Gujarat stands tall
Gujarat has always been an investment friendly state. Last fortnight Chief minister Bhupendra Patel unveiled the Gujarat Aatmanirbhar Scheme 2022 which is aimed at attracting investments to the tune of Rs12.5 lakh crore over the next 5 years. It also envisages providing 15 lakh additional employment opportunities.
“The ‘Aatmanirbhar Gujarat Schemes for Assistance to Industries’ is aimed at encouraging budding entrepreneurs fulfil their entrepreneurship ambitions not only by de-risking their investments through incentives but also by encouraging youth to innovate and become job creators,” rationalised Patel, unveiling the scheme in Gandhinagar. It aims to encourage young people to become entrepreneurs, providing employment to others. “The twin themes of the scheme are to facilitate greening of the manufacturing processes as well as contributing to the global supply chain.”
The schemes provide MSMEs reimbursement of the state GST (SGST) over a decade, interest subsidy and relief on electricity. Gujarat has around 33 lakh SMEs. Likewise, concessions have also been proposed for large industries in the form of interest subsidy and SGST reimbursement.
Critics may well scoff at the timing of the policy announcement, which was prior to the announcement of the election dates. However, the truth is that industrial policies are regularly being announced. The Gujarat Industrial Policy was announced in 2020 for a period of 5 years. Nearly 20 sector-specific policies have been announced. In its bid to hold on to the title of the manufacturing powerhouse, the state has always been forward-looking in its thinking and attracting new projects.
It was amongst the first to start an event for showcasing a state as an investment destination. Vibrant Gujarat, a global investment destination and biannual event, has been held for the last 2 decades. Several states have subsequently held their own versions. A defence expo under the theme ‘Path to Pride’ was recently held in Gujarat.
It is not just subsidies and subvention schemes. Many other states have also started giving similar packages in a bid to woo large projects. In the case of Gujarat, it is also the ease of doing business and a cooperative attitude of the bureaucrats which scores over other states.
New Projects – Gujarat No. 1
The efforts of Gujarat are now showing. Gujarat has been ranked first in attracting the maximum investment commitments from new projects during the period April-September 2022. This was revealed in the 88th survey of project investments undertaken by Projectstoday.com, a division of Economic Research India Private Limited, a Mumbai based research house. The total investments envisaged are to the tune of Rs2.62 lakh crore.
“Of the 530 new projects, 13 projects were of mega size (projects investment of Rs1,000 crore or more) with investment commitment of Rs2.27 crore,” pointed out Shashikant Hegde, director and CEO. He adds: “The state’s arch rival Maharashtra, during the first half of FY23, saw the announcement of 839 new projects worth Rs1.44 lakh crore. Of these, 10 were mega projects with a total investment of Rs81,812.88 crore.”
Two large projects which propelled the state to the numero uno rank, were the two display fabrication and semi-conductors projects of the Vedanta Group along with their JV partner Foxconn. The group, which was scouting around for a site to set up its semi-conductor chip manufacturing units for the last few months, finally decided on Gujarat.
The two projects, comprising of a semi-conductor manufacturing project along with a display fabrication plant, envisage investments of over Rs1.54 lakh crore. Vedanta was among the early proposers to set up the project under the Rs76,000 crore, project linked investment scheme for incentivising the manufacture of semiconductor fabrication units in the country.
The rivalry between these two leading states, Maharashtra and Gujarat, is legendary, with the state governments going all out to woo entrepreneurs and bag large projects. In case of Vedanta too, both states were aggressively pursuing the project teams and offering various incentives. Gujarat finally won, as it is reported to have provided zero stamp duty on land purchase and subsidised water and electricity under the Gujarat Semi-Conductor Policy 2022-27.
Besides Vedanta there have been 11 mega projects which were announced in Gujarat during the April-September 2022 period. One of the large ones involves the setting up of a locomotive factory at Dahod by the Indian Railways. Dahod, near Baroda, has had an existing working facility for repairing steam-run locomotives since 1926 . The new project involves manufacturing 9000 HP electric locomotives. The first locomotive is expected to be rolled out in 2023. L&T is setting up an IT/ITeS project in Vadodara worth Rs7,000 crore (see table for other mega projects).
