As a result of its focused growth initiatives, Gujarat has leaped ahead of other Indian states in growth, whereas the states in South India are witnessing a slump in growth, according to a report.
Gujarat has witnessed growth at the rate of 11 per cent as compared to the all Indian growth average of 9 per cent, states the report by McKinsey & Co.
However, South India has seen a slow down in GDP growth rate, despite its overall strong position, McKinsey & Co Partner Ananth Narayan said.
Ananth Narayan was present at the conference "The Next Wave of Growth- South India", organised by the Confederation of Indian Industry, where the McKinsey report was released.
In the recent years (2005-10), the real GDP growth in Gujarat has been 11.3 per cent as against 11 per cent in Haryana, 9.6 per cent in Bihar, 8.5 per cent in Karnataka, 8.1 per cent in Kerala and 7.4 per cent each in Andhra Pradesh and Tamil Nadu.
Quoting the report, Narayan said Gujarat has achieved leadership in the chemicals industry, with 35 per cent share of all investments in this sector over the past five years.
He added Gujarat had made use of its long coastline and had announced India's first state policy on the development of new minor ports.
This has been followed with the "Jyothigram Yojana" for uniterrupted power supply and easing business creation through a single window clearance system.
The state has also taken steps to market itself as an attractive investment destination through the "Vibrant Gujarat" summits held annually for the past eight years, he said.
He added that industry leaders attribute the slump in the South Indian region to factors such as rising land prices, significant shortage in the availability of labour, infrastructure bottlenecks including port capacity and growing urban congestion in Bangalore, Chennai and Hyderabad, for the slump.
While on one hand government policies - particularly on land acquisition - are still an issue, paucity of employees at all skill levels is the main concern for the industry, he said.
The constraint on labour supply and low employability due to lack of skills drives up wage levels. This is growing into a major concern in Tamil Nadu and metro areas of Bangalore and Hyderabad.
Though South India has the highest number of professional college seats, the quality of graduates from these colleges has not been at par with industry expectations, he said.
Overall, talent availability and management is a top priority for South India in the coming years, he said.
Regarding the power generation situation in South India, he said its total power demand is 26 GW base, peaking to 37 GW, while available capacity is 30 GW.
He further pointed out that there was a need for the industry to move up the value chain across sectors.
While the first wave of growth in many sectors has been at the lower end of the value chain, such as contract manufacturing, IT-offshoring, voice and data BPOs, the next growth phase requires industry to move to higher value-add segments in each of these sectors by having a strong presence in research development, product development and innovation.
Companies in South India, especially in sectors that have already attained competence as low-cost solution providers, must look to build capabilities that will take them to the next level of sophistication such as healthcare delivery to clinical and biological research, he said.
South Indian states will have to create industry clusters to transform and grow, for example Tamil Nadu with its pre-eminence in automotive/auto components could have clusters in these sectors while Karnataka could have clusters in IT/ITES. The states should undertake these effort and look beyond regional play to become global hubs through greater focus on products and innovation, he said.
The states will also have to build physical infrastructure (roads, power, ports etc) and social infrastructure through skill training, allowing more women in the workforce by creating flexibility and relaxing norms, focusing on higher education, research, and healthcare, he said.
It will have to be kept in mind, however, that development has to be sustainable and environment friendly, he said.
Severe water shortage is going to loom large in South India in the next decade and it needs to be addressed, Narayan warned.
According to the report, the state government and CII will have to follow a six-step agenda for the successful implementation of all these factors.
They will have to create a high-power steering committee comprising state's Principal Secretaries, Chief Secretary and industry leaders to monitor the progress periodically besides setting up delivery labs to chart a road map of growth.
They should also create a control room where independent analysts from CII would track progress across initiatives, publish scorecards to be presented before the steering committee and revise plan based on feedback and outcomes.
S Gopalakrishnan, Co-Founder of Infosys Technologies and Chairman CII, said they would place the recommendations made in the report before the government and soon set up the steering committee and control room in accordance.
Hari S Bhartia, President CII emphasised on enhancing the capacity and quality of higher education and the need to provide skill training to move towards self-employability.