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La ville en Asie du Sud

Véronique Dupont
Djallal Heuzé

La ville et le développement économique local et mondial

Shaping economic space in Chennai and Hyderabad

The assertion of state-level policies in the post-reform era

Loraine Kennedy



Les États federes de l’Inde jouissent desormais d’une plus grande autonomie pour definir leurs politiques economiques et sectorielles. Cette consequence largement inattendue de la liberalisation economique, adoptee en 1991, constitue le point de départ de cette contribution. Il s’agit d’etudier la réponse de deux États a la liberalisation, le Tamil Nadu et l’Andhra Pradesh, generalement consideres comme favorables aux reformes, et d’explorer les implications spatiales de leurs politiques industrielles. L’analyse montre que, malgre la liberalisation, les politiques publiques continuent a jouer un role crucial, tout comme l’investissement public, notamment eu egard aux ressources humaines et aux infrastructures, en tandem avec l’investissement prive, qui est devenu le critere determinant de la croissance. Les politiques regionales interagissent avec d’autres forces pour instaurer de nouveaux espaces economiques, notamment dans et autour des metropoles. Comme en d’autres regions du monde, ces strategies de croissance aggravent la polarisation spatiale, marquant un renversement des politiques d’avant les reformes, qui visaient la promotion du developpement regional equilibre. Enfin, cette etude entreprend de situer les tendances spatiales actuelles en Inde par rapport aux processus de restructuration de l’economie mondiale, notamment les changements dans les formes de production, qui tendent a favoriser la concentration des activites dans les espaces urbanises.

Texte intégral

1Increasing attention has been paid in recent years to deepening disparities in economic growth between India’s states. It is observed that new investments tend to benefit the more developed regions, and metropolitan cities in particular are attracting a large share, notably from foreign sources, in both infrastructure and industrial activities. These trends are generally attributed to market reforms, officially adopted in the early 1990s and currently being extended to most sectors of the economy.

2Arguably the single most significant effect of economic reforms has been to make private investment, rather than public investment, the major determinant of growth. Previously, government officials in New Delhi centrally managed large portions of the economy, and wielded control over private industrial investment decisions, including location. It is not surprising therefore that such fundamental change would have spatial implications. But what precisely are the mechanisms at work and the principle factors contributing to the patterns that can be discerned? These are the major questions addressed in this exploratory analysis, using examples from Andhra Pradesh and Tamil Nadu.

3The argument advanced here is that it is necessary to go beyond the assertion of a regime shift per se, i.e. from a dirigiste to a liberal regime, in order to grasp and explain the processes shaping India’s economy. It is an attempt then to counter the explicit or implicit assumption in many studies that current spatial patterns are the simple result of the unleashing of market forces. A more accurate assessment must take into account the fact that regional political leaders are significantly contributing to emerging spatial trends in the country, through policy choices and direct interventions.

4The current decentralisation process in India from the Centre to the states, largely an unintended consequence of liberalisation, is giving state governments greater autonomy with respect to policy issues. Some are seizing opportunities within this newly created space to devise policies that respond to changes in the national and global economic environment. These policies are interacting with other forces to shape new economic spaces and modify existing ones. In some cases, including those examined here, regional development strategies are contributing to the polarisation process by promoting large cities as assets in an increasingly competitive environment within India. These developments are remarkable both because the assertion of policy autonomy at the state-level is a recent phenomenon and because these policies mark a reversal in many respects from former policies ostensibly designed to ensure balanced regional development between India’s states and within particular states.

5Political leaders in Andhra Pradesh and Tamil Nadu, states considered ‘reform-oriented, ’ are actively responding to liberalisation. There is evidence that both states are creating new economic spaces through direct investments in and around their capital cities’–Hyderabad and Chennai–notably specialised infrastructure. Openly competitive with each other with respect to information technology, each has devised strategies to attract investors to this promising sector in a way that indirectly promotes their metro cities. The primary aim of this paper consists in advancing hypotheses about how state-level policies articulate with evolving economic tendencies and about their impacts on regional development. The way these strategies are contributing to metropolisation is of particular interest.

6The second aim of this study is to situate spatial trends in India in relation to global economic processes. Although the role of the latter is difficult to define in precise terms, the working hypothesis here is that the current, profound changes in post-fordist capitalism are having an impact on those sectors of the Indian economy most exposed to global forces. Emerging changes in the process in which production is organised appear to favour certain spatial patterns, and urban areas in particular are assuming a crucial role. In the globalised sectors of the economy where quality, variety and speed have become determining factors of competitiveness, large cities are seen to bring together the necessary elements, i.e. human resources, quality infrastructure, and markets.

  • 1 Definitions of metropolisation sometimes refer to a concomitant process of increasing intr (...)

7The purpose of this exploratory analysis then is to provide a framework for situating the processes occurring in India within a wider context and to identify relevant research questions. Specifically, the aim is to link the process of metropolisation to both liberalisation, which has given rise to potent internal changes, and globalisation. A metropolitan city is defined as a city that combines a large population (multimillion) with diversified functions, including industrial production, regulation, finance, trade, control and co-ordination of business, training, research, cultural production and conservation. The term ‘metropolisation’ designates a process of increasing control and co-ordination of a city over an ever larger area, and a growing concentration of expertise and capacity to adapt to the global economic system (Troin 2000: 13).1 As for the term globalisation, it refers not only to increased international trade of goods and services but to the diffusion of information and communication technologies, and the extreme mobility of capital they enable.

8This paper is composed of three main parts: The first one reviews briefly the spatial dimension of policies in place before liberalisation, applied through centralised management of the economy. The main body of the text analyses regional economic strategies and evaluates their direct and indirect impacts on Hyderabad and Chennai; an examination of specific sectoral policies and selective investments form the basis for hypotheses about the role of regional political leaders in shaping new economic space in their metropolitan cities. The third section aims to situate the observed processes in relation to more comprehensive changes in the global economy, and to discuss some of the social and spatial implications of specific policy choices.


9Economic reforms, though gradual and often qualified as incomplete, have fundamentally changed the functioning of the Indian economy. They have given private capital a central role in determining investment decisions including type, size and physical location. While private enterprise has always played an important role in the Indian economy, it was public investment that constituted the main determinant of growth in the pre-liberalisation period, particularly the location of crucial infrastructure (World Bank 1997: 19). Deregulating the economy in the early 1990s by abolishing license raj, i.e. the centralised control via licensing of all major industrial investments, created conditions for increased competition in the domestic economy. In the same way, a new trade policy and the gradual convertibility of the Rupee eased stringent restrictions on importing and exporting. The opening up of the economy to international trade and foreign investment, though phased and partial, is also enhancing competition. Taken together, the reforms are radically reducing the role of the central State in the economy as entrepreneur and planner. For the purpose of this study, it is particularly significant that location decisions no longer fall under the purview of the central ministries.

10Before addressing the current policy situation, it is useful to briefly review the pre-reform situation with respect to spatial issues. Balanced regional development, i.e. comparable rates of growth throughout the country, was an expressed goal of the Indian State since Independence. The colonial experience had deeply marked the economy by shaping new territories and exacerbating inter-regional disparities. In effect, the ‘trading post economy’ (economie des comptoirs) set up by the British carved new economic spaces in ways which simultaneously increased integration and regional polarisation (Durand-Dastes 1995: 342-3). Colonial policies, including those driving the location of powerful transport infrastructure such as the railroad exacerbated inter- and intra-regional disparities. In terms of urbanisation, the port cities of Calcutta, Bombay and Madras were assigned crucial functions, both economic, as a nodal point in the extraction economy, and administrative, as provincial capitals of the Presidencies. In addition, the dissimilarity between social and economic changes in Indian ‘princely’ states and those under direct colonial administration intensified over the years. Correcting regional imbalances was high on the priority list of independent India’s leaders and a key component of the strategy of building national unity. This being said, the early plan documents did not have an explicit spatial orientation, being predominantly preoccupied with economic growth.

11India’s political élites intended to reach their many goals through planned development, a strategy considered most apt to attain the triple objective of economic growth, social justice and self-reliance, the latter being meant to broadly encompass the political, military and economic spheres. Economic planning enjoyed a broad consensus in the business community, conscious of the structural weaknesses and eager that the State should bear the cost of addressing them. A mixed economy framework provided for a division of labour between public and private sectors, wherein the State took charge of key infrastructure and the capital-intensive industries. The latter were designed to be the driving force of the economy, following a modernisation paradigm inspired by the Soviet model. In the industrial sector of the economy, private capital maintained a central but subordinate position in relation to the State, producing mainly consumer goods. In order to bring private sector decisions within the planned framework, an elaborate system of licensing was evolved. Private investors, with the exception of small-scale enterprises, were required to obtain permission to set up an industrial unit, including authorisations for the type of activity, the production capacity and the site. In this way, industrial licensing constituted a powerful tool for influencing the physical location of medium and large private firms. Naturally, the State directly controlled the location of public sector enterprises, whose share in the economy grew dramatically in the first decades following Independence.

  • 2 Third Five-Year Plan, Planning Commission, Government of India, cited by Dupont 1995: 54 n (...)
  • 3 This paved the way for such categories as ‘most backward’ districts, blocks, etc. Tamil Na (...)

