Thursday, November 22, 2007

Putting a roof over India: An interview with the country’s biggest developer

DLF’s Rajiv Singh talks about the complex challenges of improving India’s infrastructure and the importance of getting it right.

As India’s largest developer, DLF has a clear stake in the country’s continued economic development. So far, it has completed more than 25 million square feet of residential, office, and retail space, and more than 45 million square feet are under construction. But Rajiv Singh, DLF’s vice chairman, worries that the country isn’t building infrastructure fast enough to get workers, shoppers, and residents to and from these developments efficiently.

DLF’s fortunes have always been linked with India’s success: the company got a second wind in the early 1980s, after Singh’s father happened to meet future prime minister Rajiv Gandhi1 on a dusty road outside Delhi and struck up a conversation about urban development. Singh is confident that the nation’s continued economic growth will keep demand high for his projects. That sentiment was underscored this June by DLF’s initial public offering, which raised $2.4 billion—the largest IPO in India’s history.

Singh, a major force behind DLF’s success, recently talked with Ranjit Pandit, formerly a director in McKinsey’s Mumbai office, about constraints on India’s growth and Singh’s aspirations for the company.

The Quarterly: What’s behind India’s recent growth?

Rajiv Singh: What really needs to be understood is that this growth is taking place with severe infrastructural and other limitations. The seeds of growth were laid back in the early ’90s, but I think it just took a long time for all of us to find ways to overcome the inertia caused by various regulations and constraints. Whether we can sustain this pace of growth without corresponding infrastructure improvement is questionable. A 7 to 8 percent growth rate can be sustained, considering the opportunity and the commitment of people in the business sector, but 9 percent-plus growth has been a pleasant surprise.

When one goes to China, one is appalled by the gap between India and China in terms of physical infrastructure. Honestly, if that infrastructure were available to us, we would have double-digit growth with the kind of effort and ingenuity we all bring to the table. In few countries in the world would the general population be able to succeed in the kind of conditions we are placed in. If physical-infrastructure issues were resolved, growth would accelerate; if they are not resolved, there is a point to which you can stretch your efforts, but after that, growth will moderate.


Vital statistics

Born May 8, 1959, in New Delhi

Married with two children


Graduated in 1980 with degree in mechanical engineering from Massachusetts Institute of Technology

Career highlights


  • Vice chairman (1993–present)
  • Director (1984–92)

The Quarterly: Why was India so late in addressing its infrastructure problems?

Rajiv Singh: First, we had a reasonably good infrastructure to start with. China actually dismantled its infrastructure during the cultural revolution and had a period of catching up. Maybe since they started with a clean slate, they could do a better job. Our infrastructure remained poor because we started well with certain systems. We were a socialist country. We never realized that we didn’t have enough roads, because we weren’t allowed to make or buy enough cars. But now people are allowed to buy cars and travel by plane, and the infrastructure constraints have started showing up. Earlier the demand was being controlled, so supply did not seem to be a problem. Now that demand has been unleashed, supply shortages are becoming evident in every part of the economy.

Another reason is that I don’t think anybody ever consciously thought about doing it or not doing it. It wasn’t considered important, because 15 or 16 years ago you could drive around Delhi at this time of the day, literally doze off, and not hit anyone. Every day the problem is getting worse and worse. The growth rate and production of cars, the growth rate of air travel is not being matched by the growth rate of physical infrastructure. It is as simple as that.

The Quarterly: Is the government doing enough now?

Rajiv Singh: I don’t want to use the word government. Sometimes the government may announce an initiative and it’s stayed by the courts. Or it’s protested. I do not want to isolate the government or the courts; rather it is the system that just doesn’t allow something to happen. The whole system was not and still is not geared to rapid provisioning of infrastructure. There’s too much political freedom, too many legal rights, too much media.

By contrast, I was in Shanghai recently and one day passed a bunch of huts beside the road. The next day they were all gone. The third day there were a bunch of guys rolling out sod and planting trees. And on the fourth day they inaugurated a park.

In India they first debate everything. Debate is not necessarily a bad thing, but here it has become excessive debate on everything. Time is taken during the debate, and at the end the idea gets diluted to the least acceptable solution. Then, unfortunately, somebody is affected, and this person lobbies to change the plan or delay it. If it’s changed, somebody else is affected and lobbying starts again. Eventually, it goes to the courts, and the courts are very, very quick to issue an injunction to stop the work.

During all this process the media get involved. The government officer or whoever initiated the idea is criticized publicly, including allegations that he may not be entirely honest. He wonders why he should bother and decides not to intervene. The general refrain is to let the courts decide and we’ll respect the verdict. By the time you finish this process and can start the project, you have lost about two or three years.

Now an interesting thing happens. The project cost has changed over the years so it needs to go back to the government for reapproval, and the whole process again takes 1 or 2 more years. You have lost 5 years. Our planning perspectives look 3 to 5 years ahead, not 20 or 30, and by the time we even start building the infrastructure project, it’s outmoded. By the time it is completed, it will be a disaster.

The Quarterly: How can the system be fixed?

