India magnate refuses to abandon dream city

On 23,000 acres of scrubby hills surrounding the Warasgaon dam’s backwaters, a Mumbai construction magnate dreams of building a city.

Ajit Gulabchand has begun with a Mediterranean-inspired waterfront promenade. The clutch of hotels, restaurants and serviced flats that together resemble a film set are already drawing day trippers from Pune, an information technology hub, and overnight guests from Mumbai.

From this fanciful start, Mr Gulabchand, chairman of Hindustan Construction, aims to form a full-blown, living city, with a population of 300,000, business parks for clean industries such as software and animation studios, schools and recreational facilities.

With this project, known as Lavasa, Mr Gulabchand hopes to offer a blueprint for how India can cope with the pressures on its cities: forming well-planned urban centres to absorb a tide of rural migrants, and providing centres for businesses. The first phase is expected to cost $3bn.

“We need more cities,” he told the Financial Times in an interview. “India is going to urbanise over the next 30 to 40 years very rapidly. We must create a replicable model of creating cities or neighbourhoods, which India will require in abundance.”

Services to shine at Lavasa

Living in a city run by a company may not appeal to everyone in India, but Lavasa developers believe they will be able to do better for their future “citizen-customers” than many Indian cities are currently delivering, writes Amy Kazmin.

With limited political power and revenue-raising capacity, most Indian cities struggle to develop the basic urban infrastructure – such as power, water and roads – and provide services such as rubbish collection, to meet the needs of their burgeoning populations.

Lavasa says it will be able to supply high-quality, reliable infrastructure, and services through mandatory user fees to those living in Lavasa-built dwellings.

Ajit Gulabchand, the chairman of the Lavasa board, says he would eventually like to see a genuinely empowered local self-government that can take decisions on behalf of the city, while the company provides services on a contractual basis.

Initially, the city will remain under the local panchayat – an elected government unit akin to a village council, typically used in rural areas. However, panchayats have no revenue-raising ability and depend on state handouts for small-scale community improvement products.

While those buying into Lavasa properties are required to sign detailed covenants, the company will certainly not be
all-powerful. In the centre of the project, some local villagers have refused to sell their land, and are expanding their homes and businesses, profiting handsomely from the sudden building boom in the area.

But Mr Gulabchand, and Lavasa’s other backers – including Avantha Group and Venkateshwara Hatcheries, the Indian poultry group that recently bought Blackburn Rovers, the English Premier League football club – still face tremendous hurdles.

In November, Jairam Ramesh, environment minister, halted Lavasa’s construction and ordered that the project be razed, saying it had not obtained permission from New Delhi. Lavasa’s backers went to the Mumbai High Court to challenge the order, accusing him of acting in bad faith.

Since then, Mr Ramesh’s ministry – after a court-ordered inspection – has softened its stance, saying Lavasa can resume work on the first phase at once while an environmental assessment is carried out, and plans made to repair environmental damage.

However, when Lavasa sought to withdraw its lawsuit to pave the way for a settlement last week, the court ordered the status quo be maintained until the environment ministry review was completed. That could take months.

Lavasa – with debts of about Rs17bn ($381m) – now faces losses of about Rs50m a day, with no idea of when things will get back on track. A planned $440m stock market listing has been postponed indefinitely.

“Everybody expected the environmental issue to be resolved within a few months, but the road is not yet clear,” said Shailesh Kanani, an analyst at Angel Broking.

When construction resumes, the company faces a bigger question: can a privately developed city – built out of nowhere – appeal to diverse groups of people? Mr Gulabchand is confident it can. The master plan includes housing, office space, schools and a golf course designed by Nick Faldo. All this, in an idyllic hilly setting around a waterfront, he believes will prove a magnet for companies and skilled workers.

“People will migrate and where do you migrate to? You migrate to where there is a good lifestyle and education,” he said. “Businesses also come there, when you have skilled people.”

Certainly early bookings – before the environment ministry’s intervention – were brisk, with the first 1,750 flats, villas and plots almost sold out. Yet Mr Gulabchand insists Lavasa will not merely be an exclusive gated community. Low-cost housing is an integral part of the city plan. “If you are creating a city, it has to be across the socio-economic spectrum, without which the city cannot become vibrant, without which it cannot become an economy,” he says.

Cities built from scratch are not unprecedented in modern India. Jamshedpur, with more than 1.1 m residents, was developed in the early 20th century around the Tata Steel plant. Bhilai, with more than 750,000 people, grew around a Steel Authority of India plant.

Lavasa faces a long road to restore consumer confidence. “The company is going to have to do a lot of hard work,” says Mr Kanani. “People who want to invest will think twice.”

However, the irrepressible Mr Gulabchand is confident Lavasa’s appeal is undiminished. “We are now a household name in this country. Once we are through with this, we will have a better position to sell than we had before.”