AFTER months of preparation, the Karnataka government rolled out the red carpet to industry captains recently in an attempt to woo investments to the State. But the euphoria melted quickly after the three-day Invest Karnataka 2016 extravaganza in Bengaluru, mainly because of doubts whether industrialists would keep the promises made at the event. The show, which was attended by more than 500 industrialists from across the world, promised investments to the tune of Rs.3.08 lakh crore, in 1,201 projects. As the dust settles after the global event in which more than 10,000 delegates participated, questions abound just as they did after similar events organised by the earlier Bharatiya Janata Party (BJP)-led governments in the State in 2010 and 2012.
A week after the event, the State Industries Department was still reconciling the numbers on promised investments handed out to the media at the conclusion of the summit. Of the Rs.3.08 lakh crore that was supposed to flow in, Rs.1.75 lakh crore was already cleared at various levels by the Industries Department. The remaining investment of Rs.1.33 lakh crore is what is supposed to have been committed at the global event. However, there is no clear breakdown of the numbers or details of the projects that were finalised with investors at the meet. Thus, despite efforts by Frontline to gather data at a more granular level, there are no details about the sectoral breakdown of the promised investments; moreover, details of some of the mega projects cleared were also not available. Of course, this is not new. Similar summits conducted by successive governments in the State at great public expense in the past—especially those in 2010 and 2012—have suffered from the same deficiencies. Public credibility and accountability are thus major casualties in such events.
But first some numbers to lend context to these promises. The promised investments are roughly about 45 per cent of Karnataka’s Gross State Domestic Product, which is the entire current value of all goods and services produced in the State. The first question that arises is, can a State absorb such a volume of investment? Following this is the question that is germane to the general situation in which industry is in: is it possible for investments to flow on this scale in a situation of stagnation that is visible all round? The third question, which is relevant in the context of the utter lack of information on the details of these planned investments, is, what is the extent of the State’s commitments, especially in terms of what it will have to spend in order to “facilitate” this scale of investment?
Although a detailed breakdown of all investment promises by industrialists is not available from the Industries Department, the limited post-event data that are available show an extreme concentration of investment proposals. Of the Rs.1.33 lakh crore worth of committed investment made at the summit, nearly 43 per cent is in energy projects; another 13 per cent is supposed to flow into steel projects. Real estate and “urban infrastructure” account for an additional 12 per cent. Thus, projects under these four heads, which, incidentally, are all characterised by the provision of access to natural resources—particularly land, iron ore, water—account for more than two-thirds of all investment that was promised by industry at the event. This raises a key question: is private industry only interested in access to natural resources that is facilitated by the state? Indeed, in this sense, this event is no different from the earlier Global Investors Meets (GIMs) organised in 2010 and 2012, under a BJP-led State government.
An industry source who has been closely associated with such events in the past recalled the great fanfare with which the BJP government headed by B.S. Yeddyurappa conducted the GIM, which was supposed to draw investments to the tune of Rs.4 lakh crore. Steel was clearly in focus at GIM 2010, with companies eyeing the State’s iron ore resources; almost two-thirds of the proposed investments were to be in steel. Five years later, and not unexpectedly at all, given the condition the steel industry finds itself in, not a single project has taken off. The question now is, how likely are the projects proposed at the recent event to take off? The fact that Indian steel producers—among them Tata Steel and Steel Authority of India Ltd (SAIL)—are reeling under severe pressure adds urgency to this question. More pertinently, for Karnataka to take these promises of investments in this sector so seriously certainly appears to be either naive or foolhardy.
