An Indian Outsourcing Hot Spot Chills Out

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DEVELOPMENT ON HOLD

The economic woe is taking its toll on the developers that built Gurgaon. As demand has eased, some 28% of commercial real estate here is vacant, compared with shortages a year ago. Office rents have dropped 25% and will continue to fall, says Sanjay Verma, South Asia head for real estate consultancy Cushman & Wakefield. "People are just waiting and watching before making any commitments," he says.

That's easy to see as you head toward the heart of Gurgaon from the Central Plaza Mall. On Golf Course Road, a few workers mill around half-completed buildings. At the Narsi office complex, huge signs advertise deep discounts. "I can give you a great deal, no rent for the first two months," says a real estate broker. "Just don't tell anybody." At the Sahara mall, a bored clerk points to a rack of men's clothing. "Eight suits for the price of three," he says. Still, he hasn't sold one in three weeks.

The bad news has the city fathers fretting that their revenues will plummet. In a dingy tax office the electricity is out, the telephone rings constantly, and an ancient computer is covered with a cloth. A disheveled clerk shows reams of printouts to A.K. Singh, a local tax commissioner. "Collection is down, certainly, this year," Singh says, marking the pages with a red pen. "Wait until June, when the final numbers come in. It will be drastic."

The new buzzword in Gurgaon is consolidation. Larger companies hope they have the cash to hold on while the global economy recovers, perhaps even enough to buy a rival or two. "Clients just aren't moving on proposals," says Ashish Gupta, chief operating officer of Evalueserve, an outsourcer with 2,400 employees, 2,000 of them in Gurgaon. "Smaller players are struggling. ... Many of these guys could get wiped out."

Srivastava reports for BusinessWeek from New Delhi.

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