City Spotlight: Investing in India’s Hyderabad

November 11, 2016 Posted by India Briefing Reading Time: 7 minutes

By Melissa Cyrill

Hyderabad is the capital of the south Indian state of Telengana and the de jure capital of the state of Andhra Pradesh. Telengana is the newest of the 29 states in India and was awarded independent statehood from the larger state of Andhra Pradesh on June 2, 2014. Hyderabad will be joint capital for both states for a period of ten years till 2025.

Located along the banks of the Musi River and covering an area of 250 square miles, Hyderabad is home to a population of about 6.7 million and a metropolitan population of about 7.75 million, making it the fourth most populous city and sixth most populous urban agglomeration in India. At an average altitude of 1,778 feet, much of the city is situated on hilly terrain around artificial lakes.

Hyderabad was established in 1591 under the Qutub Shahi dynasty and subsequently expanded by the Nizam rulers who followed. The city has a rich historical legacy that is reflected in its arts and architecture, forts, museums, cuisine, and traditional bazaars (markets), making for a thriving tourist economy. Adding to the city’s cultural appeal is the fact that it is the center of the Telegu film industry, which is India’s second-largest producer of motion pictures. Hyderabad is also historically known to be a pearl and diamond trading center and continues to enjoy the moniker ‘City of Pearls’.

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Administration

The Hyderabad Metropolitan Development Authority (HMDA), formed in 2008, merged the following entities – Hyderabad Urban Development Authority (HUDA), Hyderabad Airport Development, Authority (HADA), Cyber Abad Development Authority (CDA), and Buddha Poornima Project Authority (BPPA). HMDA coordinates the development activities of the municipal corporations, municipalities, and other local authorities like the Hyderabad Metropolitan Water Supply & Sewerage Board. It also manages the Hyderabad Management Development Fund, which allocates finances for the plans and programs of local bodies undertaking the development of amenities and infrastructure facilities.

Education

Hyderabad’s educational infrastructure attracts students from all over India and internationally (especially students from Africa and the Middle East). The city hosts two central universities, three deemed universities, and six state universities – Osmania University; University of Hyderabad; Jawaharlal Nehru Technological University, Hyderabad; International Institute of Information Technology; Indian Institute of Technology, Hyderabad; Tata Institute of Fundamental Research, Hyderabad; Birla Institute of Technology and Science (Pilani), Hyderabad. Other institutions include the Nizam’s Institute of Medical Sciences, the Institute of Public Enterprise, and the National Academy of Legal Studies & Research (NALSAR). Hyderabad is also home to the Maulana Azad National Urdu University and the Dr. B.R. Ambedkar Open University.

Economy

In 2012, Hyderabad became the fifth largest contributor to the country’s gross domestic product (GDP) with a total output of US$ 74 billion. A huge push towards industrialization during the twentieth century led to major Indian manufacturing, research, and financial institutions getting established in Hyderabad, such as the Bharat Heavy Electricals Limited (BHEL), the National Geophysical Research Institute, and the Centre for Cellular and Molecular Biology. The city’s strategic location in south central India additionally resulted in the establishment of pharmaceutical and electronic industries in the 1970s, and subsequently, the development of the information technology and biotechnology sectors.

Key Sectors for Investment

IT Sector:

Hyderabad’s IT sector is renowned for being the world’s leading center for information technology. Hyderabad’s IT sector includes IT-enabled services (ITeS), business process outsourcing (BPO), entertainment industries, and financial services. Collectively, the city’s IT and ITeS exports crossed US$ 11.13 billion (Rs 750 billion) in 2015-2016, growing by 13.26 percent over the previous financial year. 22 percent of NASSCOM’s (National Association of Software and Services Companies) total membership is based here.

Major multinational IT, ITeS, and financial services firms located in Hyderabad are Microsoft (the largest R&D campus outside the U.S.), Google, Amazon, IBM, Oracle Corporation, Yahoo!, Dell, Texas Instruments, Hewlett-Packard, Facebook, Tech Mahindra, Infosys, Wipro, Cognizant, Tata Consultancy Services (TCS), Apple, Deloitte, Franklin Templeton Investments, GE Capital, Accenture, HSBC, S&P Capital IQ, Ernst & Young, KPMG, Capgemini, and Genpact, among many others.

