Two corporate groups announce investments totalling Rs.30,000 crores in Uttar Pradesh, but this need not bring further investment given the impression that the State government has bypassed procedures in favour of these groups.
WHEN Mulayam Singh Yadav took the oath as the Chief Minister of Uttar Pradesh on August 29, 2003, flanked by business barons Anil Ambani and Adi Godrej and wife Parmeshwar Godrej and Subrata Roy Sahara, it was seen as an indication that he planned to shed his Lohiaite image. The January 27 announcement of investments in mega-projects in the State by Reliance Industries and the Sahara group only confirmed this view. The announcement came after a meeting in Delhi of the "Amar Singh Club", a euphemism for the Uttar Pradesh Development Council, which the Samajwadi Party (S.P.) general secretary heads. Reliance will invest Rs.10,000 crores in the power sector and the Sahara group Rs.20,000 crores in housing.
Membership of the council, it appears, opens the door to facilities for setting up industries or starting projects, with sops and all. The list of its members reads like a who's who of the corporate world: Anil Ambani of Reliance Industries, M.S. Banga of Hindustan Lever, K.V. Kamath of ICICI Bank, Shishir Bajaj of the Bajaj group, Nandan M. Nilekani of Infosys, Ramdas Pai of Manipal Academy, Pratap C. Reddy of Apollo Hospitals and Subrata Roy of the Sahara group. Film star Amitabh Bachchan is a member in his capacity as chief of AB Corp, besides being nominated a brand ambassador for Uttar Pradesh.
While there is nothing wrong with the projects per se, the same cannot be said about the process involved in their selection. Contrary to the norm of inviting global bids for huge projects, the council, a creation of the Mulayam Singh government, offered them on a platter to the two groups, which have their members on the council and are thus part of the policy-making process.
Reliance Industries has proposed a 3,500 MW gas-based power project by sourcing the gas from its own gas fields in the Krishna-Godavari basin off the Andhra Pradesh coast. The project, spread on 2,500 acres (1,000 hectares), would be completed in phases and would feed Uttar Pradesh, adjoining States and Delhi. The cost of power would be Rs.2 a unit at the point of generation. According to Anil Ambani, managing director of Reliance Industries, this will be the largest gas-based power plant in the world.
The Sahara group has offered to develop 50 "high-tech townships" and work is already on in 10 cities and towns, namely, Allahabad, Jhansi, Muzzaffarnagar, Lucknow, Kanpur, Gorakhpur, Moradabad, Faizabad, Noida and Bareilly. The group has also offered to set up an international trade centre in Lucknow to help promote handicrafts and a drinking water project.
Industry Department officials in the State are not optimistic about such massive investment bringing further investment. "The process adopted will deter others. The element of access to key political figures did play a role in these decisions. So investors who do not enjoy such access will be deterred from committing any investment," said a senior official of the department. He believes that there should be more transparency in the decision-making process. "How do we know that the power will be sold at a competitive rate or the houses that Sahara builds will be available at competitive prices?" he asked.
But these do not seem to be matters of concern for Mulayam Singh Yadav and Amar Singh. "We are in a hurry to implement the power project," said Amar Singh. Mulayam Singh said he had requested the Prime Minister personally to expedite the environmental clearance for it. But the politics of projects can be potentially damaging for the corporate involved, as the Jaypee group found out. Its Rs.2,500-crore Taj expressway project is now stuck in court proceedings following investigations into allegations of corruption involving its sanctioning by the previous Mayawati government (Frontline, August 1, 2003).
IF the penchant to mix politics and business hinders development so does the dismal law and order situation in the State. The latest case in point is the murder of Prime Minister Atal Bihari Vajpayee's grandnephew Manish Mishra. He was thrown off the Chhattisgarh Express near Mathura on January 25 when he protested against eve-teasing by a group of drunken men. This incident got noticed because it involved the Prime Minister's relative, but for every such incident that is reported many go unnoticed. Even in the Manish Mishra case, there have been no arrests so far. Such a situation is hardly reassuring for those looking to bring development projects into the State.
