City Spotlight: Investing in India’s Lucknow

  • August 29, 2016

Lucknow is the largest city and capital of India’s most populous state, Uttar Pradesh (UP). Nicknamed the ‘City of Nawabs’ for when it was the seat of power of the Nawab of Awadh in the 18th and 19th centuries, Lucknow today is an important Tier-II city in India. Situated 500 km southeast of New Delhi, it is an established administrative center of UP. New projects such as the Lucknow-Agra Expressway, Lucknow-Azamgarh-Ballia Poorvanchal Expressway, and the metro rail seek to lend world-class infrastructure to the old city. However, in terms of connectivity, Lucknow is already well-linked to the rest of the country, including major cities like Kolkata, Mumbai, Delhi, Hyderabad, Bangalore, Patna, and Varanasi via road, rail, and air.

Climate wise, the city is a humid subtropical zone with a very hot summer season from April to June, monsoon season from July to September, and a cool dry winter season from December to February. Lucknow is located in the fertile Indus-Gangetic plain and sits on the northwestern shore of the Gomti River, which divides the city into the Trans-Gomti and Cis-Gomti regions. It is also one of the three cities in Uttar Pradesh Tourism’s Heritage Arc (along with Agra and Varanasi).

Economic Profile and Leading Industries

Lucknow is a key economic base in north India and a prominent trading city. Important sectors include tourism, education, health services, aerospace, finance, pharmaceuticals, design, and culture. In terms of agricultural produce logistics, Lucknow is a “mandi” (wholesale market) town for mangoes, melons, and food grains that are grown in the surrounding areas. The city also has a thriving handicrafts sector, which has grown a strong small and medium enterprises (SMEs) sector. Most famous among these are units producing the unique styles of embroidery, namely, “Chikan” and Lakhnawi Zardozi, both of which are significant foreign exchange earners. In fact, handicrafts and textiles account for about 60 percent of the total exports from Uttar Pradesh.

Major exports from Lucknow, specifically, include marble products, handicrafts, art pieces, gems, jewelry, textiles, electronics, software products, computers, hardware products, apparel, brass products, silk, leather goods, glass items, and chemicals. Lucknow is also one among eight cities in India that will have textile business clusters, an objective towards which the government earmarked US$ 32.88 million (Rs 200 crore) in its 2014-2015 Union budget.
Key industries in Lucknow are distillery chemicals, machine tools, aeronautics, furniture, chikan embroidery on textiles, education, IT and software, and research and development (R&D). Major R&D centers are located here, and include the Central Drug Research Institute (CDRI), the National Dairy Development Board, Industrial Toxicology Research Centre (ITRC), National Handloom Development Corporation (NHDC) Ltd., Central Institute of Medical and Aromatic Plants (CIMAP), National Botanical Research Centre Institute (NBRI), Research Design and Standards Organisation (RDSO), Pradeshik Cooperative Dairy Federation Ltd (PCDF), and the U.P. Export Corporation.

Of late, Lucknow is growing as another hub of Information Technology (IT)/ IT Enabled Services (ITeS), which is why the UP government will be establishing an IT/ITeS Special Economic Zone (SEZ) to boost the technology sector in the city and invite greater FDI. IT and ITeS companies currently operating in Lucknow include Tata Consultancy Services (TCS), HCL Technologies, and local open source technology companies. In the biotech sector, the state government has collaborated with local universities and industries, the Council of Scientific and Industrial Research, and the Indian Institute of Technology Kanpur to set up a biotech park in Lucknow. The city’s entrepreneurial spirit is further reflected in the gradual emergence of a startup ecosystem. Rooted in frugal innovation, new startup ventures in the city have been able to tap into e-governance initiatives and the rise of e-commerce to set up their businesses. This growing trend is not lost on established companies such as Microsoft that has used the Lucknow startup Trendsetterz to pitch Office 2013 as a line of business application in the state. Examples of other startups in the city are xiffe.com, Healthtokri.com, 300stories.com, InMotion Media, and MeraDoctor.

Today, Lucknow is home to the regional headquarters of major companies such as Sony Corporation and Reliance Retail, as well as service centers of important business promoting institutions like the Confederation of Indian Industry (CII) and the Entrepreneurship Development Institute of India (EDII). The city is also the headquarters of both the Small Industries Development Bank of India (SIDBI) and the Pradeshiya Industrial and Investment Corporation of Uttar Pradesh (PICUP). In terms of large manufacturing units, Lucknow has Hindustan Aeronautics Limited, Tata Motors, and Scooters India Limited. The city’s real estate sector is also booming – there are several malls, residential, and business complexes throughout the city. Real estate giants such as Parshvanath, Omaxe, Sahara, Unitech, and Emaar MGF have all invested in constructions in the city.

Future Smart City and Ease of Doing Business Assessment

In late May this year, Lucknow topped the second list of 13 cities that will avail of the benefits of the government’s Smart Cities Mission. The mission envisions the sustainable development of cities, which will be retrofitted with ‘smart’ solutions, including critical public works and infrastructure, assured water and power supply, proper waste management, efficient public transit system, and e-governance facilities. Altogether, it will raise the quality of life of the people living in these cities, and Lucknow will be one among the beneficiaries.

Another challenge that is being confronted by the UP government is the ease of doing business. The World Bank’s Ease of Doing Business Report for 2015 observed that it took a minimum of 42 days to start a business in Lucknow. Similarly, registering a property took 43 days and enforcing a contract could take up to 950 days. An 81.7 percent profit tax is also relatively high. Besides, the state also ranked low in terms of days required in importing and exporting at 27 and 29 days, respectively. Uttar Pradesh will seek to address each of these parameters as the central government has introduced a system of competitive assessment of all states, based on their progress in promoting a pro-business environment. The ultimate goal is to improve India’s overall score in the Ease of Doing Business assessment as well as make it uniformly progressive across the states.

Observations

Lucknow is a fast-growing and industrializing Tier-II city with a government that is eager to promote business interests. Though the modernization of the city has been belated, it is certainly on track with its selection as a future smart city. As overpopulation, dwindling space and resources, and rising costs make doing business in metropolitan cities more challenging, smaller towns and cities can become potential investment hubs, especially if they are well-connected and have strong industrial and educational sectors. Lucknow meets both these conditions. New investments and government incentives have propelled the growth of a rapidly diversifying economy. Whereas previously, Lucknow was a largely public sector services based economy, its new sectors include IT, manufacturing and processing, and medical/bio-technology. Its education sector is also rapidly growing, which feeds into the workforce capacity. Future economic prospects for foreign investors therefore remain bright.

This article was first published August 2016.
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