The Hyderabad Information Technology and Engineering Consultancy City (HITECH City), also known as the technology township Cyberabad, is spread across 200 acres of land – covering the suburbs of Madhapur, Gachibowli, Kondapur, Manikonda, and Nanakramguda. This township is one of the premier IT, Engineering, Health Informatics, and Bioinformatics hubs situated in the country. Newer investments in Hyderabad’s digital and related economic infrastructure includes the upcoming IT investment region jointly being developed by the Government of India and Government of Telangana – along the model of the Shenzhen SEZ in China – called the Information Technology Investment Region (ITIR). ITIR aims to attract the IT, ITeS, and electronic hardware manufacturing sectors, and will be spread over 50,000 acres in and around Hyderabad. It will include SEZs, industrial parks, free trade zones, warehousing zones, and export-oriented units in three separate corridors.

Bio-pharmaceutical Industry:

Hyderabad is a key pharmaceutical and biotechnology hub and is called the country’s pharmaceutical capital and “Genome Valley of India”. The incorporation of the Indian Drugs and Pharmaceuticals Limited (IDPL) in 1961 provided the foundation of the city’s pharmaceutical industry, and later in the 1990’s the industry’s expansion was facilitated by the formation of the Indian Institute of Chemical Technology, National Institute of Pharmaceutical Education and Research, Centre for Cellular and Molecular Biology, and National Institute of Nutrition along with other regional institutions in the bio-pharma sector. In 2008-2009, the bio-pharma industry’s exports reached US$ 3.1 billion. Top bio-pharma companies based in Hyderabad include Dr Reddys Laboratories Ltd., Divis Laboratories Ltd., Granules India Ltd., Suven Life Sciences Ltd., BioGenex Life Sciences Pvt Ltd., and Lonza India Pvt Ltd., among others.

The Genome Valley, ‘Fab City’, and the ‘Nano Technology Park’ offer the infrastructure for Hyderabad’s bio-technology sector, which has attracted regional companies and MNCs to set up their offices, warehouses, and establish R&D centers. The Genome Valley itself (spread across 231.66 square miles) has developed as a cluster for biomedical research, training, and manufacturing. The Genome Valley covers the suburbs of Shamirpet, Medchal, Uppal, Patancheru, Jeedimetla, Gachibowli, and Keesara. It also includes the IKP Knowledge Park (200 acres) and the Alexandria Knowledge Park (300 acres), which provide innovation corridors (for laboratories), multi-tenanted research buildings, incubation facilities, build-to-suit blocks, and industrial plots.

Real Estate Sector:

The commercial market structure of Hyderabad is defined into 4 sectors—The Central Business Districts (CBD), the sub-central business centers, the neighborhood business centers, and local business centers. According to a 2016 report by ICICI Property Services, Hyderabad is witnessing fast-paced growth in residential real estate and an increase in off-take of office supply space. There has also been ‘a rise in the consumption of apartments in multi-storeyed buildings by buyers moving into Hyderabad from other cities’, due in most part to a sizable migrant population working as IT/ITeS professionals. The report’s survey notes that the maximum supply and absorption in Hyderabad’s residential market falls in the price bracket of US$ 29.68 (Rs 2000) per sq. ft. to US$ 44.52 (Rs 3000) per sq. ft. primarily comprising of units developed by local developers, with the most preferred segment being three bedrooms-one hall-one kitchen (or 3 BHK) apartments. The suburbs of Gachibowli, Kukatpally, HITEC City, and Madhapur have witnessed the highest activity with the majority of their new real estate projects belonging to the price range of US$ 59,365 (Rs 4 million) to US$ 74,206 (Rs 6 million).

Doing Business in Hyderabad

The World Bank ranks Hyderabad second after Ludhiana in its estimation of the top 17 cities in India for ease of doing business in 2016; this performance has been consistent since 2009. The latest ranking is complemented by the state-wise assessment spearheaded by the Department of Industrial Policy and Promotion (DIPP), which puts Telengana and Andhra Pradesh states jointly at the top. Hyderabad’s ease of doing business ranking is based on parameters such as starting a business, dealing with construction permits, registering property, paying taxes, trading across borders, enforcing contracts, and resolving insolvency. These parameters also figure in the World Bank’s annual Doing Business Report, although India’s ranking quantifies only New Delhi and Mumbai’s ease of doing business scores.

Observations

Hyderabad is both a historically and culturally vibrant city as well as the beneficiary of an early industrialized landscape and sophisticated educational infrastructure. It enjoys easy connectivity by road, rail, and air, which will further be boosted by the upcoming metro rail network. High performing sectors in the city include tourism, IT, bio-pharmaceuticals, electronics manufacturing, education, and real estate. The city’s impressive investment prospects are greatly cemented by its pro-business regulatory environment, infrastructure, and economic diversity, which continue to attract the confidence of multinational and regional enterprises.

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