How Maharashtra plotted its comeback

VK Jairath had barely settled down as industries (secretary) of Maharashtra in February 2005 when he was forwarded a letter written by the CEO of Siemens India to chief minister, Vilasrao Deshmukh. It was an important communiqué which spoke of the German company’s intention to go in for a massive plan of installing transformers. While India was on its radar, it was also actively considering China.

In his letter, the CEO of the Indian arm pointed out that the commonly held global perception was that the Indian bureaucracy was far too slow in decision making. 'Help us prove this is wrong,' he said in the note, adding that if the proposal was cleared in eight weeks, it would only come to India.

“I took it as a challenge and it was cleared in 28 days,” recalls Jairath with a smile as we get talking on the Maharashtra turnaround story. The Siemens story was quickly followed by discussions with Mahindra-Renault for the Logan project and since then, every big name in the automobile business has made a beeline for the state. This includes General Motors, Volkswagen, Tata-Fiat, Bajaj Auto and, more recently, Mahindra-ITEC’s commercial vehicle project.

Of course, this list also encompasses a host of component manufacturers (like Mico Bosch) as well as big players in the construction equipment business. Apart from JCB, this includes a Chinese company too. “Today, we have commitments for 38 mega projects with an investment of Rs 43,200 crore,” Jairath says. The share of auto would be well over Rs 10,000 crore which clearly reestablishes Maharashtra’s status as the Detroit of India, a remarkable resurrection after years of splendid isolation.

What is particularly interesting, and a clear reflection of the renewed aggression, is that the state signs a memorandum of understanding with any company only at the final stage which literally means work begins almost immediately after. “It is not our intention to make flippant statements,” Jairath reiterates.

REVIVAL PLANS

While he has every reason to be pleased with the way investments have been pouring in, I ask him how the change in attitude came about in the first place. After all, at one stage, it seemed as if the state had resigned itself to being relegated to the sidelines while the likes of Tamil Nadu, Karnataka and Haryana were making merry and had in their fold big names like Toyota, Volvo, Ford, Hyundai, Honda and many others. The unkindest cut was the decision by the Indian School of Business to locate itself in Hyderabad when everyone thought Mumbai was going to bag this prestigious mandate.

##### “Traditionally, Maharashtra’s strengths have been infrastructure and human resources. When other states began to build upon these advantages, it finally boiled down to incentives. This became a cause of concern and when I took over in 2005, the chief minister was very emphatic about drafting a turnaround script. Other state governments were being aggressive and he said it was important to pull up our socks and get started,” Jairath says.

This is when the introspection began on what was actually going wrong. It was clear that incentives held the key to attracting investments. What was a harsh reality, though, was that even the Central government was offering a basket of goodies in states like Uttaranchal, Himachal Pradesh and Jammu & Kashmir. Undeterred, Jairath worked relentlessly to put a model in place. It was apparent that vehicle manufacturers also wanted a vendor cluster close by to build their business effectively. It was, therefore, important to create a policy where this could workfor Maharashtra.

“We quickly brought in a mega project plan which was linked to investments. In lesser developed regions, the qualifier was Rs 250 crore or 500 new jobs. In A and B areas, which are the better developed areas, the investment had to be at least Rs 500 crore or creation of over 1,000 jobs to qualify for a mega project. Depending on the jobs and money brought in, the package was customised for different investors,” he explains.

In special cases, where the package had to be exceptional (for a top global brand which had to be accommodated at any cost), it was decided that a committee under the chief minister would decide on the quantum of incentives. Things have been working very well since. Single window clearance or fast track approvals became the order of the day. There was no time wasted .The entire think-tank got into the act and worked overtime on the revival plan.

Special economic zones were also identified as the new growth drivers. “In a global economy, if we have to be competitive, world class infrastructure is a must. This would include a flexible labour regime and rational tax structure. It would be great this was prevalent in the entire country but till that happens, we will have to look at these pockets of excellence which are the SEZs,” Jairath says.

Even while this continues to be a contentious subject across the country, it is his belief that the concept will work so long as farmers get a better price, jobs and even a stake in the SEZ. He adds that it is the ideal option for the investor and will spawn a whole lot of opportunities across the chain to the support system which could include cabbies, hotels, restaurants etc.

