Planning Commission releases study praising Gujarat’s success in manufacturing, focus on MSMEs

A new study, conducted for the Planning Commission, explains in detail how Gujarat has facilitated the growth of micro, small and medium enterprises, and emerged as among the top States in manufacturing. 

A new report, released by the Planning Commission, praises Gujarat for its innovative initiatives to promote the job-generating, growth-driving manufacturing sector. The report explains in detail how Gujarat has facilitated the growth of micro, small and medium enterprises, and emerged as among the top States in manufacturing. This finding negates the politically-motivated baseless allegation that only big industry is promoted in Gujarat.

The study, ‘Survey on Business Regulatory Environment for Manufacturing – State Level Assessment’, has been conducted by Deloitte Touche Tohmatsu India Private Limited (DTTIPL). Commissioned by the Planning Commission, the release of the report coincides with Commerce and Industry Minister Anand Sharma’s desperate attempt to downplay the DIPP-funded study on improving India’s business regulatory environment that hailed Gujarat’s land acquisition policy as the best in the country.

The ‘Gujarat Model’ just cannot be wished away, no matter how hard the detractors of the BJP’s Prime Ministerial candidate Narendra Modi, who as Chief Minister of Gujarat has taken the State to new heights of economic success, try to disprove facts. Anand Sharma will now have to contend with the report commissioned by the Planning Commission which supplements the findings of the DIPP-funded study.

The DTTIPL study has highlighted Gujarat’s iNDEXTb initiative which serves the dual purpose of facilitating enterprise and monitoring the implementation of investment proposals. The study says, “iNDEXTb is a nodal agency under the Industries Commissionerate, Government of Gujarat for providing hand-holding support to entrepreneurs. The Investor Facilitation Portal developed by iNDEXTb facilitates monitoring of investment proposals by generating MIS reports, which can be used by officials to identify applications on which action has not been taken within the stipulated time frame.”

The study points out how iNDEXTb assists entrepreneurs by helping them finalise their choice of location for setting up a manufacturing unit. This is done by providing critical information on access to three key basic inputs – land, power and water. The Investor Facilitation Portal’s assistance is available for micro, small and medium enterprises (MSMEs) as well as large enterprises across all sectors. The facilitation is for both setting up new industries as well as for expanding existing manufacturing units.

“Some of the States have developed GIS-based software which shows mapping of land plots in industrial estates,” the study says, adding, “The real time vacancy details can be checked by applicants and the applicants can select plots based on analysis of such location.” Citing the example of Gujarat, the study says, “iNDEXTb has a GIS-based software which shows the geographic mapping of industrial areas in Gujarat, including highways, GPCB zones, CRZs, port connectivity, soil quality, power and utilities grid connectivity, etc.”

Knocking the bottom out of mendacious allegation leveled by the detractors of Narendra Modi that the State Government promotes only a few big companies, the report says: “For reaching out to micro enterprises, iNDEXTb has set up kiosks at 26 district industries centres. These kiosks are equipped with infrastructure facilities such as internet connectivity, printer and scanner.”

The study refrains from assigning ranks to States. What it has done is to cluster States on the basis of six parameters. These are: finance and tax related compliances; labour law related compliances; infrastructure and utility related approvals; land and building related approvals; environmental clearances; and, other business regulatory compliances.

States have been clustered in three categories – ‘Top’ 33.33 percentile of States; ‘Middle’ 33.33 percentile of States; and, ‘Bottom’ 33.33 percentile of States.

The findings of the study show that Gujarat figures among the ‘Top’ category comprising nine States that have been assessed on all six parameters. Gujarat figures among the top States on four select parameters – finance and tax related compliances; infrastructure and utility related approvals; land and building related approvals; and, other business regulatory compliances. On environmental clearance, Gujarat has been put in the ‘Middle’ category of States. Only on labour law related compliances, Gujarat is placed in the ‘Bottom’ category of States.

Explaining the last categorisation, an analyst said “this classification can be turned around to trash the allegation that the Modi Government does not protect the interests of workers. The fact is that the Government protects the overall interests, which can at times be conflicting, of all stakeholders by holding growth and development for all as the supreme objective.”

