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India: Where politics and property collide

By John Defterios, CNN
December 17, 2013 -- Updated 1253 GMT (2053 HKT)
STORY HIGHLIGHTS
  • Defterios: Lack of infrastructure is holding back private sector
  • Difficult for industry to expand in uncertain economic climate
  • Industry in Mumbai is leaving the city to cheaper locations
  • Strategists and developers need to address the 'bits in between'

Editor's note: One Square Meter explores the leading architectural designs, city plans and demand for property investment in emerging markets. Join CNN's John Defterios as he visits some of the world's most dynamic cities for an insight into the fast-paced world of real estate development.
From December 17, watch the show on CNN every Tuesday during Global Exchange.

(CNN) -- It is an imposing property. The World One towers over the coastline on a 17 acre site in the heart of the prime district of Upper Worli, Mumbai. As the sun started to set on our video shoot, the view of the Arabian Sea became hazy after our climb to the highest floor under intense construction.

The haze is a good analogy for the economic and political climate in India overall, which is holding back demand in the property sector. This was evident in our visit in and around the financial capital of Mumbai.

There is a problem at the core of India right now and that is growth, being held back by infrastructure which is clearly not keeping pace with the needs of the private sector.

"I think Mumbai is suffering today from the way the infrastructure is," Abhisheck Lodha, managing director of the company behind the World One project ,told me from the base of the residential towers. He said the government has made an effort over the past five years to improve the climate, but the last 50 years have be witness to woeful underinvestment.

Read more: Move over Bollywood, Mumbai has a new star

We need this kind of governance so people can work not in spite of the infrastructure but because of it.
Abhisheck Lodha, managing director of Lodha

"We need to see this kind of governance for another five to ten years for Mumbai to really realize its peak, so people can work not in spite of the infrastructure instead of because of it," Lodha said.

Persis Khambatta, a Fellow at the Center for Strategic and International Studies, in a recent analysis said it is time to deal with "structural issues that are well-known to afflict the economy". She talks of training as a key priority. The government target is to train a half billion of the country's youth in less than ten years.

That is a tall order in a climate of slowing growth. It is difficult to see industry expanding while the economic climate remains so uncertain and with national elections set for the spring of 2014.

Quarterly growth at the end of September edged down to 4.8% hovering at the slowest pace in a decade. The World Bank lowered its forecast for fiscal year 2013-2014, which ends in March, to 4.7%. We are seeing a nasty combination of rising inflation, over 11% in November, and sluggish production which actually contracted in the month of October.

Structural issues that are well-known to afflict the Indian economy.
Persis Khambatta, analyst

The Reserve Bank of India is raising interest rates to cap price rises but that of course will not help business nor boost demand for both luxury properties and the rise of new cities in suburbs of Mumbai and Delhi.

Read more: The world's most expensive luxury properties

For those of us on the ground, it was abundantly clear that productivity is being lost hour by hour to the creaking infrastructure. Overpasses seem to be absent and the ride out to the satellite cities in Mumbai is exhausting due to a steady stream of potholes in the roadways.

Industry is moving out to locations where costs are lower, leaving the center of Mumbai to high end services and finance.

The next wave of investment, strategists and developers agree needs to address the "bits in between". An economy cannot thrive without clear arteries to commerce and for Mumbai at least, they remain clogged.

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