Despite the commendable efforts of both state and central governments to push manufacturing investments through a host of policy measures, incentives and marketing campaigns, the Indian manufacturing sector is yet to realise its full potential. The cumulative growth in Index of Industrial Production for manufacturing during April-December 2017, over the corresponding period of 2016, is only 3.8%, according to the ministry of statistics and programme implementation data. One key issue that both Indian and foreign investors have highlighted is the difficulty in securing suitable land for projects. Proposed investments often face the problem of outright non-availability, or they get tangled in the cumbersome allotment/acquisition procedures. To ensure project feasibility, the government must ensure that land is available in a timely manner and at competitive prices. Potential sites available with state industrial bodies suffer from poor connectivity—as they rarely control surrounding infrastructure—and unavailability of skilled manpower, given their remote locations. With the land acquisition for industrial purposes becoming tougher in the country, the situation can quickly spiral downwards in the coming years.
Any investment promotion approach needs to give due consideration towards this major barrier. This is an opportunity for government-owned infrastructure entities to step up. Most infrastructure authorities—including major ports, the railways, airports and road authorities—own significant land banks that are well connected and are ideal locations to facilitate manufacturing units in India. For instance, most countries with long coastlines have successfully leveraged their ports to boost industrialisation. Rotterdam (Netherlands), Antwerp (Belgium), Shenzen (China), Jurong (Singapore) and Pohang (South Korea) are leading examples of this. For India, this represents an untapped opportunity. For instance, it is estimated that 80% of the prime industrial land, associated with major ports in India, remains underutilised. This potential has been formally recognised only recently. In the ports sector, ‘industrialisation led by ports’ is a major thrust area under the current government. It is estimated that successful industrialisation of port land alone can mobilise Rs 1 lakh crore of investments and create 100 lakh jobs. To enable this, a slew of reforms has been undertaken over the last few years, the traditional role of an infrastructure authority has been expanded, and it is now expected to facilitate industrialisation by all means possible. Flagship projects under ‘Port-led industrialisation’—special economic zone (SEZ) at Jawaharlal Nehru Port Trust (JNPT) in Navi Mumbai, Smart Industrial Park City (SIPC) at Paradip and Coastal Economic Unit (CEU), Kandla—have received a strong response from the industry. Indian and global companies have lined up to take advantage of the excellent connectivity and proximity to major commercial hubs. The JNPT SEZ project alone is expected to generate over Rs 7,000 crore of investments and over one lakh jobs.
The medium, small and micro enterprises (MSME) segment, most critical to spurring manufacturing capacity addition and job creation in the country, stands to benefit the most from these projects. The MSME segment has, traditionally, been the most impacted due to the unavailability of suitable land for expansion. Additionally, this segment does not have the adequate resources compared to that of larger companies, so it has been difficult to overcome supply-chain challenges posed by locations that have poor connectivity. Thus, this is the right segment to target. MSMEs have the required financial capacity, are hungry for growth, need smaller land parcels and do not expect special incentives for setting up their projects. In comparison, India’s experience with MoUs inked at global investor summits has been mixed. Most of these deals take a long time to translate into actual on-ground investments, with proposals often being abandoned due to the non-availability of land or a lack of favourable incentives from the government. To enable infrastructure authorities to accelerate this process of industrialisation, some additional actions need to be taken. First, investment in infrastructure is required upfront. Power, water, effluent treatment, fibre optics connectivity, and gas pipelines are priorities. Second, existing land policies need to be more flexible in order to deal with the complexities of industrial land. For instance, the current practice of allocating all land through tender/auction process is a big deterrent. Third, expertise for marketing and administering industrial parks/SEZs is a must. And finally, a change in the mindset is necessary as the focus shifts from land-value maximisation to attracting investments. On the whole, the effort of government-owned infrastructure entities to promote industrialisation is in the right direction. Supported by the best policy framework and robust performance monitoring, they can prove to be a game changer in the effort to stimulate manufacturing in the country.
Suresh Subudhi & Dhruv Lal
Subudhi is global head of infrastructure practice and Lal is consultant, BCG. Views are personal