Rajiv Singh: It is very difficult. You have to be patient. All of us have to find ways to work and achieve without adequate infrastructure. When the infrastructure happens things will dramatically improve. Beyond that we have become immune to expecting good quality infrastructure.

But there are some visionary people—for instance, at the Delhi Metro— and we’ve made an offer to them. We said we’d help pay for a spur line to Cyber City and Mall of India.2 It will be expensive, but without it about 300,000 people will be stuck getting back and forth to work. It would be a disaster. We submitted it recently, and Metro is moving fast on this proposal.

The Quarterly: What are the most important parts of infrastructure to fix?

Rajiv Singh: Everybody looks at it from a different perspective. If we address this from the point of view of what our people need, that is one question. Getting drinking water to everybody is a vital part of the infrastructure. Is it crippling our growth? No. If we talk about what needs to be addressed to continue economic growth, that’s a different question. On that, growth will be severely hampered if you don’t have adequate transportation infrastructure—ports, airports, roads, et cetera—and if you don’t have an adequate supply of power. There will be serious shortages if they don’t get fixed in the next two to three years.

The Quarterly: What is DLF’s role in infrastructure?

Rajiv Singh: We benefit from good infrastructure, because if there is good infrastructure we are in a position to build better, higher-density developments. Conversely, we are the worst sufferers when infrastructure is not adequate and not available. Our role here is to work with government to facilitate the introduction of infrastructure or in some cases actually to step out and do it ourselves.

We also recognize that infrastructure is a massive opportunity. So far we are doing it to support our real-estate developments, but tomorrow we may do it to create opportunities for real estate. We are looking at infrastructure as a way of creating magnets for large-scale developments. For example, we have tied up with Fraport3 to set up a series of airports across the country. We are going to respond to all government inquiries, but more important, we are going to try to create four or five airport opportunities in the near future. These might not be large international airports, but they may grow to be someday.

The Quarterly: Turning to your core businesses—homes, offices, and retail—has India been able to keep pace with demand for space?

Rajiv Singh: Right now there is a serious shortage of the segments you mentioned—homes, offices, and retail. We have coped with this by misusing buildings: someone might open an office in a school building or a small shop in a residential building. But now that the market is getting more organized, customers are more demanding, and space requirements are exploding. I would estimate that growth in these three segments would be 25 percent or more a year, and the industry is moving fast to try to meet this challenge. It is hampered by regulatory problems, but despite that, rapid increases in supply are taking place. I think if in ten years we reach a reasonable equilibrium between demand and supply, it would be a job well done.

The Quarterly: How have the land policies affected your business?

Rajiv Singh: The land use law4 in the past has been generally arbitrary, quite unrealistic. In India we complain about high land prices, but we are not able to utilize the land efficiently. We will not permit very dense developments or high-rise developments. The excuse is that it promotes congestion and can’t be supported by the infrastructure. The government feels it is better to sprawl out over tens of kilometers. I think the way to do it is to allow higher densities and provide better infrastructure. But I am not seeing that happening yet.

Land ceiling laws5 have also been a problem. In rural areas, after independence, they had the intent of keeping land in the hands of farmers and abolishing the feudal system of landholding. When you do large-scale land aggregation, you have to use multiple entities and you have to get specific approvals from the government. It’s a bit of a hassle but not impossible. In urban areas land ceiling laws are more recent and have left large chunks of land frozen—tied up in court rather then being developed. Mumbai’s urban woes partially can be traced to frozen land not being put to any kind of productive use.

These are problems, but you don’t see in real estate the kinds of government initiatives you see for telecommunications or for airlines. Real estate is a very important part of the economy, but it is relegated to a much lower part of government decision making.

The Quarterly: Special economic zones (SEZs), similar to those in China, have also proved a controversial topic in India.

‘You don’t see in real estate the kinds of government initiatives you see for telecommunications or for airlines’

Rajiv Singh: The whole SEZ controversy has been blown up and confused because it’s two questions rolled into one. First, is the SEZ policy good or not, and should concessions be given? My answer is yes, and they should. The other question, though, is about seizing land to create SEZs. Should a person’s land be acquired forcibly by the government? At rates of compensation that are totally unrealistic? With a payment system so absurd that he has to spend his life in court trying to claim—I wouldn’t say his legitimate right—but a fraction of his legitimate right? The answer here is that it is totally wrong.

The approach toward land acquisition has been totally skewed. When our company buys from the farmers, it pays full market price. You can’t allow the government to just go out and acquire land at artificial rates. The private sector must acquire a majority of the proposed land of SEZs at fair market value. Then the government should step in and buy land from the minority unwilling to sell, but at the same market rates. I think this is the direction it is going to take. The courts generally don’t have a problem with this approach as long as farmers are well compensated. The genesis of all the disputes and everything else is the simple reason that we’re just not paying enough money. Otherwise every single person is quite keen to sell. Agriculture is not exactly a very lucrative profession, and, sentiment apart, most people would rather cash in on their land and start some other economic activity.

The Quarterly: Is corruption a problem?

