City Spotlight: Pune

By: Dezan Shira & Associates
Editor: Kabir Narang

Pune is the second largest city in the state of Maharashtra after the capital, Mumbai. It is also the ninth most populous city in India. Home to several educational institutes and universities that contribute to a skilled labor force, it also has a strong industrial belt dominated by manufacturing (process control equipment) and automotive plants. 

Pune fares well for both real estate developers and builders. According to the National Housing Bank (NHB) residex, a housing index that measures indirect wealth creation via movement of prices in the residential housing segment, Pune showed the highest growth in home prices in the January-March quarter of 2015, indicating healthy demand. The city has a rich cultural history, having once been the seat of the once-dominant Maratha Empire and a vibrant biodiversity, making it a popular tourist destination. It is also well connected to other parts of Maharashtra and India by road, rail, and air.

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Important Sectors

Manufacturing: The industrial township of Pimpri-Chinchwad, just north of Pune city, houses over 4000 manufacturing units that contribute to the city’s economy. The Kirloskar group is credited with first bringing industry to Pune. They are India’s largest manufacturer and exporter of pumps, the largest infrastructure pumping project contractor in Asia (Kirloskar Brothers Limited), and India’s largest diesel engine company (Kirloskar Oil Engines). Tata Motors, Thermax, KSB, Cummins, and Hindustan Antibiotics have also set up operations in the outskirts of the city. Serum Institute of India, the world’s fifth largest vaccine producer by volume, has its manufacturing plant located in Pune. Currently, U.S. $10.7 million (Rs 71 crore) is being invested into creating an electronics cluster and incubation center in Pune to spur R&D in engineering and semiconductors. The city is also being transformed into a fruit and vegetable processing cluster through an initiative funded by the World Bank. Small Industries Development Bank of India (SIDBI) is to implement the project. 

Pune has also attracted several foreign manufacturing firms. According to the Indo-German chamber of commerce, Pune is the single largest hub for German companies with over 225 established businesses. The German group, ThyssenKrupp, aims to double its revenue from India to U.S. $1 billion in the next three-four years, while the group’s elevator unit, ThyssenKrupp Elevator, plans to invest U.S. $50.5 million (EUR 44 million) to set up a manufacturing plant in Chakan, Pune. Last year, Foxconn signed a Memorandum of Understanding (MoU) with the Maharashtra state government to invest U.S. $5 billion over the next three years to set up a manufacturing unit between Mumbai and Pune. Swiss elevator manufacturer Schindler has also began production.

Automobiles: Pune is nicknamed the ‘Detroit of India’ or the ‘auto-city’ due to the large number of greenfield facilities set up near the city by companies such as Tata Motors, Mahindra & Mahindra, Mercedes Benz, General Motors, Land Rover, Jaguar, Renault, Volkswagen, among others. General Motors has invested U.S. $977 million (Rs 6500 crore) in its manufacturing facilities while its American rival, Chrysler, is investing U.S. $255.6 million (Rs 1700 crore) to manufacture its marquee brand Grand Cherokee.

The Automotive Research Association of India, which is responsible for the certification of all vehicles available in India, is also based in Pune.

Education: Pune is known as the ‘Oxford of the East’, and boasts of many public and private universities and research institutes that provide technically skilled labor. This has attracted a steady stream of migrant students. The University of Pune, Symbiosis, and ILS Law College are among some of the institutions that are highly ranked nationally. Pune is also home to some important research institutes such as the Gokhale Institute of Politics and Economics, National Chemical Laboratory, and the National Institute of Virology.

IT: The skilled labor pool has created a sizeable graduate workforce (more than 30 percent), triggering an IT revolution in the city. Almost all of the top IT companies in India have their presence here, making it the second biggest software hub in the country. Hinjewadi IT Park is the most important IT hub in Pune along with Rajiv Gandhi IT park. Infosys, Cognizant, Wipro, Capgemini, and Tata Consultancy Services have their offices in Pune.

Initiatives

Smart City: Pune is on the list of cities chosen to be developed as a ‘smart city’ by the Union Ministry of Urban Development along with the Maharashtra government. Under this program, the city will be retrofitted with smart solutions that include being equipped with basic infrastructure, assured water and power supply, proper waste management, efficient public transport system, and a system of e-Governance to improve the overall quality of life.

Make in India/Make in Maharashtra: Pune aims to increase the amount of FDI and local investment to promote industrialization by easing regulatory pressures on business. The Make in India objective is to get multinationals as well as national companies to start manufacturing within India’s borders.

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Policy Implementation

The above initiatives will be fulfilled via regulatory developments and planned Special Economic Zone (SEZ) policies. Pune has eased doing business by enforcing special taxation, allocation, duty and licensing schemes. Recent implementation of policies have only augmented the city’s attractiveness to foreign and domestic investors, as highlighted below.

1. The Integrated Industrial Area (IIA) policy has an implication on all private SEZs, including Bharat Forge Limited’s proposed one near Pune. It allows for the conversion of non-starter SEZs  into IIAs. Earlier, the total land dedicated to an SEZ was divided equally into residential and industrial halves. According to the policy, an additional 10 percent is to be given to industry. Developers of SEZs can also exit their original projects and build residential townships in the same areas. 20 percent of total housing will be reserved for the economically weaker section, where the laborer community will get assured homes with basic amenities. Another 10 percent of the total township area is reserved for schools, colleges, shopping centers, and other amenities.
2. The Board of Approval, Ministry of Commerce and Industry, has allowed land developers to sell their shares partly or fully to other promoters and firms, including foreign ones. Foreign real estate players will now be able to own property in SEZs in India, even though there are restrictions on FDI in this sector. This promotes asset divestment via the dilution of equity and provides SEZ business owners with a greater range of exit strategies when they own functional industrial units.
3. The Pune Municipal Corporation (PMC) has agreed to accommodate the forecast increases in rental demand. IT firms are to be charged the same property tax as residential properties. Occupancy costs will be much lower, proximity to the financial capital, and a steady supply of technologically skilled labor will pivot Pune as the premier IT destination in India.
4. Food business operators can now cut down on operational costs by avoiding long trips to the Food and Drugs Administration Office. Those in the business of manufacture, sale, distribution, or transportation of any kind of food material across the state can simply log on to the designated website, pay a fee on a supplementary window, and register their business, obtain, and renew the necessary licenses.

Future Prospects

The economic outlook for Pune is positive. Booming manufacturing, education, and IT sectors have contributed to Pune’s expanding economic potential; facilitating blue and white collar job creation, providing a skilled workforce, and attracting an influx of FDI. The city’s lagging infrastructure will soon be upgraded through the government’s Smart Cities program, giving impetus to the real estate business and associated industries. Various government reform initiatives will also add to Pune’s future prospects for doing business, while promising higher working and living standards.

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