12Starting from the Third Five-Year Plan (1961-66), the spatial dispersion of industries received explicit attention: “Balanced development of different parts of the country, extension of the benefits of economic progress to the less developed regions, and widespread diffusion of industry are among the major aims of planned development.”2 Industrially ‘backward’ districts were identified to benefit from special incentive measures, including credit facilities, tax holidays, capital subsidy and import facilities. Perhaps inevitably in an open political system like India’s, such discriminatory measures brought on pressure for replication, and by 1984 there were 247 backward districts, almost two-thirds of the total (Rosen 1988: 76).3

13Although they had relatively little autonomy in such matters and fewer resources, state governments had their own industrial policies that included locational guidelines, and took steps to encourage spatially balanced development. Taking their cue from the Centre, they identified backward areas for special attention and built there industrial estates or parks, and provided them with basic infrastructure in the form of access roads, water and electricity supply. Based on the growth pole concept, the idea behind these parks was that a core group of enterprises, usually recruited from the outside of the locality, would stimulate growth of the local economy through linkage effects (income and employment effects). Local entrepreneurs would gain by acting as suppliers or sub-contractors to these larger firms.

14Another set of policies intended to favour more balanced social and spatial development were those aimed at promoting small-scale industries. A considerable number of activities were reserved for exclusive production by small firms, including key segments of manufacturing like textiles, leather tanning and footwear. Here also, the number of items increased over the years, peaking under the Janata regime in 1977-79. Promoting the growth of small-scale enterprises over large ones allowed the political establishment to pursue several goals simultaneously: it facilitated the channelling of the nation’s scarce capital reserves toward investment in equipment and heavy industry (mainly by the public sector), since small-scale units are largely labour intensive and have limited access to institutional credit; a second advantage of small-scale industries is that they are distributed throughout the country, including in the rural areas, and their growth is therefore supposed to favour more balanced regional development.

  • 4   This comes out clearly in the case of Thailand, which undertook elaborate zoning in an eff (...)
  • 5 Planning commission document cited by Dupont 1995: 44. For a review of India’s policies wi (...)

15These policies were intended to dovetail with those designed in the late 1970s aimed at achieving more balanced urbanisation.4 The idea was to promote the development of small and medium towns, so as “to enable them to act as growth and service centres for rural hinterlands, and to reduce the rate of migration to the metropolitan cities,”5 which were experiencing great difficulties in providing urban services and housing.

  • 6 See Kundu, Misra, Meher 1986: 24-25, table 1.7. The eight states are West Bengal, Tamil Na (...)

16These policies had mixed results; there seems to be a broad consensus among experts that while public intervention in the form of licensing and other regulations did not prevent spatial concentration, it played a containing role and averted the deepening of interregional disparities. Direct investments in infrastructure and public sector undertakings in heavy industries, e.g., aeronautics, electrical equipment, machine tools, were instrumental in creating new economic spaces and giving a modern industrial base to capital cities like Hyderabad and Bangalore (Durand-Dastes 1995: 374-5). With respect to the location of State-owned enterprises (Central Government), until 1980 the primary destinations in terms of per capita investment were Bihar, Madhya Pradesh and Orissa, three lagging states (Kundu, Misra, Meher 1986: 15, table 1.4). At the same time, more developed states like Gujarat and Punjab also benefited from these investments (fourth and fifth rank respectively) during the same period. When private capital investments are taken into consideration, the more developed regions clearly attracted the greatest quantity of investment as indicated by the fact that between 1953 and 1982, 70 % of industrial licenses were attributed to the eight richest states.6

  • 7 It should be noted that these regions were chosen also because of the presence of rich min (...)
  • 8 This comes out clearly in the case of Thailand, which undertook elaborate zoning in an eff (...)

17Thus, there was not a significant spatial redistribution with respect to urban and economic growth centres as a result of planning, although some new ‘growth poles’ did emerge, like the steel complexes in eastern India.7 The pre-existing correlation between city size (population) and economic power has remained intact (Cadene 2001). Like in other countries where incentives have been used to attract investments to lagging areas, it is those areas nearest the developed zones that have benefited the most.8 In this way, these policies have arguably contributed to the formation of large urban clusters, by increasing the distance between the developed cores and the peripheral areas. This growing agglomeration around large cities, extending rather long distances to encompass satellite towns, is one of the tendencies that has been reinforced in the post-reform period (Chakravorty 2000; Cadene 2001).


  • 9 This finding is largely corroborated by Nagaraj 2000: 2837.

18A recent study by a prominent Indian economist demonstrates deepening regional inequalities in the post-reform period, measured by the coefficient of variation in per capita state domestic product (Ahluwalia 2000). Moreover, the gap between the fastest growing state and the slowest increased dramatically in the 1990s: 9.6 % growth rate per year for Gujarat versus 2.7 % for Bihar (ibid.: 1638).9 Preliminary assessments indicate that new investments have tended to concentrate in those areas most attractive in the past, and this at all scales of analysis: at the broad regional level (the South and West), at the state-level, at the district level within those states. These findings underscore, as observed earlier, that current processes are largely reinforcing existing tendencies. This statement should not obscure the fact that some new economic spaces are appearing on the map, especially in coastal areas, such as Vishakapatnam (Andhra Pradesh) and Emakulam (Kerala).

19Conventional economic theory explains polarisation as the search for highest returns to investment. Factors explaining location include the cost of land, labour and capital, and the physical proximity to inputs and markets, the latter reflecting the traditional importance of transport costs in total production costs. Infrastructure (roads, telecommunications, energy, ports) is perhaps the most important consideration influencing location decisions, and hence other things being equal, investment gravitates to areas where infrastructure is most developed, thereby favouring spatial concentration. However, it should be noted that mainstream theory predicts a convergence of growth rates over time as diseconomies of clustering lead to higher costs in more developed regions. This prediction is contested by heterodox theories and empirical studies, which argue that leaving investment decisions to market forces invariably leads to concentration.

  • 10 Using diverse data sources, he asserts that the share of investment of all metropolitan di (...)

20A recent study by Chakravorty (2000) questions these principles in the context of structural reform policies in India, a State that made considerable efforts to deter spatial concentration (see above). It tests the hypothesis that liberalisation may actually favour a more even distribution of economic activities across regions by reducing the monopoly power enjoyed by a few large firms, concentrated in cities, monopoly power which was the norm under a state-centred regime. Chakravorty’s findings corroborate this hypothesis, but only partially, by showing that compared to the pre-reform period, new investments have not targeted foremost the country’s largest metropolitan cities. However, more developed economic regions remain the prime beneficiaries of new investments, especially coastal areas situated nearby metropolitan cities.10

  • 11 For an international comparison of the ways that liberalisation is redefining state power (...)

21An important point is that economic liberalisation does not automatically make ‘market forces’ the sole determinant of growth, nor does it lead to a retreat of the state from the economic scene.11 While capital investment per se is crucial for growth, it is the overall efficiency of resource use that counts for ensuring a dynamic growth process. Efficiency depends inter alia on the level of human resource development, the quality of infrastructure, the policy environment and the quality of governance (Ahluwalia 2000: 1642). Clearly, these are areas where government plays a critical role. As remarked above, state governments in particular appear poised to assert greater power in shaping future economic development in India. A recent pioneering study demonstrates that the sustainability of reforms, and a fortiori their extension, relies critically on state-level policies (Jenkins 1999). As shall be seen below, some state governments are responding to the new policy environment, seeking to actively modify their regional economic climates to better stimulate growth.


  • 12 This study places India’s 15 major states into three categories: reform-oriented, intermed (...)

22Andhra Pradesh and Tamil Nadu are in the forefront of Indian states actively pursuing economic growth in the post-reform period. Both have made substantial efforts to attract investments by simplifying and accelerating procedures and by offering attractive incentives in various forms (tax holidays, energy concessions, capital subsidies, etc.). In addition, they have revamped industrial policies and introduced substantial reforms with regard to infrastructure development, in view of facilitating private investment in these two keys areas. While most states have adopted promotional measures in an increasingly competitive domestic environment, these two states’ policies are arguably among the most far-reaching in the country. Indeed, a recent study qualified both Andhra Pradesh and Tamil Nadu as ‘reform-oriented’ states, along with Gujarat, Karnataka and Maharashtra.12

  • 13 It should be noted that this is not a comparative study, rather illustrative examples are (...)

23Their distinct and sometimes ad hoc responses to the liberalisation process can be interpreted as attempts by state-level leaders in Andhra Pradesh and Tamil Nadu to seize opportunities created by the current political climate in order to influence outcomes in their respective regions. The aim of this section is to explore the spatial implications of current policies, using specific examples from each state, and the impact on the economic restructuring of the metropolitan cities in particular. Before approaching this question, it is useful to briefly characterise each state’s policy position and its respective economic performance in the last decade. While a number of common points are apparent, there are significant strategic differences, which reflect their distinct political and economic characteristics.13

  • 14 This government failed and fell at the 2004 polls. [Ndlr.]

24Under the leadership of N. Chandrababu Naidu, the Telugu Desam-led government of Andhra Pradesh has openly embraced economic reforms, one of the only Indian states to do so.14 Indeed, even when their actions belie their rhetoric, most political leaders are careful not to appear pro-liberalisation since it is generally considered unpopular. But just as some states pursue reforms by ‘stealth’ (Jenkins 1999), the current Andhra Pradesh government’s unambiguous support of liberalisation and globalisation does not preclude a more nuanced approach in practice, one that combines free market measures and mainstay populism (Kennedy 2004).