Of the total fresh investments Gujarat attracted during April-September 2022, the share of the private sector was 21.5 per cent. 224 private projects were announced involving an outlay of Rs1.96 lakh crore. During the same period, Maharashtra attracted 470 new private owned projects worth Rs1.11 lakh crore. The point is that private sector projects in Maharashtra account for 12 per cent.
Karnataka follows Gujarat in attracting the most projects. It has attracted projects worth Rs1.93 lakh crore, followed by Maharashtra which has attracted projects worth Rs1.44 lakh crore. Odisha and Tamil Nadu are ranked at 4 and 5. These five states together account for nearly two-thirds of the total new projects planned to be set up in the state. Besides individual states, there are certain groups which plans to set up multiple projects in various states.
The ACME group has fine-tuned plans to set up investments of Rs1.5 lakh crore comprising three green ammonia projects in Karnataka and Tamil Nadu.
The Adani Group has likewise announced two projects – a Rs42,500-plus crore one towards the expansion of Dighi port in Maharashtra and a Rs41,653 crore alumina project at Kashipur in Odisha.
Mega projects – the way forward?
Having mega projects is good in a way as they involve concentrated investments and in most cases mega projects see the growth of SMEs clusters which cater to the demand of these large projects. In the case of automobiles, the Maruti Udyog project in the mid-70s incentivised a large number of auto ancillaries in and around Gurgaon.
These industries, over a period of time, provide many employment opportunities and also funds to the government by way of additional taxes. The flip side is that in case a couple of projects fail to take off for whatever reasons, the state rankings may well go for a toss. However it is the SMEs which generate the maximum employment opportunities and export earnings.
An interesting trend witnessed in new projects during FY23 is the greening of projects. Promoters are increasingly focussing on reduction of carbon emissions. Of the total projects, proposals for setting up 19 ethanol projects, 19 green hydrogen projects, 5 semiconductor projects and 29 electric vehicle projects were announced.
Maharashtra No 1 – total outstanding projects
Besides manufacturing projects, the first half has seen a spurt of investments in the infrastructure sector both by the government (state and central) as also the private sector. Some of the major projects undertaken by the private sector include those in hospitals, ports and data centres. Nearly Rs5 lakh crore in the first half of 2023 saw as many as 3,636 new projects.
A better guide to assess the industrialisation of particular states is to see the total projects, including projects which have come up over the years. Based on this method, Maharashtra still ranks as the number one state, with a total investment commitment of Rs24.4 lakh crore. This accounts for nearly 12 per cent of the total investments envisaged in India. Gujarat follows close behind with total projects valued at Rs20.2 lakh crore, which is more than 10 per cent of the total projects. Odisha, Andhra Pradesh and Karnataka rank behind Gujarat.
A sector-wise dissection of the total outstanding projects shows that electricity and non-conventional energy projects account for Rs28.41 lakh crore, which is nearly 14.4 per cent of the total outstanding projects. In the case of outstanding projects, there are more projects in the service segment than in manufacturing and mining. As on September 2022 these account for nearly 55 per cent. Roadways and railways account for the bulk of these projects.
Outlook
For India to reach its GDP targets it is essential that investment demand pick up. Especially in the private sector. While consumption continues to grow at a healthy trot it is essential for investments to accelerate to provide the necessary impetus to GDP growth. A Projects Today survey says: “It is reassuring to see a pick-up in new projects. However, this momentum has to be sustained and in order to really accelerate production it is required that project execution also picks up.
Currently the ratio of project execution (projects execution/total outstanding projects) is just 35 per cent. To ensure higher production, the impediments to completing of projects have to be cleared. The PM Gati Shakti plan launched for developing infrastructure through planning implementation and monitoring has to take off in a big way. This will lead to a higher level of execution of projects and ensure that project announcements do not remain just that, announcements, and take off the ground and get completed within the timeline.
For now, however, Gujarat, which has emerged as the major recipient of new projects for the first half, has to ensure that it continues to maintain this lead and emerge as the state of choice for getting new projects in the country.