Regaining lost ground

Published : Nov 17, 2006 00:00 IST

THE TWO-WHEELER plant of Bajaj Auto Limited at Chakan near Pune. - PAUL NORONHA

THE TWO-WHEELER plant of Bajaj Auto Limited at Chakan near Pune. - PAUL NORONHA

Maharashtra has regained its position as the number one State in industrial investment through investor-friendly measures.

THERE is a turning point for everything. When Maharashtra swung the Boeing deal, landing a neat Rs.500-crore mega project, it was clear to everyone that the State had swept away the jinx of the last three years and was back on the road to recovery. The Boeing deal was certainly not the biggest, but the fact that the State had bagged the premier project, which other States had also been wooing, was surely a shot in the arm. From Boeing's point of view, Maharashtra was ideal for situating the project because of its infrastructure.

Chief Minister Vilasrao Deshmukh, who was instrumental in getting the project, explains: "Nagpur airport was underutilised. We wanted to make it a cargo hub for the South Asian region since it is ideally located on the East-West route. Boeing's thinking was in line with ours. They also liked Nagpur's central location as well as the Special Economic Zone [SEZ] facilities that are being created there."

Maharashtra has always been in the vanguard in introducing investor-friendly policies. With its inherent strengths such as strategic location, availability of basic infrastructure, an enterprising entrepreneurial class and a productive workforce, it has been the No.1 State in industrial development. For a brief period, Maharashtra lost its first rank to Gujarat but it has regained lost ground.

"Competition emerged as never before, so even though we had all the natural advantages there was a period when other States forged ahead," concedes the State's Minister for Industries Ashok Chavan.

Industries Secretary V.K. Jairath explains: "After the discontinuation of sales tax benefits, other States that had caught up on infrastructure evolved investor-friendly policies, which brought down Maharashtra's present position in attracting investment. With the Centre offering tax and other fiscal benefits in States such as Uttaranchal, Himachal and Jammu and Kashmir, the competition became intense and investment started moving to these States."

On assumption of office in November 2004, Vilasrao Deshmukh decided to alter this situation and restore investor confidence and interest in the State, especially because creation of off-farm jobs would help balance the inadequacy of the agriculture sector to provide employment. The following initiatives were undertaken: A Mega Project Policy was introduced in June 2005; projects with investments in excess of Rs.250 crores or Rs.500 crores or with the potential to generate employment for 500 or 1,000 persons depending on the location were to be granted "mega project status"; customised packages for industry were evolved; single window clearance was offered to ensure fast-track approvals for projects; arrangements were made to facilitate acquiring requisite infrastructure; and an institutional framework of a High Power Committee and an Infrastructure Committee was set up to decide issues related to mega projects.

In February, the Cabinet approved the SEZ draft Bill, recognising the importance of these SEZs as the future growth engines of the economy. These zones are being pursued aggressively for the lesser developed areas of Vidharbha and Marathwada, especially in sectors that would add value to agricultural produce, agro-based biotech and textiles. There are 65 SEZS (including eight in Marathwada and six in Vidarbha) spread across the State, the highest number in a State, and all of them have the Centre's approval.

Ashok Chavan says the SEZs will "bring employment to backward areas". The prominent ones are Navi Mumbai, Mahindra, MIHAN, Bharat Forge, Bajaj Auto and Videocon. A first-of-its-kind initiative are SEZs for power generation. Countering the criticism that the SEZs were disruptive for rural India, the Chief Minister said "people are apprehensive of SEZs because they think farmers are not properly compensated or rehabilitated. We are making sure that no irrigated land is acquired. As it is, only about 16 per cent of the State is irrigated. How can we take that land?"

In the process of land acquisition, the government will only act as the facilitator. The company will deal directly with the farmers. The Chief Minister also says that the SEZs will generate employment. Citing the example of Bharat Forge, he said "about 15,000 more jobs will be created for engineers in the next five years".

The SEZs are expected to have a snowballing effect in many areas, including, as Deshmukh said, the creation of new educational institutions.

In this context, Dr. D.K. Shankaran, the State Chief Secretary, observed that there was a severe shortage of graduates. "Many private educational ventures have shown an interest in setting up colleges especially for engineering streams." Foreign universities have also shown an interest and are in discussion with the government. The State has the capacity to roll out 1,69,000 technically qualified people every year. The industrial boom will absorb all of them and demand more. Projections show that Mahindra Tech will require about 15,000 skilled workers while Tata Consultancy Services will create about 12,000 more jobs.

"It is unreasonable to expect that children of farmers will be satisfied with low-grade jobs like security guards. Local training institutes are being developed by the government so that they can upgrade their skills and get employment locally," Jairath said. A working example of this was demonstrated by JCB at its Talegaon project. A trainer employed by JCB imparted technical training in welding to local people, who were then employed by the company. "The basic idea," says Jairath, "is to integrate manpower planning with industry requirements."