25The administration’s blueprint for development is outlined in a detailed policy document, Vision 2020, that puts forth a “new and comprehensive growth agenda” (GoAP 1999). It prescribes a three-fold approach consisting of: building capacity (human resource development, infrastructure), focusing on high-potential sectors to be mobilised as engines of growth, and transforming governance (transparency and accountability of government, ensuring a strong voice of the population) (ibid.: 10). The objective is to profoundly modify the state’s economy by injecting new investments and redistributing existing resources among the three main sectors, agriculture, industry and services. It is proposed, for instance, that agriculture’s contribution to state domestic product be reduced over the next twenty years from 33 % currently to 12 % and the service sector’s contribution increased from 49 % to 67 %. Clearly the idea is to ‘leapfrog’ conventional development stages, using opportunities opened up by new technologies, to break into knowledge intensive, high-value added sectors with strong growth potential. To do this, major investments would be needed, primarily from the private sector, in both infrastructure and human resource development.

  • 15 For a detailed critique by academics in Andhra Pradesh, see Reddy, ed., 1999.
  • 16 Indeed, Vision 2020 took its name and was modelled on Malaysia’s Vision 2002 document.

26Even if Vision 2020 offers ample material for criticism,15 it demonstrates that Naidu’s government has gone beyond devising strictly promotional policies to advance an agenda for profound structural changes in the state’s economy and society (see also Naidu 2000). This document and recent actions by the state government also provide proof that despite publicly endorsing market reforms, the political leadership favours a continued role for the state. In this respect, the inspiration appears to have come more from the East-Asian success stories than from a theoretical, laissez-faire, conception of a liberal state.16 In Vision 2020, the government is in charge of fostering a conducive environment for economic development by providing infrastructure, deregulating, organising skill formation and marketing the state to investors.

  • 17 The DMK, under the leadership of M. Karunanidhi, completed a full mandate from 1996-2001, (...)
  • 18 This was the opinion of the regional director of the Confederation of Indian Industry (sou (...)

27Tamil Nadu’s successive governments have not shown the same overt enthusiasm for the liberalisation agenda, but they have been reactive to opportunities emerging as a result of policy reforms at the Centre. Indeed, J. Jayalalithaa, chief minister of the AIADMK (All India Anna Dravida Munnetra Kazhagam)– led government from 1991 till 1996, can be said to have anticipated reforms by announcing a new industrial policy in 1991 just weeks before the Central Government. While there is not the equivalent in Tamil Nadu of Andhra Pradesh’s Vision 2020, its leaders are nonetheless aggressively pursuing economic growth through efforts at attracting investment. In fact, the main thrust of the state’s policy under successive governments17 has focused on improving the investment climate. It should be noted that the state enjoys relatively well-developed infrastructure and a strong industrial base, in addition to an established business class. In this regard, the task of attracting investment is arguably easier than for some other states.18

28From 1991 till 1998, the annual growth rate of gross state domestic product was 6.22 % in Tamil Nadu (against 5.03 % in Andhra Pradesh). A more significant measure, per capita state domestic product, was 4.95 % in the same period in Tamil Nadu (3.45 % in Andhra Pradesh), against an average of 4.02 for the 14 major states. Regarding investment, it is a difficult to evaluate accurately since official statistics on the total levels of investment or gross fixed capital formation for individual states are not available. However, indicative state-level information on investments projects (i.e. letters of intent and memoranda of understanding) demonstrates that Tamil Nadu has performed very well. According to the Centre for the Monitoring of the Indian Economy (CMIE), a respected private statistical source, Tamil Nadu moved into first position for industrial investment in 2000, replacing Maharashtra.


29Part of the problem of evaluating spatial tendencies of new investments is the non-availability of official statistics on their physical location, on the one hand, and limitations of the district-level data made available by sources such as the CMIE, on the other hand. The few studies that have been published tend to confirm the general impression that within states, investments are concentrating in urban areas and specifically in and around the country’s largest metropolitan cities. Like in other places, the latter represent attractive locations because of their plentiful labour market, both skilled and unskilled, because they constitute major markets for goods and services, and especially because they enjoy relatively better infrastructure facilities.

  • 19 The district-level data used by Shaw (1999) are from CMIE, and do not include investments (...)

30One study that examines large new investment projects (completed or under implementation) in urban core areas from 1991 up to mid-1998 indicates that the prime destinations among cities in descending order were Vishakapatnam, Pune, Mumbai, Bangalore, Vadodara, Hyderabad and Chennai (Shaw 1999).19 However, when investments in these cities’ adjoining districts are taken into consideration, Mumbai and Chennai clearly stand out as the most popular urban destinations for new investments, far ahead of others (ibid.: 971, table 2). This confirms an emerging pattern, mentioned above, that rather than consisting of a few metropolitan cities, India’s urban hierarchy is gradually being replaced by a pattern of urban corridors and industrial clusters {ibid.; Chakravorty 2000; Cadene 2001). The most prominent corridor stretches between Pune and Ahmedabad, enveloping Mumbai. Other growth clusters are found mainly in the south, around Chennai, Bangalore and Hyderabad.

31Clustering is largely a result of increasing activity in suburban areas surrounding large cities. A recent study shows the relative gain of suburban areas over urban cores for three out of four of India’s top metropolitan cities, Kolkata being the exception (Chakravorty 2000: 386, fn. 6). Indeed, Mumbai and Chennai experienced a reversal of the pre-reform trend: whereas Mumbai’s suburban areas received less than 30 % of total industrial investments before 1993 (taken to represent the pre-reform period), they captured more than 60 % in the post-reform period (collated data for 1992-1998). The corresponding figures for Chennai’s suburbs: from less than 40 % of total investments to over 80 %. Delhi’s suburbs now receive about 95 % of total investments, up from around 70 % in 1993.

32The following sections focus on ways in which Hyderabad and Chennai have been affected by recent economic policies formulated at the state-level. Investments realised by the state government in the city and its surrounding areas, for instance in infrastructure (e.g. industrial parks, telecommunications, roads), constitute direct policy effects, whose spatial implications vary according to the type and magnitude of the investment. Cities are indirectly affected by those strategies that emphasise certain sectors such as information technology where large cities have a distinct advantage over smaller ones. The successful promotion of certain economic activities leads to the physical establishment of firms, which in turn stimulates business downstream. While direct and indirect policies can be distinguished to simplify analysis, in reality they often overlap and are mutually reinforcing. Thus, to take an example relevant for the two states examined here: the creation of specialised infrastructure in the form of a high-tech park (direct) is designed to lend support to a growth strategy focused on creating capacity in high-tech fields by offering investment incentives and increasing opportunities for training (indirect).


33As stated above, political leaders in Tamil Nadu have responded quite energetically to opportunities arising from deregulation of the economy and have focused their efforts on increasing growth by creating an appealing environment for private capital. In 1996, the National Council of Applied Economic Research declared Tamil Nadu the most attractive among the industrialised states of India (Government of Tamil Nadu, n.d.: 20). Tax holidays were an important component of the package, especially sales tax, until recently when restrictions were put in place to prevent state governments from competing with each other on this basis. But competition continues around other incentives such as equity capital. In this context, it should be noted that beyond officially posted incentives, competition also centres on unofficial perquisites, the outcome of intense behind-the-scenes bargaining, which may constitute a substantial part of the final package.

  • 20 These clarifications were provided during an interview with a high-ranking official in the (...)

34In the case of the massive contract with Mahindra-Ford in 1995, the Tamil Nadu government defined a new category of investments, ‘super mega’ projects, and the incentives to which they were entitled in a Government Order issued just one day before the Memorandum of Understanding was signed with the auto manufacturer (Subramanian 1996). To qualify as ‘super mega’, a project was required to have an initial investment of at least Rs. 1500 crores in the first 5-7 years. In exchange, firms would receive a sales tax deferral/waiver for 14 years, or 21 years if the quantum of sales tax deferral/waiver did not reach one hundred per cent of the investment in fixed assets by the fourteenth year.20 Additional perquisites included sales tax exemption on capital equipment and inputs procured within Tamil Nadu, exemption of duty or tax on electricity–in addition to a guarantee of uninterrupted power–and full exemption from stamp duty on the purchase of land. Clearly, the ADMK government created a special category to accommodate this attractive firm and to give a legal framework to the favours it had promised.

  • 21 By definition, such agreements are not made public, but the script probably runs something (...)

35Of particular interest here is the fact that as part of the deal, the government agreed to develop the production site, selected by Mahindra-Ford from among several proposed sites, allegedly at a nominal cost. The land, which belonged to the Chennai Metropolitan Development Authority, has since become an industrial park called Maraimalai Nagar (see Map 2, below). This points to a strategy that does not appear in official documents, i.e. that industrial estates may be developed ad hoc to accommodate a particular firm. This was apparently the case for two other large investment projects: Hyundai Motors at Irungattukottai and Saint-Gobain Glass at Sriperumbudur.21 The two latter sites are designated as industrial estates of the State Industries Promotion Corporation of Tamil Nadu (SIPCOT), with space to accommodate additional firms.

  • 22 Subject to a ceiling. Subsidies are usually differentiated among small-scale, on one hand, (...)
  • 23 The Industrial Township Area Development Authority Act, 1997. To further speed things up, (...)

36Apart from avoiding the difficulties of land acquisition and the expense of installing basic infrastructure, there are numerous advantages for a firm to locate on an estate. For instance, firms locating in SIPCOT complexes are eligible to benefit from capital subsidies, usually a percentage of fixed assets costs,22 equivalent to those offered in designated backward areas. Moreover, since 1997, legislation guarantees single window clearance in industrial parks and industrial townships, thereby dispensing a firm from the onerous and lengthy task of having to obtain clearances from various government departments.23 Other ‘market-friendly’ legislation passed the same year facilitates the acquisition of private land for industrial purposes (Acquisition of Land for Industrial Purposes Act).