Maharashtra, as is well known, has got the in-principle nod for 72 SEZs, the highest in the country. A committee has been set up to look into the issues on land. Once these concerns are addressed, says Jairath, the sky is the limit. Irrigated land is out of the purview (it is 16 percent of the cultivable area) and the Maharashtra Industrial Development Corporation takes care to ensure that only fallow, single cropland is considered.

“Farmers are assured of a good price while their children are trained so that they get jobs in the verticals which will come up. It is not our intention to make security guards out of the farmers who part with land. This is a win-win situation,” he maintains. Of course, it is imperative to work out a good rehabilitation package without any coercion and also ensure that food concerns are addressed. “There should be no disturbance to the food chain/crop cycle,” he says.

##### NEW INDUSTRIAL POLICY

Moving on, Jairath and the rest of the team also realised that it was important to market Maharashtra if it had to attract the right investments. A business delegation to the US led by the CM had an extremely successful trip. There were a host of strategic meetings which also included visits to Microsoft and Boeing in Seattle.

Back home, a lot of effort was put into the new industrial policy which came into force on November 1 last year. As he puts it, it is actually an industrial, investment and infrastructure policy which examines many critical issues. In the midst of this buoyancy, there are some concerns. One of them is the human resource aspect. The state has been growing at 8.6 percent and churning out over 1.7 lakh technically qualified people every year.

“There is huge demand for skilled manpower especially mechanical engineers who have moved to the IT sector. We estimate a shortage of nearly 20,000 engineers in the next 2-3 years. Investments are happening because of the cost advantage and if we have a shortage of people, costs will start going up. Then there is the fear that industry will move to low-cost destinations,” Jairath cautions.

On the other side, he adds, there are a host of graduates who are unemployed because they do not have the technical skills. The industrial policy is radial because it proposes setting up a labour market information cell at every stage. This cell will collate and integrate requirements of industry, what educational institutions and the state government can do and so on.

Jairath has an interesting anecdote on this subject. When land was given to JCB in Talegaon, the company recruited ITI students and got an instructor from the UK to hone their skills. These boys from rural Maharashtra went to the UK for six months of training and were ready with their skills when the factory began operations. “We want to work with industry and get them the right leads in training people who need jobs and only have to build their skills,” he says.

Interestingly, Jairath is particularly bullish on the Mahindra- ITEC project which involves an investment of Rs 2,500 crore and will see a range of trucks and buses manufactured here. This is because it is for the first time that the state will house a heavy commercial vehicle plant.

POINTS OF CONCERN

The Pune-Talegaon-Chakan belt along with Nashik will now be home to 2-and 3 wheelers as also cars, and commercial vehicles. It will also pave the way for a robust supply base and encourage entrepreneurs to set up shop here. “We are not promising the moon or unrealistic incentives but are assuring the comfort of a committed state. The government’s role is that of a facilitator and industry is competent enough to take off on its own, which is what is happening,” he says.

Power is, of course, a major concern and needs to be addressed. The restarting of the Dabhol project will help once the issue of gas is sorted out. Jairath is confident that things will take a turn for the better between 2009 and 2011. In terms of connectivity, the government is exploring the option of an expressway for Mumbai-Nashik (on the lines of the hugely popular Mumbai-Pune link). Nagpur, he says, is developing on a stand-alone basis (investments are pouring in along with infrastructure development) and the focus areas of growth will now be Aurangabad, Nashik, Mumbai and Pune.

The industrial policy talks of an SPV (special purpose vehicle) to drive, plan and implement infrastructure related to industry. There is also a proposal for a Bullet Train, which is at the concept stage, linking Mumbai to Nagpur via Pune, Beed and Marathwada. If it becomes a reality, the travel time will barely take six hours. Ports are also important especially when there are so many auto projects with manufacturers obviously keen to export a part of their output.

In this rush for land, everybody wants developed areas. The lesser developed locations also need their place in the sun. Land is available in Amaravati and the Nagpur region and the job on hand is to make them attractive. If Jairath’s zeal and aggression is anything to go by, this should be a cakewalk.