Another factor that impedes growth in Uttar Pradesh is the fickleness of political decisions. Whenever there is a change of government - which has been a frequent happening in recent times - the previous government's decisions are reversed. One such decision by the Mulayam Singh government has been the denotification of districts created by Mayawati. Among the places affected was the much-hyped Noida adjoining Delhi. Noida and Greater Noida attracted substantial investment after they were carved out of Ghaziabad and Bulandshahar districts respectively eight years ago when Mayawati formed the Gautam Budh Nagar district and developed them as locations to showcase the State.
The disbanding of Gautam Budh Nagar district and the return of Noida and Greater Noida to their old districts led to violent protests. Many multinational companies and private educational institutions in the area bore the brunt of the protesters' wrath. Normal life was affected for several days. The administration remained a helpless spectator as lathi-wielding mobs ruled the streets. According to industry observers, the anarchy witnessed in Noida and Greater Noida would now make investors think twice before putting their money in such areas. The CEO of the Greater Noida Authority, Brajesh Kumar, disagrees. "Not a single investor has spoken of withdrawing. In fact, they are all asking for more land," he said. Mulayam Singh set up the development council as part of a unique experiment to rid the State of its "Ulta Pradesh" and "BIMARU" tags. It has met four times in the three months of its existence and is in the process of finalising other priority areas like telecommunication, health, education and information technology in which the potential investors could be interested.
Besides the power sector, Reliance has shown interest in expanding its infocom network in 300 towns/kasbas in Uttar Pradesh in the coming year. The A.V. Birla group, which has substantial investments in the State, has promised to invest Rs.1,000 crores as part of the expansion of Indo Gulf Fertilizers, its fertilizer factory at Jagdishpur, and HINDALCO, its aluminium factory at Sonbhadra. The State government, on its part, has promised to remove the obstacles to the group setting up a thermal power plant at Roja near Shahjahanpur.
The Sahara group, besides its housing venture, has promised to link Lucknow with 15 major destinations in India through its Sahara Airlines. The Godrej group is known to have shown interest in the consumer goods segment and Hindustan Lever in consumer goods and food processing. Shishir Bajaj is known to be interested in the sugar production sector and food processing units.
THE Development Council was constituted after three major institutions, Mackenzie, Crisil and ICICI, presented a report, which states that with the right mix of policies and the availability of proper infrastructure facilities the State can achieve a 12.4 per cent growth rate by 2020. According to the report, if the State focusses on achievable targets and on inviting investment in economic clusters (areas that have high-density economic activity) its growth rate can show a huge improvement. The report suggests that the State promote creation of employment opportunities in areas like leather industry, basic metals, chemical industry, paper, tourism, IT and biotechnology. In agriculture, it states that concentrating on vegetables, sugarcane and pulses can yield good results. It also recommends the creation of land banks in areas where investment opportunities exist so that land can be made available easily and quickly to investors.
But in order to exploit this massive potential and realise the 12.4 per cent growth rate, the State must create the right environment, not embark on a policy of "pick and choose", say industry experts. When the "pick and choose" policy is seen in the context of massive tax sops announced in the government's new power and housing policies, its intentions become all the more suspect.
The power policy contains lucrative tax benefits like interest-free loans to investors and stamp duty waiver on land purchased to set up industrial units. The policy also has major incentives for renovation work taken up in existing units and also provides for the transfer/sale of units that have a very low plant load factor (PLF), to private parties. For units located on government land, the land will be given on nominal lease for a period of 99 years. No premium on the land will be taken from the investor.
Similarly, the new housing policy spells out incentives for developing "high tech" cities. The land purchased by the developer would be exempt from stamp duty. Although the policy says a high-level committee headed by the Chief Secretary will select the developers from among the offers received, in the case of Sahara this procedure was not followed.
The Development Council has been criticised as a forum that would end up making policies to suit the vested interests of its members. Said Amar Singh: "All these men are on the Development Council because they are committed to the idea of development of U.P. These are not small people. I am not going to make policy only for the house of Godrej or the house of Ambanis. But the Ambanis are quick, and have tremendous capacity to rise to the occasion. If others miss the opportunity bus, is it my fault?"
The whole idea of setting up the Council was to generate a "feel-good factor" about Uttar Pradesh among industrialists, he said. "Our effort is to stop industrialists from being treated as a commodity. We want to give them a sense of security, dignity and the assurance that they will get returns for their investment. Isn't this what a healthy economy is all about?" he asked.
The intention seems honourable, but requires transparency, and proper procedures should be followed.
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