37In this context, it is significant that the promotion of industrial parks, or estates, has constituted a central component of the state’s industrial policy for many years and a keystone of its efforts at balanced regional development. In response to economic reforms, the approach has undergone significant changes, as illustrates the brief review below.

  • 24 Small Industries Promotion Corporation of Tamil Nadu and Tamil Nadu Industrial Development (...)

38For several decades, the government of Tamil Nadu has strongly encouraged industrial enterprises, including small-scale industries, to locate in industrial parks where basic infrastructure is provided, e.g. electricity, water, drainage, access roads. Special state institutions were created for assisting industrial development: SIDCO for small-scale industries, TIDCO for medium and large units.24 In the 1970s, the government created SIPCOT, simultaneously a financial institution and an industrial development agency mainly concerned with industrial parks, usually with the help of private promoters. As indicated in Table 1 (below), these estates were located in less developed areas, i.e. designated backward districts, usually at a considerable distance from major urban concentrations. Map 1 (below) locates the SIPCOT Industrial Estates in Tamil Nadu.

39Significantly, as Table 1 clearly indicates, from the 1995 onward all new industrial estates are being developed in close proximity to Chennai, within 45 kilometres. Earlier, industrial installations were prohibited within 50 kms. of metropolitan cities for fairly obvious reasons: to limit industrial pollution near concentrations of population, to curtail migration from rural areas, and to avoid exacerbating problems of urban management (transport, basic amenities, housing). Moreover, the two most recently developed SIPCOT estates near Chennai, Irungattukottai and Sriperumbudur, are much larger than earlier ones. A non-exhaustive list of planned industrial parks in the Greater Chennai area confirms this trend (see Table 2, below). The decision to construct larger estates reflects in part the requirements of large manufacturing plants, such as those recently established by foreign companies (chemicals, automobiles, glass, etc.). It may also reflect the willingness of Tamil Nadu’s leaders to ‘think big’, to acquire land while prices in the city’s immediate hinterland remain relatively low.

40The acquisition of large tracts of land in proximity to Chennai by government agencies such as SIPCOT and their development for industrial activities, current or future, have a decisive impact on structuring economic space. On a fundamental level, it represents an immediate change in land use, i.e. from agricultural or grazing purposes to industrial production or services. Depending on the types of production and their end markets, firms settling in the estates may have need of road links to the port, railroad or airport, as well as to other urban centres. Similarly, remote, or ‘back office’, computer services require state-of-the-art communications infrastructure. Thus, developing an industrial estate often requires parallel outlays for the improvement of infrastructure, which further shapes the concerned area. Moreover, industrial parks restructure local employment patterns, rendering obsolete certain kinds of employment and opening opportunities in other fields. They can lead to an inmigration of labour, with its concomitant needs for housing, education, services, etc., as well as an out-migration of economically displaced persons.

Table 1. SIPCOT Industrial Estates in Tamil Nadu

Name / Place Starting Year Characteristics of Location Surface Area (in acresa)
Ranipet – phase 1 1973 Backward district 730
Hosur – phase 1 1974 Backward district (40 km from Bangalore) 1236
Manamadurai 1980 Backward district (50 km from Madurai) 492
Pudukkottai 1983 Backward district 421
Cuddalore – phase 1 1984 Backward district 519
Tuticorin 1984 Backward district 1155
Gummidipoondi – phase 1 1984 Backward district (45 km from Chennnai) 801
Ranipet – phase 2 1989 Backward district 133
Hosur – phase 2 1989 Backward district (40 km from Bangalore) 457
Gummidipoondi – ph. 2 1991 Backward district (45 km from Chennnai) 645
Cuddalore – phase 2 1992 Backward district 220
Gummidipoondi – EPIP (Export promotion industrial park) 1995 Backward district (45 km from Chennnai) 224
Irungattukottai 1996 35 km from Chennai 1829
Sriperumbudur 1998 44 km from Chennai 2469

(a) 1 acre = 0.405 hectare.

Source: Data collected at the SIPCOT office, Chennai, Sept. 1999.

Table 2. New and Planned Industrial Parks in Greater Chennai

Name Proximity to Chennai Statusa Promoting Agency
TIDEL Information
Technology Park
Chennai (Taramani) Inaugurated July 2000 (building provided) TIDCO + ELCOT
Nemili Industrial Township 44 km 2430 acres under acquisition (provisions for housing on international standards) SIPCOT
SIPCOT I. T. Park 30 km (Siruseri) 1000 acres (plots only) SIPCOT + ELCOT
Oragadem Industrial Estate Approx. 20 km n.a. SIPCOT

(a) 1 acre = 0.405 hectare.
TIDCO = Tamil Nadu Industrial Development Corporation, ELCOT = Electronics Corporation of Tamil Nadu.

Source: Compiled from various documents collected at SIPCOT, Chennai, June 2000.

Map. 1. SIPCOT, Tamil Nadu

Map. 1. SIPCOT, Tamil Nadu

41In addition to the direct impact of the economic activities that locate in an industrial park, it can be expected that the announcement of a park itself may generate an immediate effect on the surrounding area. For instance, land prices may immediately rise in anticipation of future related developments (further industrialisation, commercial enterprises, housing, etc.). Likewise, over time others firms may be attracted to the area, settling in or around the estate in search of agglomeration economies or sub-contracting arrangements with existing firms. Indeed, one of the explicit purposes of promoting industrial estates, founded on the ‘growth pole’ concept, is to foster positive externalities that arise when firms locate in close spatial proximity, a fortiori when they actively co-operate with one another.

42This state-driven development of industrial estates–in response to or in anticipation of private demand–is enlarging the cluster around Chennai, pulling more and more semi-urban and rural spaces into the orbit of the city. Designating estates and realising related infrastructure projects serves to structure economic use in this re-defined domain by limiting certain types of activities and encouraging others. As Map 2 illustrates, the newly designated zones are forming a large ring around Chennai, stretching from Gummidipundi in the north to Nemili in the west and SIPCOT I. T. Park in the south. The Bay of Bengal forms a natural border on the eastern side.

  • 25 These data concern only large projects and do not take into account investments by the sta (...)

43These broad contours help to put into perspective the sparse secondary data available on new investment in the 1990s that show, as noted above, that it is being directed to peripheral/suburban areas. According to one study, of the total investments targeted at the city of Chennai, 70 % has been allocated to two large projects (40 % to one private power plant and 29 % to a public-sector railway project), the remainder constituted by private hotels (15 %), foreign consumer electronics (5 %) and textiles (3 %) (Shaw 1999: 975-76).25 As for investments in suburban Chennai, they can be broken down as follows: 22 % in chemical industry (private sector); 19 % in petroleum products (Central Government); 41 % in automobiles and ancillaries (private sector). This data series does not include information about public investment, but it is known that state government outlays have been largely directed toward infrastructure, both conventional infrastructure (energy, port development, roads and bridges, communications) and specialised infrastructure (industrial estates, education, financial services). Incidentally, it has been estimated that 60 % of all new investments in Tamil Nadu in the 1990s were in infrastructure (Bajpai & Radjou 2000: 454).


44This section examines evidence from Andhra Pradesh that illustrates another type of public policy impact. The current political leadership of this state is overtly involved in shaping the regional economy by elaborating a strategic development plan intended to provide a framework for both public and private investments. While the government defines a decisive role for itself, the ultimate success depends heavily on private economic actors. Hyderabad and its immediate surroundings occupy a central place in the strategy, in part as a consequence of the emphasis placed on high technology industries and services.

  • 26 Naidu explains in his book, Plain Speaking: “IT can provide what good governance needs: sp (...)

45Starting from the mid-1990s when Chandrababu Naidu took over as Chief Minister, the Andhra Pradesh government has been pro-active with respect to creating a ‘friendly’ business environment with the objective of garnering new investments, domestic and foreign. Rapid, streamlined approval procedures, investment incentives of various types, and public efforts to strengthen basic infrastructure have been among the key elements. As indicated above, economic policy is guided by a multi-pronged strategy, outlined in Vision 2020, that involves developing specific activities designated as growth engines. Information Technology (I. T.) is one of the major focus areas, and one that appears to possess great symbolic importance. Interestingly, I. T. is presented not just as a desirable industrial activity, capable of creating wealth and employment, but as a means to achieve radical social change with regard to governance.26

46Beyond attracting investment for I. T. from national and international firms, the administration’s stated goal is to generate the human and material resources necessary for launching and sustaining this type of activity. The proposed strategy to attain this goal involves creating a ‘knowledge corridor’ where training and research institutions are located in close proximity to firms, a configuration intended to favour interaction and hence innovations and their commercial exploitation. While Information Technology and related areas such as financial services and telecommunications have received the most attention so far, two other focus areas include biotechnology/medical sciences and industrial technologies. The physical starting point for this planned knowledge corridor is Hyderabad, and more specifically the suburban area englobing the recently built business park, HITEC City, i.e. Hyderabad Information Technology Engineering Consultancy City (see Map 3).

