Will 2012 polls change things for Gujarat's small businesses?

While Gujarat plies big firms with incentives, its small businesses are grumbling about neglect. In recent years, the state has focused on wooing large-scale industries. The Gujarat Industrial Policy of 2009 offers incentives to projects with investments above Rs 10,000 crore.

Election officials checking polling material at a distribution centre ahead of the first phase of Gujarat assembly polls in Sanand town on Wednesday, December 12, 2012. Photo: PTI Election officials checking polling material at a distribution centre ahead of the first phase of Gujarat assembly polls in Sanand town on Wednesday, December 12, 2012. <em>Photo: PTI</em>
The Nano may be a little car, but it's a big deal for Sanand. This manufacturing project attracted other bigticket investments to this tiny town of 32,000 people in Gujarat's Ahmedabad district. Nestle, Hitachi, Colgate and many other companies have come in after the Nano project. With Ford and Maruti set to drive into Sanand, Gujarat is likely to become an auto hub to rival Tamil Nadu and Haryana.

But beneath the froth of optimism is an undercurrent of disgruntlement, mainly among micro, small and medium enterprises (MSMEs). As political campaigning for the state assembly elections - to be held on December 13 and 17 - gets louder, the Congress party is echoing some of their criticisms of the BJP government's business policies. "The MSME sector has been powering Gujarat's growth, but has been neglected for the last decade," says Mihir V. Patel, President of Vatva Industries Association (VIA). Wellknown companies such as Nirma Ltd and Torrent Gujarat Biotech Ltd started in Vatva, an industrial estate on the outskirts of Ahmedabad city developed by the Gujarat Industrial Development Corporation in the 1970s. "When these companies grew, they had government support such as subsidised land," says Patel. "But now, it would be hard for a small company to become a Nirma or a Torrent." Ravubha Vaghela, Chairman of Raviraj Foils Ltd, says Gujarat has a shortage of skilled workers, which big industries need. "It is small industries that employ the most, not the big ones," he says.

MSMEs are important to Gujarat's economy. According to state government officials, small businesses employ some 1.8 million people, while big industries employ 0.8 million. In 2011/12, when Gujarat's share in the country's exports was the highest at 24.6 per cent, about two-thirds of this came from small industries. In recent years, Gujarat has focused on wooing largescale industries. The Gujarat Industrial Policy of 2009, introduced by the Narendra Modi government, offers incentives to manufacturing projects with investments above Rs 10,000 crore and 'innovative' projects of over Rs 500 crore. The reasoning is that they have a multiplier effect and boost ancillary industries. The policy does offer incentives for MSMEs, such as interest subsidies of five to seven per cent to set up new units or to expand.

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But perhaps the biggest problem is land. Real estate prices are rising in new industrial estates, and many older ones are getting saturated. "There is no opportunity to expand, even for profit-making SMEs," says K.T. Patel, President of the Federation of Industries and Associations (FIA), Gujarat.

Raviraj Foils's Vaghela, says land in Sanand is beyond the reach of most small entrepreneurs - a plot by the main road there would cost Rs 25,000 to Rs 30,000 per square metre. Incidentally, Vaghela got Rs 1,200 per square metre from the government for the 30 acres crucial for road access to the Nano plant.

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The Tatas got it at a subsidised rate of Rs 900. Perhaps what causes the most heartburn in Gujarat is that big companies get subsidised land in addition to other incentives. As election campaigning picks up, the Congress is accusing the BJP of pandering to big businesses. It says the state government allotted some 38.6 million square metres of land to the Adani Group for the Mundra port and special economic zone at rates of Rs 1 to Rs 32 a square metre, and that Tata Motors got a Rs 9,570-crore loan at 0.1 per cent with a moratorium of 20 years. "The mega corruption of the Narendra Modi government is disguised in the form of these land deals at throwaway prices," says Ashok Tanwar, the party official in charge of the Congress's Gujarat election campaign.

Siddharth Nath, member of the BJP national executive, says the state government has been transparent in its dealings. "What hurts the Congress is that Gujarat is attracting auto majors," he says. He adds that this is seen as a threat to the auto hub in Congressruled Haryana. Some in the business community also question the Congress's claims. "The land in Mundra was uninhabited wasteland," says Yatindra R. Sharma, Managing Director of the Rs 300-crore KHS Machinery Pvt Ltd, and chair of the western region SME committee of the Confederation of Indian Industry. "In my view, it was the right decision." He concedes that the pricing of the Mundra land is debatable, and agrees that land acquisition in the state will be difficult for both large and small projects in the future.

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Some in the MSME sector want the state to revert to earlier policies. From 1990-95, the state gave incentives to industrialise backward regions. Incentives such as capital subsidy and sales tax concessions continued until 2000. "The government will have to go back to providing capital subsidy to small industries in backward regions, at least," says Vaghela of Raviraj Foils.

The FIA's K.T. Patel says that without timely intervention, small industries may be in big trouble. The entrepreneurial culture of Gujarat may keep them afloat with or without government help, but they will not realise their true potential. Without them, he says, "Gujarat will not be able to stay ahead in growth." In terms of growth of average gross state domestic production in the last five years, Maharashtra and Tamil Nadu are already ahead of Gujarat. No matter which party wins the election, it will have to be on the ball.