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Grassroots bustle

Grassroots bustle

There is discontent on the ground that the Gujarat state administration has done little to grease the cogs of SME eco-system even while moving decisively on big infrastructure projects - mostly helping large businesses.Is the Modi government doing enough for SMEs?Read comment | Post comment

Mohandas Karamchand Gandhi spent his adolescent years in Rajkot and even held a satyagraha, or a non-violent protest, there in 1939. But the legacy from those years enduring in the city is not that of the father of the nation but that of a decision by a small firm, Patel Mavji Kanji and Co., to import a German diesel engine and reverse engineer it.

What began with diesel engines in the 1940s spread to forgings three decades later and machine tools in the 1980s. Rajkot today is estimated to account for 70 per cent of India's forging business and caters to fourfifths of the forging needs of the country's auto industry. The city of some 3.2 million is home to around 400 diesel engine makers and another 700 ancillary and component units.

In recent years the virtuous effects of such a cluster are fanning out in Rajkot, some 250 km southwest of capital Gandhinagar. Companies such as Pune-headquartered Kirloskar Oil Engines, in 2007, shifted a factory to Rajkot to be closer to its component suppliers. And, as the local industry starts making more precision-intensive components, global customers are coming calling. Aircraft maker Boeing Co. today sources bearings from a city supplier.

Rajkot companies such as Captain Tractors, a mini tractor maker, are riding high on the fast-growing agriculture demand in the region. Having started manufacturing mini tractors of up to 12 horsepower way back in 1998, the company now has an installed capacity of 3,500 tractors a year. Its Managing Director Maganbhai Patel is keen to grow the business ten-fold in five years and is confident that the capacity will be supported by local vendors. "Sixty per cent of my tractors' components come from within Rajkot," he says.

But peel the onion a little and a different picture emerges. There is discontent on the ground that the state administration has done little to grease the cogs of the small and medium enterprise, or SME, eco-system even while moving decisively on big infrastructure projects in roads and ports - mostly helping large businesses.

"Government support is not making any direct impact on businesses and their growth," grudges a machine tool manufacturer. To understand why such angst is significant, look at the numbers: about one-sixth of India's manufacturing revenues come from Gujarat, a big chunk of which have local SMEs as their source. SMEs account for about one-third of exports from the state and employ more than 60 per cent of industrial workers there. Large sections of the state's SME universe believe they are delivering short of their potential.

"Infrastructure development closer to industrial areas is critically required," says Ashwin Mehta, proprietor of Premier Engineering Works in Rajkot. The Shapar-Veraval industrial area, spread over a 15 km radius is one such example. Over 1,550 units in the industrial belt paid Rs 136 crore in excise duties last year but the potholed roads there slow any movement and the area lacks proper drainage systems.

Mahesh Pandya, President, Vapi Industries Association
Mahesh Pandya, President, Vapi Industries Association
Abysmal roads is one thing, an unresponsive leader is quite another. An attempt to bring the poor state of infrastructure to the attention of Chief Minister Narendra Modi has borne no fruit. The Shapar-Veraval Industrial Association, which has 658 members in its fold, wrote to Modi's office in August, requesting time to present the problem. "It has been four months and we are still waiting to get an acknowledgement," says Ashish Navapara, an office bearer of the association. Anecdotal though, a letter from the association, a few weeks ago, seeking a letter from Modi to be printed in the members directory got replied to in a week. The conclusion locally: the chief minister's office is more interested in publicity than in fixing problems.

At the policy level, to be sure, changes in the industrial policy in 2009 reflect a stronger than before thrust on SMEs. There is work on the ground on cluster development along with sector specific development initiatives.

Also proposed is a package focused on zero defect manufacturing, 'Made in Gujarat' branding and development of skilled manpower, adding muscle to a policy that promises interest subsidy and R&D support. Add to this the Gujarat advantage of uninterrupted power, sweeping highways, a state-wide gas network and access to 41 ports on its coastline, and it may be tempting to conclude that the state's SMEs are a pampered yet complaining lot.

But 460 km southeast of Rajkot in Surat, one of India's richest cities by per capita income, a pattern of ennui emerges. The state's 2009 industrial policy listed the need to establish jewellery parks, hallmark certification centres and gem testing facilities with the ambition of making the city, which counts over 4,500 diamond polishing units, a value-added destination in the precious stones business, chipping away at the lead China and Hong Kong have.

Sourcing of diamonds is proving to be a hurdle, however. In October, a consortium formed by 1,500 diamantaires, Surat Rough Diamond Sourcing India Ltd, or SRDSIL, to import diamonds on a consignment basis, where the ownership of the diamonds remains with the supplier, has not made much headway. "It is now up to the government to make policies flexible for such initiatives to take off," says Aagam Sanghavi, Director at Sanghavi Exports. He insists that Gandhinagar lobby with New Delhi on this, else SRDSIL, in the absence of this flexibility, will end up with unsold stock as it cannot be shipped back to suppliers.

Elsewhere in Surat, once known as the 'Manchester of the East', the textile industry is feeling the pinch in its journey to value addition. The sound of power looms and smoke emitting chimneys are a common sight in the city that supplies 90 per cent of the total polyester used in India.

For the Surtis, research or development in textiles has never been a strength with industry insiders blaming the lack of such investment on low margins in the business. "Most of them do job work with no or minimum value addition," says Ajoy Bhattacharya, President of The Southern Gujarat Chamber of Commerce and Industry. Then, says Pramod Chaudhary, Managing Director of Pratibha Group, which has interests in textiles, there is always concern over the exclusivity of research in the business. The demand across the industry is for government intervention in the form of R&D and cluster support.

Further south of Surat, the mood is sombre at Vapi, the chemical hub of Gujarat. The district has come out of the World's Most Polluted Places list compiled by New York's Blacksmith Institute as also from a listing of 43 industrial areas in India on an eightmonth moratorium for environmental clearances by the Centre, but the stain remains. "The (state's) policy focus is mainly on value added products and that is keeping pharmaceuticals and chemicals slightly away," says Mahesh Pandya, President of Vapi Industries Association (VIA).

The way Vapi is cleaning its act is evident in the expansion of a common effluent treatment plant into the country's largest by capacity - 70 million litres a day (mld) - with a target of further capacity addition to 85 mld in two years. Also on the drawing board is a Rs 108 crore plan to acquire land for hazardous waste management and related activity, says D. C. Sharma, Chief Executive at Vapi Waste & Effluent Management Co., a not-for-profit company floated under the aegis of VIA.

Clearly, a conducive policy environment for business or not, SMEs in Gujarat want to move on ahead.