The story of the global steel major ArcelorMittal’s proposed foray into Karnataka is illustrative of how companies dependent on access to raw materials and natural resources operate in an environment where States are desperately competing in a race to the bottom. Lakshmi N. Mittal, the chairman and CEO of the company, announced at GIM 2010 that his company planned to invest in a six-million-tonne-per-annum plant in Bellary. He said the company planned to invest Rs.30,000 crore in the integrated plant. He also said the company had already paid some money to the State government to initiate land acquisition to the extent of 4,000 acres (1,600 hectares). However, two years later, the company clarified that it would only be acquiring 2,786 acres. Five years after the proposal was mooted, questions abound about the company’s motives. Was it a move aimed at blocking moves by other companies, including companies such as POSCO, to gain access to raw materials for making steel? Or, was ArcelorMittal only using Karnataka’s offer of concessions as a bargaining chip while shopping with other States such as Jharkhand and Chhattisgarh? Even as recently as last July, ArcelorMittal avoided ruling out the possibility of establishing a steel plant in the State. A company statement in July 2015 said the company was still “assessing options”, among them the possibility of a joint venture with the public sector company SAIL. Clearly, the steel multinational was shopping around even as it kept the Karnataka government in a state of limbo about its intentions for more than five years. About the same time as the company issued this statement, Chief Minister Siddaramaiah said in the State Assembly that the plant, now proposed to be located at Dharwad, may not materialise.
Industry captains often complain that land acquisition is a major problem, a constraint on investments. The facts on the ground, however, indicate this to be an excuse for either not being serious about their own proposals or a motive to acquire land cheap by using the clout of the State and at prices that are even below the “market rates” that they usually swear by. Industry also complains that government clearances take long and the delays deter investment by companies. The head of a multinational company with significant operations in Bangalore admitted that not all cases of delays and deferment of investment can be placed at the door of the government. He said, “About 20 per cent of the proposed investments have not taken off even after government clearances and allocations for land, water, power and other amenities have been made.” Another industry source admits of a “squatter mindset” among industrialists. “They want to get the land and other resources and then speculate by shopping around for a better deal,” he said.
Quite apart from the ethical question of whether it is fair for the government to use its clout to buy land from farmers, there remains the question of whether the government’s acquisition of land will ensure that the project actually fructifies. The ArcelorMittal case is a clear example of this kind of dilemma; the State government did acquire some land for the project, which remains a pipe dream. So, why should the state acquire land merely on the whim of a private investor, who is under no compulsion to pay for damage that arises from his lack of seriousness?
The big guns of Indian industry —among them Ratan Tata, Kumar Mangalam Birla, Anil Ambani, Venu Srinivasan, Susumu Toyoda, Uday Kotak, Raghupathi Singhania, Gautam Adani, Sajjan Jindal, Vikram Kirloskar, N.R. Narayana Murthy, Azim Premji—were all there at Invest Karnataka. Many of them would soon travel to Mumbai for the Make in Maharashtra festival, which hopes to attract investments amounting to over Rs.4 lakh crore. If industry is indeed serious about this scale of investment, it certainly does not square with its general lament of an industrial slowdown that has been on for at least the past three years. It also raises serious doubts about the practice of State governments and the Centre—especially its Make in India campaign—organising such events in the name of industrial promotion, spending huge amounts of public money.
Gujarat, Tamil Nadu, Rajasthan, Odisha and several other States have undertaken such exercises, whose public benefit has been largely dubious. The Karnataka government had pulled out all stops for the event. Seven Union Ministers, among them Finance Minister Arun Jaitley and Road Transport and Highways and Shipping Minister Nitin Gadkari, participated in the event. Mindful of the criticism of the previous investor meets, State Industries Minister R.V. Deshpande has said he has asked bureaucrats to follow up investment proposals on a regular basis to ensure that they fructify. However, the problem is that similar promises of “close monitoring” of projects after such events have not been fully kept.
An industry source who was intimately associated with the GIM in 2010 and who recalls this with some regret told Frontline : “Industrialisation is a process, not an event.” He added: “The benefits of such events largely accrue to the extremely rich, famous and powerful who revel in the opportunity to network with others of their ilk, at great public expense.”
With inputs from Ravi Sharma