Rajiv Singh: Corruption continues to be an issue, principally in areas where there are arbitrary decisions and a lack of accountability. Over the years it has improved immensely, from a time when corruption was pervasive to now, when corruption is only in areas where you need special favors and sanctions. As an organization we stay away from the temptation by not asking for too much. We are patient and compliant, and we don’t face that kind of difficulty. However, I am sure that the people who work for us must face some elements of difficulty in conducting their day-to-day business.

The Quarterly: You’ve organized your business around independent units, rather than taking a more integrated approach. What have been the trade-offs?

Rajiv Singh: After our decision to go national, we felt we needed more focus. We basically split up our businesses into three distinct segments: homes, offices, and retail or malls. Within each we have reorganized to have completely independent resources. Very honestly, we share some common strengths, some common skills, and a common balance sheet, but beyond that each business is independent. Within each of these there is independent leadership. They all follow a common direction, but they each have their own way of getting from point A to point B.

The risk is basically that we may be duplicating resources. We may also be losing some benefits of scale or of learning about mistakes made and successes achieved. The other side is that the businesses had become so large and so complex that we were constrained by the ability to manage them at a local level and by the ability to assimilate all the information at a senior level. It allows greater empowerment. Our people don’t feel they are mere cogs in a machine but that they are responsible for clear and distinct parts of the activities or projects. In a growth environment it is efficient to separate and provide greater focus. In an environment that is shrinking and with less opportunity, the decision may be wrong.

The Quarterly: How would you address urban renewal and slum relocation?

Rajiv Singh: Generally, it is accepted now that our cities are what they are, and the solution lies in building new cities outside the main cities. There is a general sense of helplessness when it comes to fixing the basic city. The government’s reluctance or inability to levy property taxes efficiently is partly because cities are also occupied by people illegally. To some extent it is a political issue because of the large number of slum dwellers in Delhi and Mumbai and other cities. The government has not been willing to confront this problem, because the slum dwellers are obviously large-scale vote banks.

Also, those cities don’t have a strong system of local government. In Mumbai and other cities there isn’t a system where the taxes are levied by an independent body that represents the urban citizens. Mumbai, for instance, is perceived to be a cash cow for the state of Maharashtra.6 It produces revenue, which is deployed somewhere else in the state because there are many people outside the city,7 and that’s what counts in the political system. If there were a government unit with much more administrative responsibility for Mumbai, the city could have possibly benefited from more reinvestment and a rationalization of the tax system.

As for slum relocation, the main thing is to implement whatever policy you have and then pass judgment on whether it works and what parts should be fixed. But the moment someone raises a criticism, we have to change the policy, rather than implement something that is 90 percent good and 10 percent bad. Otherwise, everything is in limbo until a better policy comes up. The Mumbai slum scheme is well conceived.8 If it were implemented honestly, few problems would remain: 80 percent of the outcome would be OK, and the other 10 or 20 percent would be stuck in some problem. Instead, the slum scheme activity has almost come to a grinding halt. The policy has nothing wrong with it; it was a good idea.

The Quarterly: DLF has brought many foreign partners to India. When will it expand outside the country?

Rajiv Singh: We look forward to opportunities, and it could be sooner than expected. Basically, there are three opportunities abroad. One is to raise capital. Once we become good on the international capital markets, we will be as efficient as anybody else in financing our projects. The second opportunity is to own assets overseas, and that is something we will consider when we find that returns from owning something overseas are more attractive than owning local assets. That’s doubtful at the moment. And the third is a development or learning opportunity. That could be a very valuable area to start from, possibly in affiliation with existing partners or someone else.

I am sure there must be lots of challenges in going abroad, but honestly I have not really looked at it that carefully. To me the single-biggest challenge is not taking our eye off the ball in India. If India continues to perform the way it should—the way it is—we would be able to contain any fallout from international projects and put in place a mechanism that would cut our losses if necessary. Can we go abroad and maintain our stable, solid, growing business in India? That’s the question I keep asking myself. When I am clear about it and an opportunity exists, we will do it.

About the Author

Ranjit Pandit is an alumnus of McKinsey’s Mumbai office.


1 At the time Rajiv Gandhi’s mother, Indira Gandhi, was prime minister.

2 Two DLF projects in Gurgaon, on the southwestern outskirts of Delhi.

3 Fraport operates Frankfurt Airport, in Germany, and has projects around the world, including the modernization of the Delhi International Airport.

4 Land use laws restrict the type of development (for instance, residential or commercial) on a specific parcel of land.

5 Land ceiling laws restrict the total size of a plot that can be owned by an individual or single business.

6 Mumbai is part of the Indian state of Maharashtra.

7 The state of Maharashtra has a population of about 106 million, compared with about 18 million that live in Mumbai.

8 Under the Mumbai plan, slum dwellers in areas being rehabilitated are given a 225-square-foot apartment. The remaining land in these areas is split between the developer, as payment, and the government. Critics charge that despite rules that prohibit the resale of these apartments for ten years, it’s still too easy for benefactors to sell their new homes and return to slum living.


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