Business Today

Young and eager, but...

Three new states, Uttarakhand, Chhattisgarh and Jharkhand, are attracting big-ticket investment proposals and latent demand is fuelling a boom in these states, but problems remain.

By Rishi Joshi | Print Edition: August 26, 2007


The list of investors queuing up to invest in the state reads like a virtual who's who of India Inc.-Tata Motors, Bajaj Auto, Mahindra & Mahindra, Hero Honda, Ashok Leyland and Nestle have all trooped in, and have invested about Rs 30,000 crore in the state since 2003. "We don't have any more land in our industrial estates.

Dehradun, Uttarakhand: Rapid industrialisation is spreading prosperity all around
There's a long waiting list of companies, but we can't accommodate everyone," says S.P. Tripathi, GM, State Infrastructure and Industrial Development Corporation of Uttarakhand (SIDCUL), the nodal agency for infrastructure development in the state. The industrial estates of Haridwar, Udham Singh Nagar and Dehradun have emerged as the main industrial centres. Over the last four years, Uttarakhand has clocked an SDP (state domestic product) growth rate of 10 per cent, placing it among the high growth states in the country.

So far, SIDCUL has mostly utilised unused government land for the purpose. The supply of such parcels of land has now run out. So, the government can either turn away investors, or it can start doling out agricultural land. Says Maj. Gen. (Retd) B.C. Khanduri, Chief Minister of Uttarakhand: "In principle, I wouldn't like to take over agricultural land. But we'll do what's in the best interests of the state." Cautions V.K. Dhawan, former Chairman, CII (Uttarakhand): "If the government adopts a rigid attitude on acquisition of agricultural land, it will finish the process of industrialisation in the state."

The Incentives... 

  • Zero excise duty for the first 10 years

  • Zero income tax for the first five years, and 30 per cent thereafter

  • Subsidy on capital of 15 per cent, with a cap of Rs 30 lakh

  • Concessional central sales tax at 1 per cent for the first five years

  • Exemption from entry tax on plant and machinery

  • Stamp duty concession on Specialised Commodity Parks

... And the investments 

  • Tata Motors: Rs 2,000-crore plant to manufacture cars and mini trucks

  • Ashok Leyland: Rs 1,200-crore plant to manufacture commercial vehicles

  • Sterlite Optical: Rs 1,000-crore plant to manufacture cables and telecom equipment

  •  Hero Honda: Rs 600-crore project to manufacture two wheelers 

On other fronts, too, there are challenges that need to be addressed. Basic infrastructure needs an urgent overhaul. The supply of power has not kept pace with demand. At present, the state generates 950 mw of power, against a peak demand of 1,200-1,300 mw. An investment of Rs 11,000 crore is expected to be made in the sector (mostly by central government utilities) over the next three years to ramp this up to 3,500 mw. Then, a Rs 2,200-crore ADB-funded project is underway to overhaul and build roads in the state. The National Highway Authority of India is also upgrading the stretch between Dehradun and Delhi and between the Kumaon and Garhwal regions.

The state's urban centres also need large doses of investment. Says Pankaj Gupta, President, Industries Association of Uttarakhand: "We have surpassed the carrying capacity of cities like Haridwar and Dehradun." Three cities (towns, really) in the state-Haridwar, Dehradun and Nainital-have now been brought under the Centre-sponsored Jawaharlal Nehru National Urban Renewal Mission for beefing up the urban infrastructure.

Interview:B.C. Khanduri, Chief Minister 
"Finding Land Will Not Be a Problem"

B. C Khanduri
B. C Khanduri

Uttarakhand chief minister B. C. Khanduri spoke to Business Today's Rishi Joshi on his efforts to industrialise his state.


There is no land available in industrial estates any more. How will you accommodate companies eager to make fresh investments in the state?

We will divide land into three categories-extremely fertile land, which we will not touch; ordinary land; and government land. Then we have to decide what type of industries the state needs and where we want them to be based. Industries could come up on land which is not being used for agriculture.

Will you acquire farmland for industries?

In principle, I would not like to take over agricultural land. But we will do what is beneficial for the people of the state.

What is the government doing to build infrastructure in the state?

We are keen on harnessing the hydel energy potential of the state. My own estimate is that we can generate 40,000 mw for which we have to invest in a number of big and small projects. We are also looking to build a network of roads that will link all the regions-in particular, we will focus on the Pradhan Mantri Gram Sadak Yojana.

What about the hill regions, that have so far been largely left out of the industrialisation that has taken place?

My government has begun to identify districts where land is available for environment-friendly small industries. We could also set up agri-processing and cottage industries. IT companies, too, can be based in these regions.

The lack of trained manpower is another issue. The government is trying to address this by inviting companies to adopt Industrial Training Institutes. But in the immediate term, this shortage has resulted in large-scale poaching of skilled manpower by larger companies and led to the closure of several SSIS that have borne the brunt of the talent flight.

Government officials privately admit that industrial development is largely due to the efforts of the previous N.D. Tiwari regime, and that maintaining this trajectory will be the acid test for Khanduri.


