Two years after India lured foreign developers to its booming property market, little has been achieved.
India red tape hampers property developers
If you are after a couple of days basking on an Indian beach, but also fancy an insight into Gulf relations with the subcontinent, you could do worse than head to Beypore. This sleepy, palm-fringed town in Kerala was where Gulf merchants built their dhows for centuries. It must rank as one of the earliest examples of work being outsourced to cheap but skilful Indian labour. But in the 1970s and 1980s, India's socialist government gave local unions such power that the remaining Gulf businessmen packed their bags and the business ground to a halt.
On a larger scale, something similar happened in Mumbai. By the time the dollars rolled into the Gulf during the oil boom of the early 1980s, the last place anyone considered for investment was the basket case across the Indian Ocean. All that remains of the thriving Gulf community that the city boasted at Indian independence is the occasional monsoon tourist. When the oil dollars flooded in this time around, however, India presented a different prospect. With growth rates nudging double figures, an enormous middle class and a near bottomless need for infrastructure, India held a promise few other markets could rival.
And with more than half of the UAE's population coming from India and Pakistan anyway, it seemed a lot closer to home than China. Fittingly, the revival started in Beypore. In 2001, the dockyard sent Al Hashemi II, the world's largest wooden boat, to Kuwait, where it serves as a hotel, the first of several hotel and leisure boat commissions. But it took DP World to make a really substantial investment.
In 2002, it teamed up with a Mumbai firm to develop Vizag Port on the east coast, and once it took over P&O ports, which sourced 40 per cent of its revenues from India, it became the Asian nation's biggest private ports operator. It racked up an enviable pipeline of expansion projects and aimed to be first in line for the Indian government's long list of new port development projects. Dubai's property giants staked still more. Emaar teamed up with MGF, a major Indian property firm, at the end of 2005 in what was by far the biggest foreign direct investment into the Indian real estate market.
It invested US$500 million (Dh1.83 billion) initially, added another $350m in 2006, and then in 2007 announced a massive $12bn in investments in nine special economic zones, 50 hospitals and 25,000 hotel rooms. Not to be outdone, Limitless, the international property arm of Dubai World, launched plans in 2007 for a $12bn township outside Bangalore. Others such as Tecom Investments, Deeyar, Gulf Finance House, Al-Futtaim, ETA Star and RAK Investment Authority also piled in.
Last September, the first major Gulf company entered the services sector, with Etisalat spending $900m on a 45 per cent stake in Swan Telecom, a company with nothing but a licence and some bandwidth. So how has India's promise held up? Two years on, Limitless's $12bn township has made no progress at all. The local government did not stick to its promise to buy the land, and Limitless is also seeking to withdraw from its project to redevelop Dharavi, India's largest slum. The project has not moved forward at all.
The same goes for Tecom's $400m Kochi Smart City project; four years later, the local government still has not provided the land, so the investment company looks to be withdrawing. As for Emaar-MGF, its timing could have been better. Two years after its ambitious announcements, it has barely started work on a single hotel and is instead trying to re-engineer its portfolio to include "affordable" residential developments, which are less profitable but allow it to rapidly raise cash from its land bank.
DP World's Indian operation is undoubtedly a crucial part of its ports network. But it has been far from easy. When the company took over P&O in 2005, it was waiting for the government to dredge the channel at Mumbai's Jawaharlal Nehru Port so it could take large container vessels at low tide. It is still waiting. Then, in 2006, the Indian government cut the tariffs it is allowed to charge by a third, making the port barely profitable. Meanwhile, not one of the new ports projects that DP World was planning to tender for in 2005 has been awarded.
Tenders for a new berth and a fourth terminal at Jawaharlal Nehru Port in Navi Mumbai, and for a container terminal at Ennore are all still delayed owing to court cases and government reviews. Even DP World's largest ongoing development, the new India Gateway Terminal at Kochi, is nearly six months behind schedule, and the local government is far behind in providing the road links from the port to major transport corridors.
The success of Etisalat's investment - renamed Etisalat DB Telecom India - is far harder to gauge because the roll-out of the network is still in progress. India is the world's fastest-growing telecommunications market. It accounted for 65 per cent of Vodafone's 9.7 million customers in the three months to December. But once Etisalat, along with Nortel and Telenor of Norway and Sistema of Russia launch their services, there is going to be an almighty price war which could further squeeze the already tiny margins that telecoms companies have to endure in India.
Once you strip out the global recession, almost all of Dubai Inc's problems in India come down to government. India may have shed socialism, but government, local and state, still has a terrifying ability to slow things down. Indians can dismiss their frustrations as the price paid for democracy. But for the UAE Government's flagship companies, used to government being an aid rather than an obstacle, no amount of warning can have been enough.
The Indian government is promising a steep change as it enters its second term. Whether it is true to its word will determine whether the 21st century version of Beypore's Gulf shipbuilders stay behind or follow their predecessors back home. firstname.lastname@example.org