The study comes with the rider that it solely focuses on assessing the existing business regulatory framework in individual States. “Other key factors that impact the performance of manufacturing units, like quality of infrastructure, availability of natural resources, market linkages, labour and skill availability, access to finance, etc, have not been covered in the current study,” it says, adding, “Consequently, the relative standing of individual States may differ from their relative contribution to India’s manufacturing GDP.”

Elaborating on this point, the study explains, “For example, a particular State may have been identified as being relatively mature in its business regulatory environment but may not have an equivalent standing in terms of contribution to India’s manufacturing GDP owing to limited natural resources within its geographic boundaries.”

Commenting on Gujarat’s success in manufacturing sector, it notes that the State ranked second in the country in terms of share of manufacturing GDP, contributing around 13.7 per cent of manufacturing GDP in 2011-12. The State’s manufacturing sector contributed 28.2 per cent to Gujarat’s GSDP in 2011-12, with a CAGR of 9.5 per cent between 2007-08 and 2011-12. The sector employed around 3.4 million people in 2009-10 representing 13.7 per cent of Gujarat’s working population.

Referring to interaction with industries, the study says: “It is understood that Gujarat is a power surplus State with respondents expressing satisfaction on quality and availability of power. It was also indicated that quality and availability of water has improved over the years.  Road network and rail connectivity have also shown improvement.”

Look beyond Bellary

When the Supreme Court’s Forest Bench takes up the issue of illegal mining on Friday (August 5, 2011) it should take a wider view and strike at the root cause of this crime.

Chief Justice of India SH Kapadia and his fellow judges Justice Aftab Alam and Justice Swatanter Kumar were understandably enraged upon reading the report of the Central Empowered Committee, comprising environment experts, on illegal mining in iron ore-rich Bellary district of Karnataka. Even without delving into the details of the extent of illegal mining and the resultant environmental degradation, it would have been fair to call for drastic action to put an end to both. After all, Bellary has been in the news for years, and not always for the shenanigans of the ‘Bellary Brothers’ or the alleged yet-to-be-proven indiscretions of the former Chief Minister of Karnataka, Mr BS Yeddyurappa.

That many of the 124 mining lease-holders in this district have been indulging in rampant illegal excavation of iron ore, either by encroaching into land beyond the leased area or by extracting more than the permissible amount, has been common knowledge for a long time. The Central Empowered Committee’s report has served to bring shocking details to the attention of the Supreme Court, for which it deserves to be lauded. Chief Justice Kapadia and his fellow judges on the Forest Bench also deserve applause for acting in a determined manner to halt illegal mining; action that should have been taken by the executive long ago, but wasn’t, has at last been taken by the judiciary. So once again we are witnessing the judiciary stepping into the breach created by the executive’s inaction, or, to be precise, failure to act.

Having said that, it would be in order to suggest that perhaps the Forest Bench acted in pique while imposing a total ban on mining in Bellary district and ordering reparations to be paid by mining lease-holders for the damage caused to the environment last Friday. Instead of allowing exasperation to get the better of reason, the Bench should have taken a wider view of the problem of illegal mining without limiting it to one district in Karnataka. It should have also looked at the real, unstated reason behind illegal mining — apart from the profit motive — without addressing which the crime of looting the wealth of the Earth and destroying its forest cover cannot be halted. While Bellary has no doubt come to symbolise illegal mining, it is not the only place where natural resources are being extracted in violation of rules and laws.

If a total ban needs to be imposed till the problem is solved and controls firmly put in place, then it should apply to all mining activity across the country. The “systemic failure” which the Bench has highlighted while regretting that “mining regulators failed, forest regulators failed...” does not begin and end with Bellary; that failure’s adverse impact is being felt in every State which is endowed (or, as some would say after seeing the unrestricted loot, cursed) with mineral resources. If the situation in Bellary is frightening, it is equally scary in Odisha, Jharkhand and Goa, to name only a few States where illegal mining thrives at the expense of forests and indigenous people, enriching a few while pauperising millions.