However, the old debate on industrialisation versus agriculture continues. The SEZs are seen as one way of resolving this problem. Like many other States, Maharashtra has traditionally been dependent on industry and services for its economic growth. Agriculture has its own limitations because of the limited irrigation potential, vagaries of nature and lack of adequate infrastructure to provide necessary value addition to farmers in supporting the State's requirement of providing gainful employment to the ever increasing population.

Jairath offers a perspective. "It has to be a cost-benefit analysis decision. Only 16 per cent of the land is irrigated. The rest is rain-fed. There are the factors of small holdings being less viable and migration to urban areas increasing. What are the alternatives to this? The answer is in creating off-farm jobs. That is why the SEZs and that is why this thrust on industrialisation."

To a query on whether this was a good long-term plan, especially considering the State's food security, Jairath said: "The point is well taken but when the land itself is not generating anything and it is rain-fed, what will we do? Will we keep families at the subsistence level? One paddy field brings in a net return of Rs.5,000 an acre [Rs.12,500 a hectare]. Can we expect a family of six to live on this! If a farmer is willing to sell his land and he gets about Rs.4 lakhs to Rs.5 lakhs an acre [as he would in Panvel near Mumbai], plus some more from a rehabilitation package, totalling Rs. 5-7 lakhs an acre, then why should he not take it? He can get a good interest from this money."

For its SEZs, the Maharashtra Industrial Development Corporation (MIDC) will hire social service institutes to assist farmers with financial management. Land purchases by the MIDC come under the MIDC Act, which is separate from the Land Acquisition Act, 1894. The former allows the MIDC to negotiate rates with farmers with the result that market rates are usually paid.

"So people are not averse to giving us their land," says Rajiv Jalota, Chief Executive Officer of MIDC. "But we select barren or single-crop land only." Farmers are offered 100 square metres of developed plots for commercial use at industrial rates (commercial rates are generally three times the industrial rate). This ensures a sustained income for the farmer. "From February 2006 a new decision ensures that 15 per cent of land bought by the MIDC will be made available to farmers in a developed area at 50 per cent of the industrial rate. He will even be allowed to resell the land," says Jalota.

Several initiatives were launched to market the State as a first choice destination for investors. The delegation the Chief Minister led to the United States in this connection evoked a huge response. It was decided to set up a special cell to act as the single window for facilitating the proposals of Foreign Direct Investors. As a part of these marketing efforts, the Industries Minister led delegations to Korea and China. Many foreign delegations were also received during this period. A State delegation signed a memorandum of understanding to share Italian expertise to promote the wine industry in the State. The State has also initiated dialogue with various provincial governments in order to collaborate to exploit the strengths of each State. All these initiatives have brought tremendous response from both foreign and domestic investors.

In the last year alone, the State has jumped back to its top position by attracting investment from 33 mega projects totalling Rs.32,000 crores. The major ones, apart from Boeing, are General Motors (Rs.1,350 crores), LG Electronics (Rs.535 crores), Bajaj Auto (Rs.2,000 crores), Mahindra & Mahindra (Rs.1,250 crores) and Gulf Finance House (Rs.10,000 crores). Further proof that the State is working steadily towards its original position comes from IMD Switzerland. In its World Competitiveness Report, 2006, Maharashtra has improved its ranking, moving from the 42nd position to the 37th. The Reserve Bank of India, in the RBI Bulletin published in August 2006, has judged Maharashtra as the State with the highest corporate investment, thereby surpassing Gujarat. In 2005-06 Maharashtra outperformed all competition with a total investment of Rs.26,947 crores (20.1 per cent of the total investment), followed by Gujarat (Rs.24,531 crores) and Tamil Nadu (Rs.12,160 crores).

Shankaran said that far from being in the red, Maharashtra had been upgraded in the CRISIL rating. The plan for the future is ambitious. But Jairath is confident it will be achieved. The goal is to double the per capita income by 2010, that is, to increase it from Rs.35,000 to Rs.75,000. And to halve the population living below the poverty line by 2010.

For Ashok Chavan, the way forward is to put emphasis on "more small and medium industries... on having more interactive dialogue so that they hone their own financial strengths". He believes that "industrial development should go beyond the Mumbai-Pune belt".

"Maharashtra has always understood what business is all about. We have good infrastructure and excellent human resource and we used to be a power-surplus State. We understand development. We were the first to move industry away from cities," says Jairath. His views are in line with Chavan who sums up thus: "We decided to be very aggressive two years ago. The fruits are beginning to show. It's all about being globally competitive."

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