O.P. Jindal Super Thermal Plant: Expanding operations in the state

Raipur, a sleepy provincial town till a few years ago, became the capital of the newly-formed state of Chhattisgarh in 2000, and since then, its graph has shown a steep upward climb. "On an average weekday, my mall records 15,000 footfalls; on weekends, this figure nearly doubles," claims Sanjay Gupta, MD, City Mall 36, Raipur's first shopping mall that opened last month. Says Raman Singh, Chief Minister of the mineral-rich Chhattisgarh: "The government is doing everything possible to rapidly industrialise the state."

That claim has to be taken with a largish pinch of salt. While it is true that the state has inked nearly 80 MoUs worth nearly Rs 90,000 crore since 2001 with various companies, government officials and local businessmen admit in private that big-ticket greenfield investments have made little progress since the memoranda were signed.

The incentives... 

  • Concessions for "special thrust industries" like herbal medicines, auto components, food processing, white goods and non-conventional electricity
  • Service charges for land allotment reduced from 35 per cent to 15 per cent
  • Infrastructure subsidy on capital investment up to 9 years equivalent to commercial tax pay out 

... And the investments 

  • Tata Steel: Rs 10,000-crore greenfield steel project

  • Essar Steel: Rs 7000-crore greenfield steel project

  • MoUs signed for 30,000 MW of power generation (coal availability in the region can only support an additional 6,000 MW)

Several of these proposals are in a limbo due to political and bureaucratic wranglings 

A rough ride: Given the Naxal menace, investments will take time to materialize
So, while companies like Jindal Steel & Power, which already has a significant presence in the state, have been investing in brownfield projects, others like Tata Steel and Essar Steel are finding it difficult to live with political instability in the Naxal-affected areas in the mineral-rich Bastar and Dantewada regions. For the record, though, Varun Jha, VP (Chhattisgarh Project), Tata Steel, claims his project is on track. "We have the full support of the government," he says. Adds a local businessman who is considered close to the ruling BJP: "The Naxal problem is just one part of the story. The fact is that the government itself has more than one power centre; and the bureaucracy, too, is divided." Result: the frenetic pace with which the government wooed investors (mostly in core sectors like cement, power and steel) is not matched by activity on the ground.


Circa 2000, a three-bed room flat at Belaire Apartment in an upmarket locale in the central business district of Ranchi was available for Rs 750 per sq. ft. The same flat now costs Rs 2,700-2,800 per sq. ft. Property prices across the city have zoomed over the last 6-7 years. But not everyone is attributing this boom to the Rs 2,50,000-crore worth of investment proposals that the state has received over the last two years, mostly in core sector industries like iron and steel, power and aluminium. Says Rahul Maroo, Director, Express Residency, a leading local real estate developer: "People here always have had the money, but didn't have any avenues to spend it."

Ranchi, Jharkhand: The boom in real estate and retail is palpable

Therein lies a paradox. Despite the existence of large companies like Tata Steel, Central Coalfields, Heavy Engineering Corporation, Usha Martin, Mecon, and Coal Mines Planning & Designing India, the industrial scenario in Jharkhand is still a start-stop affair.

The Incentives... 

  • Capital investment incentives, captive power generation subsidy, interest subsidy, rebate on registration charges and stamp duty for sale/lease of space for IT infrastructure if at least 30 per cent employment is reserved for Jharkhand residents

  • Special incentives for the IT industry include exemption from environmental and zoning regulations

  • Permission to run three-shift operations

... And the investments 

  • Arcelor Mittal: 12 mtpa steel plant at a capital outlay of Rs 40,000 crore

  • Tata Steel: 12 mtpa greenfield steel plant and expansion of its existing plant at Jamshedpur at a cost of Rs 48,000 crore

  • Essar Steel: 10 mtpa steel plant at an investment of Rs 23,000 crore

  • Jindal Steel & Power: 5 mtpa steel plant at a cost of Rs 10,480 crore

  • RPG Power: 1,000 MW thermal power plant at an outlay of Rs 5,000 crore

Tata Steel, Jamshedpur: In expansion mode
Arcelor Mittal, for instance, had proposed to put up a 12 mtpa steel plant at an outlay of Rs 40,000 crore. However, even after two years, it's a non-starter, thanks to the imbroglio over allotment of mining lease at Chiria ore reserves. Tata Steel proposes to set up a 12-mtpa steel unit at a cost of over Rs 48,000 crore. Jindal Steel & Power and Essar Steel have also lined up large steel units worth Rs 10,500 crore and Rs 23,000 crore, respectively. But frequent changes in governments, a legal battle over mining leases and social unrest over land acquisition have been standing in the way of these projects.

Says Chief Minister, Madhu Koda: "We are trying to sort out all pending issues at the earliest. After my government assumed office, L.N. Mittal has reiterated his investment commitments in the state. Jindal's and Essar's projects are also set to get off the ground. My government is committed to extend all possible help."

(With Aman Malik, Ritwik Mukherjee)

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