The mining regulators have failed in these States, too, as have forest regulators. That failure, it needs to be stressed, is by design and not by default: Regulators are known to hanker for crumbs thrown their way by mine operators. There exist on paper severe restrictions laid down by the Mines Department of each of the States where ore is mined; so are tough rules framed by the Forest Department. Together, these restrictions and rules control the amount of iron ore that can be extracted and transported.

But the very fact that despite there being such restrictions and rules illegal mining flourishes is ample evidence of corruption at the level of officials who are charged with the responsibility of implementing them. A full and impartial inquiry into how firms that have long ceased to exist are allowed to extract ore from mines for which leases have long expired, how mining lease-holders are allowed to plunder ore after destroying forests on land beyond their leased areas, and how illegally mined ore is legally shipped from ports under the watch of Government officials in Odisha would help understand the extent of the menace.

Hence, little or no purpose would be served by limiting judicial intervention to one district of one State or restricting executive action aimed at imposing penalties on a group of mining lease-holders. If the 124 mining lease-holders of Bellary are to be penalised for the destruction they have caused to forest cover, so should the hundreds of others who ‘operate’ mines across the country. Anything less than that would be unfair and fall short of justice. Which is not to suggest that damage to the environment caused by illegal — as well as legal — mining should not be addressed and reparations imposed, but to appeal for a uniform application of penalties as deemed appropriate by the Supreme Court and implemented by the Government.

Which brings us to the root cause of illegal mining. Much, if not all, of the illegal mining of iron ore that happens is on account of escalation of demand in the international market. For instance, China’s insatiable demand for iron ore to fuel its rapidly increasing production of steel has led to a dramatic rise in the price of this natural resource. A quick estimate would show that the price of iron ore has escalated by leaps and bounds in the last seven years, which coincides with the spurt in China’s demand. Mining lease-holders now find it more profitable to export iron ore than to supply it to local producers of steel. And this shift is more than endorsed, in fact it is encouraged, by the Union Government as it adds fat to lean export earnings. It is of no consequence to the Ministry of Commerce, and presumably also the Ministry of Finance, that higher earnings through exports has created, what one steel factory owner describes as, “pressure on iron ore pricing in India”, thus increasingly placing our domestic steel industry at a disadvantage and stunting its growth, whereas it should really have been the other way round.

Available statistics show that of the total production of iron ore, nearly half of it is exported. If this trend were to continue, a time would soon come when domestic steel manufacturers would be hard put to keep their furnaces going. India’s crude iron production in 2010-11 was 70 million tonnes which needed 112 million tonnes of iron ore. Over the next five years steel production in India is likely to reach 120 million tonnes per year which would require 175 to 180 million tonnes of iron ore. A limited or extended ban on mining may meet the demands of activism, but it would cause enormous damage to our steel industry.

The solution to the problem, therefore, does not lie in imposing a ban on mining, but regulating it in a manner that India’s national interest is protected. Countries around the world now think in terms of securing their future by expanding the scope of security strategies to cover natural resources, including water and minerals. Unfortunately, the Government of India thinks in terms of somehow or the other increasing its export earnings to balance the books of a badly managed economy. India’s steel industry has long been demanding that iron ore exports should be either banned or made less lucrative through the imposition of heavy export duties. That would not only make illegal mining an unprofitable venture and protect forests from ruthless buccaneers but also ensure that domestic steel manufacturers are not faced with a situation where their principal strength, abundant availability of indigenous iron ore, will be diminished.

As the Supreme Court takes up the issue of illegal mining today, perhaps the Chief Justice and his fellow judges on the Forest Bench would want to look beyond Bellary. If the judiciary must intervene, let it force the executive to do what should have been done long ago: Either impose a ban on the export of iron ore or introduce an export duty that is so high that China and others will look elsewhere to fuel their steel industry. That way lies the path to solving a problem that has come to haunt all of India, not just Bellary district in Karnataka.

[This appeared as the main Editorial Page article in The Pioneer.]