47As early as 1995 the state government launched into the construction of HITEC City, a joint public-private sector project that has received considerable media attention. It gives substance to the government’s aspirations in the field of I. T., and its symbolic significance was apparent in 2000, for instance, when U. S. President Bill Clinton spent the major part of his short visit to Hyderabad at HITEC City. The concept and site of this specialised park, built on 158 acres, are explicitly modelled on successful international examples: Hsinchu Science-based Park in Taiwan and Research Triangle Park in North Carolina (GoAP 1999: 286-88; Morel 2000). The central features of HITEC City are Cyber Towers, a ten-storey futuristic high-rise inaugurated in November 1998 and Cyber Gateway, a larger complex completed in 2001. Private firms can purchase or lease space in these fully equipped office buildings. On the surrounding campus approximately 30 large plots are available and numerous Indian and international firms have established their own offices.

48Geographically, HITEC City is situated just 15 kilometres from the centre of Hyderabad, towards the west, and approximately the same distance from the airport. As Map 3 shows, its sprawling campus lies to south of the national highway leading to Pune and Mumbai. Proceeding from the city centre, the road to HITEC City travels through the exclusive residential areas of Banjara Hills and Jubilee Hills. These suburbs offer attractive housing opportunities in close proximity to HITEC City, and harbour the city’s major luxury hotels.

Map. 3. HITEC, Cyderabad

Map. 3. HITEC, Cyderabad

49Within HITEC City, in addition to office space and plots for I. T.-related firms, the promoters have planned housing colonies, commercial buildings, as well as recreation facilities. Like in other metro cities (see Dupont 2001), the idea is to create ex nihilo new areas capable of providing middle and upper income groups with the kind of working and living conditions they aspire to, and are in a position to demand. Furthermore, these enclaves of prosperity must be located in a metropolitan city since it is assumed that “I. T. professionals typically prefer to live in cosmopolitan urban or suburban areas” (GoAP 1999: 282). Such strategies offer evidence that officials are conscious that in the high-tech sector in particular, they are competing in a global arena for capital and expertise, not just with other Indian cities but with other countries.

  • 27 Software Technology Parks of India is an autonomous agency set up in 1990 by the Ministry (...)

50Aggressive media campaigns characterise the current government’s strategy for attracting investors, and it has encountered considerable success in conveying an image of an information-based economy, at least for Hyderabad if not for the entire state. Putting aside the hype surrounding Andhra Pradesh’s putative qualifications and accomplishments, I. T.-related activities have grown quite remarkably in recent years. Data collected at the Hyderabad branch of Software Technology Parks of India (STPI)27 indicate that exports from Andhra Pradesh increased from Rs. 60 cr. in 1995-96 to more than Rs. 3500 cr. in 2002-03. In the same period, the number of companies registered with STPI and in operation rose from 31 to 820 (81 new units in 2002-03), providing employment to 71,445 persons. All but 80 of these units are in Hyderabad and surrounding suburbs.

  • 28 E-govemance or electronic governance uses Internet as a tool to improve citizen-government (...)
  • 29 Interview with Phani Kumar, IAS, Director of the E-seva Department, in Hyderabad, 7 March  (...)

51Significantly, the I. T. sector appears to be one of the more dynamic in the city, based on data concerning large investment projects. I. T. investments in HITEC City and surrounding area are estimated to account for over 70 % of the total investments under implementation in Hyderabad (Shaw 1999: 976). Public sector spending, mainly on infrastructure, is estimated at less than ten percent of the total, but this does not take account of public equity in the form of land. Moreover, as observed above, the government can stimulate the economy in numerous indirect ways. Through its e-governance initiatives, for example, the state is creating demand for software applications and management of electronic public services.28 The e-seva department, in charge of providing public services through electronic means, has contracted the design and operation of its various electronic services to private companies based in Hyderabad.29

  • 30 Business process outsourcing is the long-term contracting out of non-core business process (...)

52Other I. T.-enabled services are being developed in Hyderabad, such as business process outsourcing (back-office services, call centres, etc.).30 While they represent less value addition than software development, they are the fastest growing segment of the industry. Furthermore, such remote services, as they are called, represent a good strategic choice since India possesses considerable comparative advantage, notably in terms of qualified, English-speaking personnel. For that reason, garnering new investment in I. T. and I. T.-enabled services is the object of considerable interregional competition. Hyderabad is vying with Bangalore and Chennai in particular, both of which are often considered to constitute better investment locations. That may explain why Andhra Pradesh government’s strategy aims to go beyond I. T. industry to include other knowledge-based services.


  • 31 This institution exemplifies the kind of public-private partnership upon which the state w (...)

53Vision 2020 does not provide specific details about the location of the planned ‘knowledge corridor’, but a schematic map indicates the three zones will skirt around Hyderabad on the western, southwestern and southern borders, with extensions toward the south along a planned Hyderabad-Bangalore expressway. If plans for the knowledge corridor go forward, huge tracts of rural and semi-urban land will be ‘developed’ and brought into the nebulous category of‘Greater Hyderabad’.31

  • 32 Environmental and citizens’ groups are protesting the planned site of the international ai (...)

54This planned endeavour relies mainly on private investments, as observed above, but the public sector’s role is crucial, in its own words, to attract and facilitate, including through targeted public investments and specialised services, like venture capital funds, that are conceived as both complementary and enabling. The state has formulated plans for specialised educational institutions in each of three new zones to correspond to its designated field: biotechnology/medical research, industrial technologies and I. T.-enabled remote services. One such institute, a specialised engineering school, the Indian Institute of Information Technology, was started in 199832 and is situated in close proximity to HITEC City (see Map 3, above).

55This kind of massive economic project obviously carries substantial social and spatial implications, immediate or latent, which are rarely spelled out in policy documents. As described above, the strategy to develop a ‘knowledge corridor’ consisting of three high-tech zones, targets most directly the city of Hyderabad and its satellite towns. Already the largest urban agglomeration in the state, Hyderabad is poised to grow in response to the inflow of public and private investments and the employment expectations they foster. Beyond the demographic impact, the economic profile stands to be tangibly modified by these efforts, in accordance to the nature and scope of the linkages that the new activities generate. That is, each sector has specific repercussions with respect to enterprise development (suppliers, subcontractors, traders, etc.), employment, and integration in the national and international economy. A major critique of this strategy has been its relatively low capacity for employment creation. Moreover, according to some accounts Hyderabad is currently unable to supply the qualified personnel that many I. T.-related activities require. A crucial challenge then is in the development of human resources, to ensure an adequate supply in the future.

56Regarding urban development more generally, policy statements pay lip service to the need to reduce disparities between different regions of the state, but it is not difficult to detect an urban bias. It is the logical corollary deriving both from the strategic focus for economic development, i.e. on high technology, and the growth pole/industrial cluster concepts underlying much of the strategy. The preceding discussion has demonstrated the prominent place given to Hyderabad, via its emerging economic specialisation in a thrust area. Furthermore, by rather crudely identifying industrial clusters with the State’s major cities (Hyderabad, Karimnagar, Warangal, Timpati, Visakhapatnam, Nellore, Vijayawada, Anantpur), and advocating their connection via ‘growth corridors’, the current administration is explicitly endorsing spatial concentration as a growth strategy. In other words, objectives for economic development of the State’s urban agglomerations are centred on tapping the potential of the largest cities:

The clusters created will need to be connected by ‘corridors’ of transport and communications infrastructure. Roads, telecommunications links, industrial estates, ports and airports should form parts of the corridor. These corridors will reinforce trade between clusters. The clusters and corridors approach makes it possible to make the best use of scarce resources by concentrating them initially on select areas, and creating critical mass and high quality. The development of these clusters and corridors will spearhead the development and spread of economic activity in all parts of the State... [GoAP 1999: 37]

57Obviously, this is not a novel strategy, reflecting as it does the assumptions from mainstream economic theory about location and the convergence of growth rates over time. It is being used in China with tremendous success–if the growth rate is used as the measure of success–via special export zones situated in coastal regions.


58In the preceding section, examples of how regional governments in Andhra Pradesh and Tamil Nadu are shaping economic space in the post-reform period were examined. It was seen that both states are creating or promoting economic specialisation in their metropolitan capital cities as a means to attract investment, thereby reinforcing market forces that favour spatial concentration. The aim here is to place these emerging tendencies in India in a wider perspective, the assumption being that while observed processes are unique, deriving from specific historical contexts, they can nonetheless be linked to more general patterns. To explore this avenue, recent theoretical literature on changes in global economic processes provides a useful framework.

59One strand of research in economic geography examines the ways in which different forms of capitalism relate to space, their territorial penetration and impact in local settings. Interest in this type of question has increased in recent years in tandem with the recognition that there exists “intimate links between production (technical and organisational forms of wealth creation) and spatial configurations” (Veltz 1996: 10; for a more general survey, see Rallet & Torre, eds., 1995). For instance, it has been hypothesised that the fordist production mode, the dominant form of capitalism in industrially advanced countries roughly from 1950 until the 1970s, corresponding to mass production and consumption of standardised goods, had a less profound spatial impact than earlier forms. In opposition to the strong territorial imprint of 19th-century industrialisation, illustrated for instance by the formation of communities around mining activities, fordist production in Europe often took the form of isolated enclaves, factories were situated on the outskirts of cities or along main thoroughfares, and were usually cut off from their surroundings (Di Meo 1998: 205). Typically, these firms were vertically integrated, they internalised all operations under one roof: design, production, marketing, sales, and often research and development.

  • 33 Piore & Sabel (1984) were among the first authors to theorise this change.

