Simple SMART strategy

India maintains the fourth largest armed force in the world at a “spend” that accounts for nearly 2% of its GDP. That percentage translates to some US$ 45 billion for the year for the year 2014-15. Despite spending some US$40 billion on hardware acquisition from 2009 on; making it the largest importer of defense equipment from around the world; the strength of the air, sea and land forces has been progressively worsening. To correct it, India has charted out a program for spending some US$ 100 billion in the next 10 years for defense modernization which includes aircrafts, helicopters, ships, submarines, aircraft carrier, howitzers, tanks, missile systems, and the list goes on.

The Prime Minister and his men that run India now are keen that bulk of the hardware be made in India under technical (and not assembling) collaboration from the best in the world to make India’s defense sector a more self reliant job creator while reducing foreign exchange outflow. India also wants to buffer itself from geo-politically leveraged, fractured, and unreliable supply relationships that it has experienced in the past with the Russians, Americans and Europeans in the past. Procurement has also been hit by India’s never ending procurement process as well as unearthing of “kick backs” and numerous defense related scams. India’s own experiments in this sector through its public sector undertakings; well the less said the better. With the government making way for allowing a higher Foreign Direct Investment (FDI) in privately set up defense manufacturing; a host of Indian companies are making plans and announcements for this sector.

Aug 05 2015 : The Times of India (Mumbai)

Anil to build defence choppers near Nagpur

Just a few days back, Mr. Anil Ambani made an announcement of his group wanting to set up a defense “SMART” city to set up several companies that would bid for supplying equipment to all 3 corps of the armed forces. His group is making a bid for the supply of close to 500 helicopters required by the Army and Navy primarily for reconnaissance and surveillance.  It’s a different matter that a couple of days later, one of his senior executives from his power company has been picked up along with officers from India’s top 5 energy companies for investigation; for allegedly purchasing stolen “classified” information from the petroleum ministry. Anyway, I wish I knew Mr. Anil Ambani. I would have advised him to give up his hunt for the 5,000 acres or so required for this dream project if he wants to really achieve his ambition of establishing his group as a significant defense player in the next 5 years. Instead, I could have charged him a very fat fee and would have drawn his attention to the troubled “Bengal Aerotropolis” at Durgapur. (Aug 5 2015 update - could he have read this?)

The idea was conceived back in the “Acche din” (good days) of 2006-7 as an integrated aviation “industrial township” (in the new government parley – Smart City) occupying 2300 acres including a defunct WWII airstrip. Singapore’s Changi airport saw merit in the project and decided to back it with money as equity. It was to become an industrial, logistics, technology hub to be built around a world class airport that was strategically placed between 2 – 5 hours driving distance from some very important industrial towns of the East and in time become an alternative or even a competitor for Kolkatta international airport.  I came across it first in 2011; when an international property consultant asked my Company to explore the idea of putting up an affordable-budget hotel as part of the airport facility. The project made a lot of sense and I too like Changi was swayed to explore the option. But, the terms offered for the land and structure lease would not have made sense even in Kolkatta; leave alone an airstrip that would at best attract 5 to 6 commercial aircraft landings a day in the first few years of operations. That is, as and when air operations actually got started. I argued with the Changi boys that any fixed rent contract (forget what they were asking) would not work and the reasons for it. And so, the deal never went through. No regrets. Since my meeting in 2011, the project has gone through a fair bit of turbulence, including trouble between the founding partners.  The airport at Aerotropolis has now set a deadline to open itself by March 2015, a delay of some 24 months. Everything else planned around the airport is still at “green field” stage. The demand drivers for a hotel at least – missing. Number of flights planned initially – 1 a day.

 The Chinese joke that Indian project execution skills have not changed much since Emperor Shahjehan’s time. “It took him 20 years to build the Taj Mahal; our Emperors would have built it in less than 2” is what I heard from a Chinese friend of mine. It did annoy me, but, it is also the truth that projects in India do suffer from a much higher development risk – be it regulatory, environmental, financial, and many a times from the fact that those leading the project have very little experience in executing the same. Even ADAG (Anil Dhirubhai Ambani Group)  has suffered in its build out of the Mumbai Metro and New Delhi Airport Express projects; as have GVK, GMR and many other companies like them building out mega projects – even though at the end the delivered projects are world class. Fortunately, this project now has land, permissions, an operating airfield, airport all in place. Better still, it is in private hands which include a sector smart partner like Changi. Should a group like ADAG take up leadership of the development here on; Aerotroplois could actually become an example of a successful ‘Smart’ theme city.  

The talk of creating new SMART cities is catching momentum. Just yesterday (22nd Feb); I read that the Ministry of Shipping is planning 12 SMART naval cities at each of the major ports of India at a cost of US$ 100 billion investment. The point is that there are several cities and towns that are languishing like ghost towns across India. All of them saw their development start during the real estate boom of 2006-7. All of them had great themes guiding their development. They were called industrial cities, SEZs, processing zones, logistic hubs and every creative name under the Sun. Now, they may as well call themselves SMART cities as that's the flavour of the month. Instead of seeing new developments languish why not spot the winners and see their development through?   Did I hear that my consultancy cheque is in the mail? It is a simple and SMART strategy where everyone comes out a winner.