October 24, 2010

INDIA’S ECONOMY : SMALLER CITIES SHOW OFF THEIR WEALTH TO THE WORLD

Posted by The Himalayan Voice:
[A group of more than 150 local businessmen decided to buy, en masse, a Mercedes-Benz car each, spending nearly $15 million in a single day and putting this small but thriving city on the map. Frustrated that the usual Chamber of Commerce brochures were slow to attract new investment, the businessmen decided to buy the cars as a stunt intended to stimulate investment in Aurangabad, one of several largely unknown but thriving urban centers across India’s more prosperous states.]
 By LYDIA POLGREEN
Sachin Nagori, real estate developer in Aurangabad,
was one of more than 150 businessmen who bought,
en masse, a Mercedes-Benz each.
AURANGABAD, India — For decades this central Indian city was vintage old India: crumbling Mughal-era ruins and ancient Buddhist caves surrounded by endless parched acres from which farmers coaxed cotton.

But this month Aurangabad became an emblem of an altogether different India: the booming, increasingly urbanized economic powerhouse filled with ambition and a new desire to flaunt its wealth.
A group of more than 150 local businessmen decided to buy, en masse, a Mercedes-Benz car each, spending nearly $15 million in a single day and putting this small but thriving city on the map. Frustrated that the usual Chamber of Commerce brochures were slow to attract new investment, the businessmen decided to buy the cars as a stunt intended to stimulate investment in Aurangabad, one of several largely unknown but thriving urban centers across India’s more prosperous states.
“In and around Aurangabad there are companies worth a thousand crores,” an amount of Indian rupees equivalent to about $225 million, said Sachin Nagouri, 40, a hyperkinetic local real estate mogul who came up with the idea. “But Aurangabad is not known even in this state. There is plenty of money here. We just need to show it.”
Economists and government officials have long acclaimed India’s so-called second-tier cities as new founts of prosperity and incubators of India’s growing middle class. Cities like Pune, a manufacturing and information technology hub a few hours outside of Mumbai, and Ahmadabad, the biggest city in India’s wealthiest state, Gujarat, have shown that smaller cities can attract big business.
But now even smaller cities in some of India’s most prosperous states are booming, too. Coimbatore, a city of about one million in Tamil Nadu near India’s southern tip, has expanded from textile manufacturing to software development and making auto parts.
Aurangabad, with 1.2 million people and a stable base of automotive assembly plants, factories and agribusiness, has long attracted the attention of companies selling small appliances, cellphones and economy cars. But as the city’s fortunes have grown, and cultural mores that once made ostentatious spending unseemly have shifted, companies selling luxury goods are also seeking out these newly flush consumers. A sprawling new mall just opened here, as well as new multiplex theaters and luxury hotels.
“The story of Aurangabad is the story of India,” said Debashish Mitra, head of sales and marketing for Mercedes-Benz in India. “There are many cities like Aurangabad, where Indians have money but were not indulging in luxury; they were always in a saving mode. But now that is changing. People want to spend, and feel they deserve luxury.”
That certainly describes Mr. Nagouri, Aurangabad’s answer to Donald Trump. He has made a fortune buying and developing land in highly leveraged deals. He lives in a sprawling modern house kitted out with Italian marble floors and designer sofas. Four cars sit in his driveway, including the latest, a gleaming white Mercedes sedan with buttery chocolate leather seats.
He was working out at the gym one day last spring with a friend, he said, when the idea for the group purchase of the luxury cars struck him. Perhaps, he wondered, if they could get enough people together they could generate publicity for the city. It started with a core group of 20 friends, but as word got out the number quickly grew. Eventually more than 150 businessmen signed up, most of them in their 30s and early 40s like Mr. Nagouri.
These men could not be more different from their cautious fathers, who stashed every penny as a hedge against an uncertain future in India’s economy, which until 1991 was heavily controlled by the government. In the land of Gandhi and the birthplace of Buddhism, grand displays of material wealth are still frowned upon.
Older men like Ashish Garde, who runs Nirlep, a company that has made nonstick pots and pans here since 1968, declined to join the group. Mr. Garde said the nearly $15 million spent on luxury cars would have been better spent on investments in industries that would create jobs or donations to charity. He declared himself satisfied with his economy car.
“Those of us who went through the hardships of the past know the value of money in a different way,” Mr. Garde said. “Those who get quick money, their relationship is different. After globalization things happen very easily. The element of struggle is gone.”
Mr. Nagouri’s family once had a small fortune in land holdings, but his father, a university lecturer, made a bad bet on a spring factory that went bankrupt.
“We had no money even to take a bus,” he said.
In the 1980s Mr. Nagouri got a job as a clerk in a construction company and spent six years studying how the business worked. He made a bit of money on the side selling sand and bricks. Eventually he struck out on his own, borrowing $2,000 from friends and relatives to build a small apartment building. He said he sold it almost immediately. “I understood the gimmick,” he said.
Not everyone is cheering Aurangabad’s new ostentatious wealth.
Sanjeev Unhale, a local antipoverty activist and journalist, said that the money spent for the luxury cars could have gone a long way to help those left behind by Aurangabad’s boom. The Marathwada region, of which Aurangabad is the capital, is cursed with perpetual droughts. Cotton farmers often assume huge debts to stay in business. Suicides by debt-ridden farmers are common, Mr. Unhale said. India’s economy may be nearing double-digit growth, but the wealth is not widely shared, and hundreds of millions live on $2 a day.
“Mercedes is for luxury,” he said. “It is not the manner in which we should show our mettle. We should show it in the genius and quality of what we produce.”
The desire to flaunt new wealth, however, is a natural part of India’s economic trajectory, said Ashutosh Varshney, a Brown University professor who has studied the social dimensions of India’s economic rise.
“It does show the burst of ambition in the small towns of booming states,” Mr. Varshney said. “It is, deep down, a drive for recognition, an impulse known to be sociologically and psychologically important when those lower down rise.”
Pramod Khairnar Patil, a local builder who bought a Mercedes, said entrepreneurs like him deserved to enjoy their wealth. Initially he had planned to buy the least expensive model, which sells for about $50,000, but his daughter persuaded him to upgrade, which nearly doubled the cost.
“It’s more expensive, but we should step ahead,” he said.
Mr. Patil has seen Aurangabad’s fortunes rise since he started out as a builder in 1990. Where he once built claustrophobic one-bedroom apartments for aspiring middle-class families, today he puts up airy townhouses and bungalows.
“People’s dreams are changing,” he said.
His own fortunes have grown, too. When his father built the modest house in which Mr. Patil lives, it did not occur to him that he needed more than one parking space. At that time owning even a single car was a distant dream. Now he has a problem deciding whether to park his sport utility vehicle or his shiny new Mercedes in the driveway.
“Times have changed,” he said. “The things that were luxury initially now are the need of the time.”
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