Column: Gujarat hasn’t gotten over Godhra

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Gujarat has been the most aggressive state in trying to attract investments to its shores in recent times. The chief minister has stretched out opportunistically whenever a major project ran into trouble famously in another state. Whether this was trouble with land acquisition for Tata Motors’ Nano project in Singur (West Bengal) or labour troubles for Maruti in Manesar (Haryana), Narendra Modi did not lose an opportunity to provide these companies an alternate in his state. This instant gratification has been duly reciprocated with lavish accolades from the captains of industry.

Vibrant Gujarat has become an elaborately organised and proactive platform to attract investors to the state. Most of the announcements made during Vibrant Gujarat have not progressed far beyond the event. But the state has benefited from its multi-pronged and aggressive strategy for attracting investments. It has attracted and, more importantly, executed the largest investments amongst all states of India in recent times.

Gujarat has been the top-ranking state in terms of new investments being completed in the past three years. It also topped the list in four of the last five years.

Completion of projects is the most meaningful indicator of investments. This is when the investments actually turn into productive assets, when they create new employment and start generating new goods or services. Many promoters make tall claims of the investments they intend to make but only a few of these actually progress beyond these initial announcements. Some proposals make progress but the implementation gets stalled for a variety of reasons. The little capital formation that takes place lies without being utilised for a long time. So, what matters more than the announcement of projects and even more than the classical concept of capital formation is the completion of projects. And Gujarat tops the list in this respect by a good margin.

In 2012-13, according to CMIE’s CapEx database, projects worth R577 billion were commissioned in Gujarat. This was way above the next state, Maharashtra’s R418 billion worth of commissioning. In 2011-12, Gujarat’s lead was even larger with investments of R686 billion over Maharashtra’s R343 billion. In 2010-11, Gujarat completed projects worth R377 billion and Karnataka followed with completions worth R334 billion. In 2009-10, it was Andhra Pradesh that led the states with the completion of R674 billion worth of projects. But, in 2008-09, Gujarat was way ahead of the pack with R716 billion worth of project completion.

Gujarat’s supremacy is new. It is a sharp turnaround from the serious blow it suffered in terms of loss of investments soon after the 2002 riots. During the six years before the riots—1995-96 through 2000-01—on an average, projects worth R150 billion were commissioned in a year in Gujarat. In the six years after the riots—2001-02 through 2006-07—these fell sharply to R103 billion a year.

This fall is significant because it happened when the rest of the country saw a sharp increase in investment. On an average, projects worth R720 billion were commissioned annually during the period 1995-96 through 2000-01, and this had increased sharply to R1,056 billion in the following six years till 2006-07. All major industrial states such as Maharashtra, Tamil Nadu, Karnataka, Andhra Pradesh, West Bengal and even Uttar Pradesh, Orissa, Rajasthan and Haryana saw a sharp increase in the completion of projects. Gujarat was a clear exception to this increase in investments. The only reason for this could be the riots of 2002 that had unnerved investors.

Narendra Modi became the chief minister in October 2001, the riots took place in 2002 and Modi was re-elected as chief minister in 2002. The industry was unimpressed by Modi’s electoral victory and remained cold to the state for a good seven years. This, in spite of the fact that the first Vibrant Gujarat carnival was held in January 2003 and in spite of the central excise duty and sales tax exemptions given to the state for investments in the earthquake-stricken Kutch region. Investments did move to the Kutch region but the spectre of the riots continued to hurt investments in the rest of the state. The turnaround took place in late-2005 when Reliance announced its Jamnagar SEZ refinery. This R270 billion project was completed in December 2008. Around the same time, Essar’s much-delayed Vadinar refinery, worth R108 billion, was also commissioned. These investments benefited from the income tax exemption offered by the central government to refineries that were commissioned between October 1998 and March 2012.

Easy allotment of land by the Gujarat Industrial Development Corporation (GIDC) has played a major role in attracting investments into the state since 2008. Compared to the 285 hectares of land allotted in 2008-09, 1,564 hectares of land was allotted in 2009-10, and another 907 hectares was allotted in 2010-11. The availability of a land bank with the GIDC, from which allotments to the industry can be made quickly by an efficient administration, is the most important factor that makes Gujarat an attractive investment destination. This also explains why most of the new investment in Gujarat is in the relatively barren Kutch-Jamnagar belt.

The Kutch-Jamnagar belt accounts for a mere 7% of the population of Gujarat but more than 40% of the total projects commissioned in Gujarat during the period 2008-09 through 2012-13 were in this region. In contrast, the Ahmedabad-Kheda belt, which accounts for about 22% of the population, received only 7% of the investments. The relatively better industrialised Vadodara-Valsad belt of south Gujarat, accounting for about 26% of the state’s population, got 31% of the total investments.

The Reliance, Essar and Adani groups are few of the business houses that have invested heavily in Gujarat. Recently, the Tatas have also invested in the state. In 2012-13, the Tatas and Essar together accounted for 46% of the total investments commissioned in the state. In 2011-12, Essar and Adani accounted for over 60% of the total investments commissioned in the state.

Aggressive marketing by the government of Gujarat, easy availability of land and tax sops have helped attract investments into Gujarat. But these investments are still largely limited to select geographical regions and by a select few industry groups. A more well-spread investment boom is yet to materialise in Gujarat. Before the riots, Gujarat accounted for nearly 21% of all commissioning of new capacities in India. After the riots, the state’s share fell to less than 10%. And although Gujarat has regained its top slot in the rankings, it has not regained its pre-riots share in investments. This, at 13.6%, is way below the pre-riots level.

(All data sourced from statesofindia.cmie.com)

The author is managing director and CEO, Centre for Monitoring Indian Economy P Ltd

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