August 14, 2018The Printeconomics

Keep Aero India in Bangalore

Given the plans to set up a defence industrial corridor in Uttar Pradesh, there might be a case for a big industry event. It just doesn’t have to come at Bengaluru’s expense.

The Print This is an unedited cut of my weekly column in The Print (2018-2021)

Prematurely organising Aero India in a state like Uttar Pradesh which is not yet ready for it might prove counterproductive.

Moving the Aero India show from Bengaluru to Lucknow — as the Modi government is reportedly considering — is a bad idea that will not only hurt India’s economic interests but also deepen the sense of grievance developing in the southern states. Political leaders in Karnataka have already come out strongly against the move.

It is wholly unnecessary to move this global event out of Bengaluru in order to promote economic development in Uttar Pradesh. Given the massive growth projections for India’s defence and aerospace sectors, it is unfathomable why the defence ministry should think in zero-sum terms.

Why not organise an entirely new and different event in Lucknow? Given the plans to set up a defence industrial corridor in Uttar Pradesh, there might be a case for a big industry event. It just doesn’t have to come at Bengaluru’s expense.

Aero India is an important event in the international aerospace industry’s calendar, and this is not merely because Bengaluru has great weather. It is because Bengaluru hosts a high-tech aerospace industry cluster that is seen as being in the same league as Seattle in the United States, Toulouse in France, Montreal in Canada and Singapore.

While big names like Hindustan Aeronautics Limited, ISRO, Bharat Electronics Limited, Boeing and Airbus anchor the industry cluster around the city, there are thousands of firms — large, medium and small — that make up the ecosystem. This includes Indian manufacturers like Mahindra Aerospace and Dynamatic Technologies that are operating at the industry’s global frontier. According to the Karnataka government, the state attracts 65 per cent of aerospace investments in the country.

With the industry spreading to cities like Belagavi and Mysuru, and with a close connection to the industrial belts of Coimbatore and Chennai in adjoining Tamil Nadu, Bengaluru finds itself at the hub of India’s globally competitive aerospace cluster. It is for these reasons that the Aero India event has clicked in Bengaluru.

With five functional airfields in a 50-km vicinity and thousands of hotel rooms, the city offers an attractive, low-friction location for visiting top executives (despite the terrible road traffic). The executives don’t merely come to attend a trade show — they come to discuss business, visit local plants and close deals. Thousands of local entrepreneurs, engineers and executives can easily and inexpensively network with international counterparts.

That’s why shifting the event out of Bengaluru is tantamount to striking an unnecessary blow to this cluster.

If it moves to Lucknow, local business visitors from Bengaluru will have to shell out tens of thousands of rupees each to attend the event. Many foreign visitors will have to make an additional domestic trip to catch up with their suppliers and customers in Bengaluru. All this adds to more friction and higher costs. It means missed opportunities. We can argue how large the costs, friction and lost opportunities are, but that’s not the point. The point is these are entirely avoidable. The point also is that there’s no tangible benefit.

Michael Porter, the Harvard professor who first showed that industry clusters are the basis of national competitive advantage, advises that governments should reinforce and build on existing clusters rather than create new ones. That’s because it is notoriously hard to create a new cluster from scratch: a lot of ingredients have to come together at the right time, in the right sequence and in right quantities at the chosen place.

Walchand Hirachand set up Hindustan Aircraft Ltd. in 1940 in collaboration with an American company. That company went on to become the public sector HAL in the 1960s. ISROs deep roots in the city are largely because of fact that the Indian Institute of Science was set up here in 1909. Then, there was an abundance of good private and government engineering colleges, which provided the talent base to the industry. After the IT industry took root in the city, that industry’s ecosystem intersected with the aerospace ecosystem to fuel further innovation, entrepreneurship and growth. It’s easy to explain why it happened in hindsight. It’s tough to make it happen at will.

You might contend that moving one single industry convention — albeit a big one like Aero India— might not hurt much. But why should the Union government wilfully throw a spanner in the works?

Now, there is no doubt that Uttar Pradesh needs economic development. The Union government has decided that setting up a defence industrial corridor in the state is a way to achieve that. To get this started, defence public sector units have been directed to set up facilities there. While the state has some technological base and a few good educational institutions, it will be quite a challenge to be able to sustain a high-technology industry cluster like defence and aerospace.

Indeed, the government’s attempt goes squarely against Porter’s recommendations.

According to him, In industrial policy, governments target desirable’ industries and intervene — through subsidies or restrictions on investments by foreign companies, for example — to favour local companies. In contrast, the aim of cluster policy is to reinforce the development of all clusters. This means that a traditional cluster such as agriculture should not be abandoned; it should be upgraded. Governments should not choose among clusters, because each one offers opportunities to improve productivity and support rising wages.”

The rest of my The Print columns are here

Uttar Pradesh requires urgent fixing of a lot of basic governance problems before domestic and foreign investors find it attractive enough to invest. State government leaders must first visit prospective investors and ask them what it would take to get them to invest in the state. In fact, prematurely organising Aero India in a state that is not yet ready for it might prove counterproductive. A different event, targeted at investors in general (not just defence and aerospace), would serve the state’s interests better.

That’s why the Modi government must leave Aero India where it has always been – Bengaluru.

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