Gujarat set to get biggest piece of 'Make in India' pie
Prime Minister Narendra Modi’s clarion call to ‘Make in India’ seems to have got an enthusiastic response from India Inc. Call it timing: In less than a month of Modi launching the campaign, a slew of big-ticket investments in manufacturing have been announced, mostly in Modi’s home state of Gujarat.
In fact, a number of plants were inaugurated recently, and a few others are in the pipeline, it is learnt.
For instance, American drug maker Abbott commissioned its first greenfield factory in Jhagadia (Gujarat) to make in India nutritional products, which the company was importing from Singapore and Europe so far. The plant entails an investment of Rs 450 crore and employs over 400 people.
“We love the prime minister’s ‘Make in India’ concept and we want to participate in the campaign. It is an opportunity for us to be closer to our customer,” said John Landgraf, executive vice-president, Abbott’s global nutrition.
German major BASF inaugurated its chemical manufacturing plant in Dahej with an investment of Rs 1,000 crore, representing the company’s single largest investment in India.
Meanwhile next door in MP:Still a long journey to transform MP from agrarian to industrial economy
Agriculture and allied activities constituted 37 per cent of the net state domestic product in 2011-12, while industry had a share of just over 17 per cent.
According to official figures, expression of interest on making investment to the tune of almost Rs 6.8 lakh crore was received during the three-day meet, of which big companies committed to pump in around Rs 100,000 crore. (MANY MILES TO COVER)
About Rs 70,000 crore, constituting 9.8 per cent of the total promised, is to come in food processing. Much of the investments are promised in the non-farm sector.
A robust food processing sector is critical for shifting an agrarian economy to an industrialised one, as it helps in effective absorption of farm surplus and also rural jobs.
Investments are committed to come in various fields such as power, cement, telecom, gas, semi-conductor fab, steel, iron ore, fertiliser and petroleum.
Data sourced from the Planning Commission showed agriculture and allied activities in the state have been recording a high double-digit growth rate since 2011-12 and clocked a high of 23 per cent in 2013-14, the highest in the country and much more than the national average, which hovers around four per cent per annum.
This growth has come in a short span of three-four years. Moreover, it has been primarily driven by cereals, particularly wheat, though horticulture also had its contribution.
Agriculture production in the state has increased from 24.75 million tonnes in 2009-10 to 37.66 million tonnes in 2012-13. Production of horticultural crops during the same period increased from 6.53 million tonnes to 18.10 million tonnes.
In contrast, industrial growth dipped from 5.05 per cent in 2011-12 to 2.15 per cent in 2013-14. Particularly bad was manufacturing, which fell from a growth of 3.89 per cent in 2011-12 to a contraction of 0.13 per cent. Overall, GDP growth during the same period in the state moved up from 9.69 per cent in 2011-12 to 11.08 per cent in 2013-14, the data showed.
To absorb the farm surplus, logic says industrial growth should be faster, as farming employs much more labour than industries.
"Historical evidence shows that whenever any predominantly agrarian economy wants to shift towards a manufacturing one, it needs to absorb two kinds of surplus: The surplus generated through farming and excess labour. It is still unclear as to how the state wishes to address these," said Jaya Mehta, eminent economist and social scientist, associated with the Joshi-Adhikari Institute of Social Sciences.
She said though the state government has claimed to generate around 170,000 jobs through its investment initiatives in the near future, it is not clear as to what kind of jobs will be created, what is the nature of skills these jobs require and whether the workforce currently available in the state possess those skill sets.
On the topic of infrastructure debt funds:Banks’ lending to infra projects still dwarfs that of specialised debt funds
Stiff regulatory norms and lack of suitable projects have curtailed infrastructure debt funds’ (IDF) investment to just about R1,500 crore so far, a tiny fraction of the total funds infrastructure companies have invested.
Five funds have been set up over the last two years and these funds have taken an exposure to just a dozen projects. In contrast, banks’ incremental exposure to the infrastructure sector has risen by R2.16 lakh crore in two years, to R8.7 lakh crore as at the end of August.
IDFs under the mutual fund route have more liberty while making investments as the Securities and Exchange Board of India has allowed them to invest even in greenfield projects. However, even these IDFs are cautious to put in too much money. “We have taken some exposure to projects in power and roads. Since we are specialised in infrastructure as a company, our IDF is able to take on riskier projects,” said Ramesh Bawa, managing director and chief executive officer at IL&FS. LF&FS is perhaps the only IDF that has been relatively successful in raising R1,500 crore and deploying nearly R800 crore into projects by buying bonds issued by infra firms.
IDFs were introduced with the objective of freeing up bank capital stuck in long-term infrastructure projects and were seen to emerge as a stable long-term funding source eventually. “There is a big gap between what IDFs have mobilised and what they have disbursed,” said R Venkatraman, director at India Ratings that monitors and rates IDFs. “In some cases, IDFs have not been able to mobilise funds,” he added.
IDFs are allowed under two structures, as non-banking financial company and as mutual funds. Pawan Agrawal, senior director at CRISIL Ratings, believes that NBFC-IDFs will find it tough to scale up going ahead as the competition to raise funds through the bond market increases given that banks have now been allowed to issue infrastructure bonds themselves.