60While fordist production continues (for standardised household appliances, automobiles, etc.), perhaps especially in the periphery of global capitalism, it is no longer the dominant system driving economic growth in the world economy.33 Its crisis has intensified processes of spatial restructuring throughout the world, as localities and regions strive to adapt to changing market conditions and find ways to compete. Competition has not only sharply increased, its nature has changed, reflecting a radical reversal from a largely supply-side growth dynamic to one driven by demand (Best 1990). Flows of goods and information have accelerated, quality as opposed to cost has become a major determinant of demand, and the life-cycles of both capital and consumer goods have shortened dramatically.

61In the last decades, new economic spaces have emerged as a result of strategies practised by large firms that consist of de-localising production to countries with lower labour costs. This constitutes a first step in a more profound on-going process of externalisation on the part of firms, a disintegration process whereby they rely on other firms for certain operations rather than internalising the entire production and marketing chain. This translates into greater flexibility, allowing them to respond more rapidly to changing market conditions.

  • 34   There is a large body of theoretical and empirical literature on these decentralised produ (...)

62At the same time, local entrepreneurship, the successful mobilisation of local social and economic resources, are also contributing to the definition of new economic spaces. In some cases, clusters of small and medium enterprises are historically rooted, emanating from a local craft tradition. In others, new growth poles have emerged, often based on new technologies. Both of these configurations illustrate how spatial concentration and social proximity favour efficiency through agglomeration effects, i.e. positive economies arising from physical proximity and inter-firm co-operation.34

63In the emerging scenario of global economic restructuring, where flexibility, constant innovation and co-ordination are the principal leitmotive, the density and quality of co-operation within and between firms is seen as crucial. This helps to explain current trends characterised by spatial concentration of productive activities and a renewed economic role for cities and their suburban surroundings. Metropolitan cities in particular are the locus of new growth poles as they favour agglomeration effects and concentrate those factors that investors seek, such as skilled labour, markets for their goods and services, good quality infrastructure and specialised producer services. Beyond material factors, they offer assurances to firms in a time of uncertainty about future availability of resources human and physical (Veltz 1996: 238; see also Benko, ed., 1992). While ‘global cities’, e.g. New York, London, Tokyo, have received particular attention as they produce specialised business services and are seen to occupy nodal co-ordinating positions in the world economy (Sassen 1991), current economic processes are shaping the urban hierarchy on a worldwide scale. Increasing economic and financial interdependence contributes to defining each metropolitan city’s place in a transnational urban system (Dureau et al., eds., 2000). With respect to Third-World metropolises, Dubresson considers that the highly unequal transition from fordist production to flexible specialisation and globalisation has further reinforced the differences between them, and increased the economic power of a few of them only (ibid.: 26).

Fruitmarket around the Charminar, Hyderabad, 2005.

Fruitmarket around the Charminar, Hyderabad, 2005.

(Photogr. Loraine Kennedy)


64Without attempting to provide an exhaustive diagnosis of the impact of global economic restructuring on India’s metropolitan cities, this section advances some hypotheses on the basis of recent research in Andhra Pradesh and Tamil Nadu.

  • 35 For an overview of recent research on global value chains (or global commodity chains), se (...)

65From the point of view of an Indian manufacturing firm producing for global markets, its growth strategies may be different than those of its counterparts at the ‘centre’, but they respond to some similar logic: in effect, gaining access to markets depends increasingly on partnerships, on participation in global production networks. These ‘global value chains’ linking geographically dispersed production or service units, are usually controlled by lead firms situated in developed countries.35 Field surveys conducted in the late 1990s among leather producers in Tamil Nadu confirm the presence of production networks operating on the principle of governance, defined as “non-market co-ordination of economic activity” (Gereffi et al. 2001: 4). It was observed that large firms producing predominantly for export markets are often involved in close, long-term cooperative relationships with their clients. In parallel, many of these same Chennai based firms control production networks in the Palar Valley, about 150 kilometres outside Chennai, often via sub-contracting arragements with smaller firms. Here too production networks relied on personal relationships, based largely on kinship or community ties, for ensuring quality, respect of delivery times, etc. (Kennedy 2002).

In a popular district, dogs and pink lunghi, In a popular district, dogs and pink lunghi, Hyderabad, 2006 Hyderabad, 2006.

In a popular district, dogs and pink lunghi, In a popular district, dogs and pink lunghi, Hyderabad, 2006 Hyderabad, 2006.

(Photogr. L. Kennedy)

66This example illustrates the equivocal nature of current industrial organisation with regard to the metropolisation process in Chennai. On one hand, Chennai’s control functionslare increased since Chennai-based leather producers/exporters are more closely co-ordinating operations at the production base in the Palar Valley, in order to maintain their competitiveness in international markets. On the other hand, increasing control and management by external clients (producer firms or distribution groups in Europe or the U. S.) represent a limitation on Chennai’s ultimate control over economic decisions taken in the industry.

67Regarding the large foreign investments projects in Chennai’s suburbs, such as those by Ford and Saint-Gobain, they reflect strategies by multinational companies to externalise production to reduce costs, and to gain access to the Indian consumer market. While a detailed study of such projects would be necessary to ascertain their impact on employment and local business activity (suppliers, subcontractors), the general impression is that they have a rather limited rapport with local partners and with local space, resembling fordist-era enclaves. Like elsewhere in the country, there has been a tendency in recent years for Indian partners of joint-ventures to be absorbed by their foreign counterparts (Landy 2000: 159).

  • 36 Interview with a high-ranking official at the Investment Board, Chennai, 28 June 2000.
  • 37 This information was collected from STPI, Hyderabad, March 2003.

68In both Chennai and Hyderabad, the I. T.-related industries, such as software development and remote services, rely heavily on international capital and business networks and on global markets. At Chennai’s Information Technology Park for instance, most of the space in the 14-storey ultramodern building was sold to foreign companies, some to joint ventures.36 Likewise, some of the largest firms at HITEC City are subsidiaries of foreign firms, mainly American (G. E., Microsoft, Oracle, ...). Many such firms work primarily for their head offices abroad and may have little interaction with other local firms or research institutes. On the basis of the interviews she conducted with managers in early 2000 at HITEC City, Morel (2000) reports that none had links with research institutes in Hyderabad; such exchanges did exist with centres in the U. S. or Australia, where their firms’ home offices were located. It should be noted however that HITEC City is home also to numerous Indian firms, and new investments in Andhra Pradesh in 2002-03 were primarily Indian (non-NRI) capital. Moreover, three of the state’s top four exporters were Indian firms (Satyam, Wipro and Infosys).37

69A firm’s status–independent or subsidiary–, and the location and type of markets to which it caters are important considerations when qualifying the kind of economic change a city is undergoing and to what extent it is involved in a metropolisation process. India’s metropolitan cities are confronted with the task of ensuring that economic growth allows them to assume greater economic control over their hinterlands and regions, in other words, that it reinforces their position as a metropolitan city (as opposed to just a large city). This is a significant concern in light of recent economic restructuring, e.g. de-localisation, global production networks, and the tendency for increasing centralisation of management and co-ordination functions in the most developed regions of the world (Sassen 1991). It seems likely that India’s metropolitan cities, like others situated in the periphery of global capitalism, will continue to occupy subordinate positions with respect to control functions, both with regard to manufacturing sectors, e.g., automobiles, textiles, leather, and to new service-based sectors, which are highly concentrated in the ‘global cities’.

70It is useful to keep these considerations in mind when evaluating strategies put forward by some of India’s regional governments that aim toward human capital development, and high quality infrastructure. The rationale is that these constitute necessary, if insufficient, conditions to enable access to the high-value market segments in the short-run and to increase capacity in knowledge-intensive fields in the longer term. However, such strategic choices beg important social questions, only briefly touched upon here.

71A seemingly major challenge faced by India’s metropolitan cities is to succeed in combining economic growth with employment opportunities for different social groups. As shown above, some state governments are explicitly opting for spatial polarisation, ostensibly to maximise growth potential, rather than striving for balanced regional growth. These choices have social consequences, and represent a political risk at a time when public resources are diminishing as a result of economic reforms, thereby limiting the state’s scope to implement compensatory measures.

72As critics point out, the creation of new business districts, like HITEC City, selective institutes of higher education, or certain types of specialised infrastructure (broadband telecommunications), most directly favour a social élite. A crucial question that regional and municipal leaders must address is the articulation between those activities which form part of the global economy, often ‘new economy’ high-tech fields, and the informal sector which continues to occupy a predominant place in the urban economies of India’s large metropolitan cities (see Dubresson 2000). Fields such as software development, which require primarily highly skilled labour, create very little direct employment. Whether these investments are made at the expense of other groups depends on overall capital outlays and their effectiveness, but they do represent a trade-off: public funds invested in one place are not available for other purposes in another place.

Construction continues in Cyberabad, the special development area located on the outskirts of Hyderabad, 2005.

Construction continues in Cyberabad, the special development area located on the outskirts of Hyderabad, 2005.

(Photogr. L. Kennedy)

  • 38 For a comprehensive study of the evolution of housing policies in Chennai and their socio- (...)

73The new industrial units in Chennai, located mainly in the greater metropolitan area on newly developed industrial parks, will certainly have multiple impacts, economic, social and spatial. Depending on their specific sectoral articulation, they stand to modify the location and nature of industrial activities throughout the regional economy. Directly affected by the location of these activities are the people they employ, who, if not residing locally, must undertake to commute or migrate, and possibly find housing near the workplace. At a time when the public sector is reducing its implication in housing38 and other urban services, it is unclear how or whether the city, or the rural administration in the contiguous districts, will address these needs.

