scandal surrounding the sale of the licences. In February, Etisalat reported an impairment charge of Dh3.04bn because of the cancellation. Etisalat in March filed proceedings to the Bombay High Court for the winding up of its telecommunications business in India, which is an ongoing process. Etisalat declined to comment on its India venture.
Meanwhile, Emaar MGF was launched in 2005 as a joint venture between Emaar and MGF Development with the aim of focusing on high-end residential communities similar to some of the projects Emaar has developed in Dubai. But last year, Emaar reported a 2bn rupee loss in India for the previous fiscal year.
This loss included a 1.1bn rupee write-off on the sale of an investment in a Kolkata hotel project. Emaar MGF was also blamed by the Indian government for allegedly poor-quality construction and delays when it took on the Commonwealth Games village contract and became embroiled in a legal dispute with the Delhi Development Authority.
Emaar MGF has also struggled in its fund-raising efforts in the market and has scrapped repeated attempts to launch an initial public offering because of weak sentiment.
UAE retailers, meanwhile, seem to be having a better time and are ploughing ahead with expansion in India. Landmark Group recently announced a tie-up with Krispy Kreme, a coffee and doughnut chain, to take the brand to India.
LuLu Group, a supermarket chain based in the UAE, is building a huge development in Kochi, Kerala. The mall is slated to open by the end of this year.
"The project, which has a total investment of [16bn] rupees, envisages direct job opportunities for 8,000 people and indirect employment for more than 20,000 people," says V Nandakumar, a spokesman for the LuLu Group.
The group has further plans for India and intends to invest 40bn rupees in total in India over the next two years, Mr Nandakumar says.
"We have just commenced work on building India's largest convention centre and five-star hotel in association with Grand Hyatt at Bolghati, Kochi," he says.
"The construction of a logistic centre and cold-storage facility has begun and is expected to be operational in six months. Work is progressing on another convention centre in Calicut."
It seems the problems for UAE entities setting up in India are outweighed by the potential benefits.