  • 39 See for example May et al. 1998; Navez-Bouchanine, ed., 2002.
  • 40 The Hindu, “Revival of rural economy, main concern”, 6 July 2002.

74Both examples–elite urban enclaves in Hyderabad and sprawling industrial estates in Chennai’s suburbs–have important implications for social and spatial segregation in the city, a potentially explosive issue that India’s political leadership is facing with increased urgency since the start of liberalisation a decade ago. Indeed recent scholarship on the metropolisation process has highlighted a trend of fragmentation, of growing divergence between social groups, neighbourhoods, and city-dwellers, between those who can pay for urban services or housing and those who cannot.39 It remains to be seen how state-level political leadership will conciliate economic strategies that deepen spatial concentration and exacerbate social tensions, with the compulsions of electoral democracy. A recent announcement by Tamil Nadu’s Chief Minister demonstrates awareness of the need to address the issue of socio-economic redistribution, at least rhetorically. According to press reports, Jayalalithaa told a group of industrialists that she “would not be willing to base Tamil Nadu’s industrial prosperity on the fortunes of just a few sectors or a few cities or a few regions,” that her government’s policies must “try to bridge the new emerging inequalities by widening access to all in respect of news skills, resources and opportunities...”40

* *

75The increased autonomy of Indian states with respect to economic policy-making, largely an unintended consequence of liberalisation, was the starting point of this study. The analyses focused on the response of two ‘reform-oriented’ states, Andhra Pradesh and Tamil Nadu, to liberalisation and explored the spatial implications of their policies. The findings provide further evidence that economic liberalisation does not simply diminish state power, but rather transforms it. It was seen that public policy continues to play a crucial role, as do public investments, notably in human resource development and infrastructure, in tandem with private investment, which has become the key determinant of growth.

76The examples examined here were chosen to illustrate how recent state-level policy choices, indirect measures and direct interventions, are contributing in decisive ways to shaping new economic spaces, especially around the capital cities of Hyderabad and Chennai. In both cases, spatial concentration is explicitly or implicitly endorsed as a growth strategy, with the assumption that the dynamism thus created will spread throughout the regional economy. A high-technology park outside Hyderabad and a planned ‘knowledge corridor’ translate the Andhra Pradesh leaders’ ambition to create economic specialisation in recent, knowledge-intensive fields. The strategy has succeeded in attracting investments, but it is likely to exacerbate social and spatial segregation in the city by creating limited employment opportunities and favouring enclaves for élite groups. Tamil Nadu’s successive governments in the 1990s, building on the existing industrial base, have sought to accommodate private investors by offering attractive incentives and by investing in specialised infrastructure, notably large industrial estates in Chennai’s outskirts. Both examples involve restructuring vast areas of semi-urban or rural land, by ‘developing’ them with the help of promoters, and bringing them into the orbit of the metropolitan cities. Such industrial estates, and the activities they generate, have profound social impacts, influencing local employment patterns and leading to increased mobility.

77These economic policies, based on spatial polarisation, mark a significant reversal of pre-reform policies aimed at achieving balanced regional growth. Today, in view of accompanying market forces, public policy is contributing to enhancing the economic role of metropolitan areas, a trend increasingly observed throughout the world. In effect, profound economic restructuring, triggered by the fordist crisis, favours polarisation: firms seek to obtain greater flexibility through agglomeration effects and increased inter-firm co-operation. Paradoxically perhaps, the physical dispersion of economic activities across the planet has given rise to an increased tendency for centralised co-ordination, facilitated by improvements in global telecommunication. These processes are shaping the global urban hierarchy, raising questions about the ability of India’s metropolitan cities, like others situated in the periphery of global capitalism, to maintain or increase their command functions.

78Through their links to world markets, both old (i.e. manufacturing) and new economy sectors of the regional economies analysed here are influenced by global changes. The more dynamic segments of the Chennai-based leather industry produce in global networks in close co-operation with foreign partners. As for recent industrial investments around Chennai, they are in part the manifestation of transnational firms’ strategies to lower costs and expand their markets. Their capacity to engage and sustain an industrial dynamic will depend on their linkages to the regional economy. In Hyderabad, the new economy sectors are closely interconnected with, and dependent upon, global markets. Announced plans to create future capabilities through education and training, but also better quality governance, indicate the Andhra Pradesh government’s goal to reach beyond the low-value segments of the market to secure a stake in future technological developments.

  • 41 I would like to thank Frederic Landy and Veronique Dupont for providing an opportunity to (...)

79Policy choices involve trade-offs between equity, social and spatial, and efficiency. As state-level leaders take on more responsibilities and discover greater policy autonomy, it is likely that their populations will hold them increasingly accountable for their choices.41

80L. K.


81First drafted in 2002. many of the tendencies highlighted in this article have held their or indeed become more pronounced. At the macro level, economic reforms have moved forward, and India’s growth has remained high (around 8 % per annum for the last three years). In 2004, following general elections, Congress-I took the lead of a new governing coalition, the United Progressive Alliance (UPA), with support from several Left parties. Manmohan Singh, one of the foremost architects of the reforms in the early 1990s, became Prime Minister. Although committed to the reform process, the UPA government has emphasised the importance of strengthening social services and reducing poverty, an acknowledgement that market forces alone are insufficient for achieving the country’s development goals.

Infosys on the “I. T. Highway” on the southern outskirts of Infosys on the “I. T. Highway” on the southern outskirts of Chennai, 2006. DR Chennai, 2006. DR

Infosys on the “I. T. Highway” on the southern outskirts of Infosys on the “I. T. Highway” on the southern outskirts of Chennai, 2006. DR Chennai, 2006. DR

(Photogr. Kamala Marius-Gnanou) (Photogr. Kamala Marius-Gnanou)

  • 42 See Cadene & Marius-Gnanou 2004. The Social Sciences Department of the French Institute of (...)

82Since the above text was finalised, the states examined here, Andhra Pradesh and Tamil Nadu, have also experienced political change. Congress-I secured victory in Andhra Pradesh in 2004, winning a strong majority against N. Chandrababu Naidu’s Telugu Desam party and its electoral partner the BJP. In early 2006, the DMK overturned its rival, the AIADMK, to again return to power in Tamil Nadu under the leadership of M. Karunanidhi. In both cases, the victors were elected on platforms critical of economic reforms, but it appears unlikely that radical policy changes will take place in either state. In the case of Andhra Pradesh, during its long period in the opposition, the Congress had been very critical of the Naidu government’s focus on the I. T. sector and its relative neglect of the agricultural sector, and what it considered the excessive attention lavished on Hyderabad. Notwithstanding a distinct policy stance in many sectors, the current government, under the leadership of Y. S. Rajasekhara Reddy, has continued to pay close attention to sustaining momentum in the I. T. sector. It is pursuing the policy of infrastructure provision in Hyderabad’s peripheries, and has announced the construction of new specialised industrial estates (Kennedy & Ramachandraiah 2006). In Chennai too, to mention only the I. T. sector, major national and international software firms are setting up all along the ‘I. T. Corridor’, a government sponsored project that is extending the city’s boundaries southward (see photogr. above).42

  • 43 Approximately 60 cities are considered eligible for the programme, 35 million plus cities, (...)
  • 44 The speech can be downloaded from the Prime Minister’s website: <>.

83Not surprisingly, investment flows at the regional level are progressing along the same pattern, and investments continue to concentrate in few states. It may be recalled that between 1991 and 2001, six states (Maharashtra, Tamil Nadu, Karnataka, Delhi, Andhra Pradesh and West Bengal) accounted for over 86 % of the total foreign direct investment approved (Aggarwal 2005). It is interesting to note, and relevant for this study, that it is in these states that the country’s largest cities are located. Metropolitan cities have continued to attract attention from investors and are increasingly treated as engines for economic growth by policy-makers. In late 2005, the Central Government launched a large-scale programme, the Jawaharlal Nehru National Urban Renewal Mission (JNNURM), to address the needs of the country’s largest cities, notably with regard to improving urban infrastructure and providing basic services to the poor.43 At the same time, the strategic importance of the country’s 35 million-plus cities for sustaining growth is explicitly recognised: it mentions for instance that cities could contribute as much as 65 % of gross domestic product by 2011. In his speech inaugurating the JNNURM the Prime Minister called the urban economy a bridge between the domestic economy and the global economy, and called for it to be strengthened.44

84In the framework of the JNNURM programme, in order to gain access to public funds and thereby important leverage for partnerships with the private sector, cities are required to draft detailed development plans outlining strategies for improving service delivery. Interestingly, in the case of Hyderabad, attention is explicitly given to improving the ‘investment climate’ in a bid to establish the city as a regional hub. The plan exercise is supposed to include consultations with stakeholders, including elected representatives, business interests and civil society organisations.

  • 45 An Indo-French project, “Urban Actors, Policies and Governance” is currently conducting re (...)
  • 46 Last revised on 7 July 2003.

85Ironically, while Indian cities are getting attention from policy-makers and investors, they remain political dwarfs. Despite the 74th constitutional amendment, ratified in 1993, whose objective was to empower urban local bodies, most elected councils, including in the largest cities, are yet to gain sufficient autonomy from state governments to constitute an effective level of government.45 And as the economic stakes climb ever higher, political decentralisation may not be a priority for state governments eager to mobilise their urban assets to serve a regional growth strategy.46



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1 Definitions of metropolisation sometimes refer to a concomitant process of increasing intra-city segregation and rising social tension. See Dureau et al., eds., 2000.

2 Third Five-Year Plan, Planning Commission, Government of India, cited by Dupont 1995: 54 n. 21.

3 This paved the way for such categories as ‘most backward’ districts, blocks, etc. Tamil Nadu, for instance, identified two categories at the block-level to benefit from special measures: ‘backward blocks’ and ‘most backward blocks’.

4   This comes out clearly in the case of Thailand, which undertook elaborate zoning in an effort to decongest Bangkok. See Kennedy, Kermel-Torres, Schar, eds., 2001.

5 Planning commission document cited by Dupont 1995: 44. For a review of India’s policies with respect to urbanisation and industrial dispersal, cf. ibid.: 42-54.

6 See Kundu, Misra, Meher 1986: 24-25, table 1.7. The eight states are West Bengal, Tamil Nadu, Gujarat, Maharashtra, Punjab, Haryana, Karnataka and Kerala.

7 It should be noted that these regions were chosen also because of the presence of rich mineral deposits.

8 This comes out clearly in the case of Thailand, which undertook elaborate zoning in an effort to decongest Bangkok. See Kennedy, Kermel-Torres, Schar, eds., 2001.

9 This finding is largely corroborated by Nagaraj 2000: 2837.

10 Using diverse data sources, he asserts that the share of investment of all metropolitan districts has declined from almost 23 % in the pre-reform period to less than 18 % in the post-reform period. For the same period, the share of investment in ‘urban districts’ (those that are over 50 percent urban) “has declined substantially–from just under 50 percent to about 32 percent.” (Chakravorty 2000: 379-82.)

11 For an international comparison of the ways that liberalisation is redefining state power and state functions, see Hibou, ed., 1999. In India, for instance, there has been a displacement of power toward the states.

12 This study places India’s 15 major states into three categories: reform-oriented, intermediate reformers and lagging reformers on the basis of criteria such as investment incentives, power sector reform, industrial and infrastructural reforms and tax reform; see Bajpai & Sachs 1999: 11-17, app. I-V. It singles out Andhra Pradesh and Tamil Nadu as having “implemented reforms on a wider scale relative to other states in (their) category.”

13 It should be noted that this is not a comparative study, rather illustrative examples are taken from each.

14 This government failed and fell at the 2004 polls. [Ndlr.]

15 For a detailed critique by academics in Andhra Pradesh, see Reddy, ed., 1999.

16 Indeed, Vision 2020 took its name and was modelled on Malaysia’s Vision 2002 document.

17 The DMK, under the leadership of M. Karunanidhi, completed a full mandate from 1996-2001, before being defeated by the AIADMK.

18 This was the opinion of the regional director of the Confederation of Indian Industry (southern region), interview, Chennai, 26 June 2000.

19 The district-level data used by Shaw (1999) are from CMIE, and do not include investments realised by small unregistered firms.

20 These clarifications were provided during an interview with a high-ranking official in the Industries Ministry, Government of Tamil Nadu, Chennai, 29 June 2000. Subramanian (1996) estimates at Rs. 300 cr. the loss to the state exchequer.

21 By definition, such agreements are not made public, but the script probably runs something like this: as part of the project package, the government agrees to acquire and service the land according to the client’s specifications. The site is then declared an industrial estate, and the plot is leased or sold to the client.

22 Subject to a ceiling. Subsidies are usually differentiated among small-scale, on one hand, and medium and large units, on the other, the latter benefiting from higher rates (usually 20 % vs. 10 %). For ‘mega’ projects however, Tamil Nadu’s capital subsidy rates are among the highest in the country: an investment above Rs. 200 cr. draws a subsidy of Rs. 1 cr.

23 The Industrial Township Area Development Authority Act, 1997. To further speed things up, investors are permitted to commence the construction of their factories without waiting for the plan’s approval from local authorities on condition they agree to later corrective action. See Bajpai & Sachs 1999: 8.

24 Small Industries Promotion Corporation of Tamil Nadu and Tamil Nadu Industrial Development Corporation, respectively.

25 These data concern only large projects and do not take into account investments by the state government, which limit their usefulness.

26 Naidu explains in his book, Plain Speaking: “IT can provide what good governance needs: speed, efficiency, transparency, consistency and reliability. It can smoothen the interface citizens and business have with the government, by making the latter more responsive. With information technology it becomes possible to improve internal efficiencies, integrate services, and to introduce new services.” (Naidu 2000: 84.) For more on how the Andhra Pradesh government articulates its development strategy, see Kennedy 2004.

27 Software Technology Parks of India is an autonomous agency set up in 1990 by the Ministry of Communications and Information Technology, Government of India.

28 E-govemance or electronic governance uses Internet as a tool to improve citizen-government interface and accelerate services, such as obtaining ration cards or official certificates.

29 Interview with Phani Kumar, IAS, Director of the E-seva Department, in Hyderabad, 7 March 2002.

30 Business process outsourcing is the long-term contracting out of non-core business processes to an outside provider to cut costs and introduce greater flexibility.

31 This institution exemplifies the kind of public-private partnership upon which the state would like to build, since it mobilises the expertise of major software corporations already present on the scene, including Microsoft and IBM. See Shaw 1999: 976.

32 Environmental and citizens’ groups are protesting the planned site of the international airport, in close proximity to water bodies that provide drinking water to Hyderabad, on grounds that it violates existing legislation.

33 Piore & Sabel (1984) were among the first authors to theorise this change.

34   There is a large body of theoretical and empirical literature on these decentralised production forms. For a discussion in the Indian context, see Cadene & Holmström, eds., 1998, Dupont 1995, and Kennedy 2002.

35 For an overview of recent research on global value chains (or global commodity chains), see Gereffi et al. 2001.

36 Interview with a high-ranking official at the Investment Board, Chennai, 28 June 2000.

37 This information was collected from STPI, Hyderabad, March 2003.

38 For a comprehensive study of the evolution of housing policies in Chennai and their socio-economic and spatial impacts, see Auclair 1997.

39 See for example May et al. 1998; Navez-Bouchanine, ed., 2002.

40 The Hindu, “Revival of rural economy, main concern”, 6 July 2002.

41 I would like to thank Frederic Landy and Veronique Dupont for providing an opportunity to present a first draft of this paper to the CEIAS team “Circulation et Territoire”, on June 24th, 2002, and for their constructive remarks. I am also grateful to George Rosen and Éric Leclerc for useful comments on an earlier draft.

42 See Cadene & Marius-Gnanou 2004. The Social Sciences Department of the French Institute of Pondicherry is currently sponsoring a project on mobility and development in Chennai’s fringes (dir. K. Marius-Gnanou), see <>.

43 Approximately 60 cities are considered eligible for the programme, 35 million plus cities, plus 28 selected cities: “State Capitals and other cities/UA of religious/historic and tourist importance”. See <>.

44 The speech can be downloaded from the Prime Minister’s website: <>.

45 An Indo-French project, “Urban Actors, Policies and Governance” is currently conducting research on the decentralisation process with reference to four large cities: Delhi, Hyderabad, Kolkata and Mumbai. For more information, see <>.

46 Last revised on 7 July 2003.

Table des illustrations

Titre Map. 1. SIPCOT, Tamil Nadu
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Titre Map 2. Chennai
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Titre Map. 3. HITEC, Cyderabad
Fichier image/jpeg, 59k
Titre Fruitmarket around the Charminar, Hyderabad, 2005.
Crédits (Photogr. Loraine Kennedy)
Fichier image/jpeg, 38k
Titre In a popular district, dogs and pink lunghi, In a popular district, dogs and pink lunghi, Hyderabad, 2006 Hyderabad, 2006.
Crédits (Photogr. L. Kennedy)
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Titre Construction continues in Cyberabad, the special development area located on the outskirts of Hyderabad, 2005.
Crédits (Photogr. L. Kennedy)
Fichier image/jpeg, 42k
Titre Infosys on the “I. T. Highway” on the southern outskirts of Infosys on the “I. T. Highway” on the southern outskirts of Chennai, 2006. DR Chennai, 2006. DR
Crédits (Photogr. Kamala Marius-Gnanou) (Photogr. Kamala Marius-Gnanou)
Fichier image/jpeg, 30k


Loraine Kennedy is socio-economist, CNRS research fellow at the Centre d’Études de l’Inde et de l’Asie du Sud (EHESS-CNRS), her main research thèmes with regard to India include : économie reforms, local and régional growth dynamics, State re-scaling and économic development in metropolitan régions. Using a political economy approach, she analyses the interaction between économie growth and public policy and between économie and political dites, especially at the régional level, in the context oflibéralisation. Her current research focuses on the response of State governments to économie reforms, both their political rhetoric and action, and on their growth strategies, which tend to increasingly rely on the différentiation of space. She is interested in the increasing emphasis on large cities as growth engines as a resuit of State re-scaling strategies.


– 2004, “The political déterminants of reform packaging : contrasting responses to économie liberalization in Andhra Pradesh and Tamil Nadu”, in R. Jenkins, ed., Régional Réfactions : Comparing Politics across India’s States, New Delhi, Oxford University Press, pp. 29-65.
– 2006, L.K. & C. Ramachandraiah, “Logiques spatiales d’une stratégie régionale ‘high-tech’ : l’exemple de HITEC City à Hyderabad (Inde)”, Flux, 63/64, janv.-juin, pp. 54-70.
– (ftheg.) “Régional industrial policies driving peri-urban dynamics in Hyderabad, India”, Cities, The International Journal of Urban Policy and Planning, Elsevier Publications.

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