With unemployment figures reaching a whopping 9.25 lakh and facing an inherent locational disadvantage, luring investment to Himachal has become a Herculean task for the state government.
The task was tough, as the introduction of the GST in July 2017 has put in place a uniform tax structure across the nation and the enticement of special financial incentive was no longer available. Though a Central scheme providing access to credit at the rate of 30 per cent for Central capital investment was notified in April last year for the micro small and medium sector enterprises, no new industrial unit has set up its operations in the state in the past one year.
With Jammu and Kashmir and the north eastern states having been extended a Central industrial package, the state’s hopes of luring industry were further hit.
Location biggest disadvantage
The state neither produces raw materials, nor has a market to sell finished goods for the manufacturing sector and it faces the biggest disadvantage in the form of its location.
The food processing potential has failed to be tapped despite registering high fruit production, which touched 5.65 lakh metric tonne in 2017-18. It was surprising to note that even a vision document prepared by none other than a renowned international consultant Grant Thornton, to promote food processing industry, could not be implemented in letter and spirit in the recent years. This would have fetched both employment as well as investment had it been exploited to the hilt.
Monopoly of transport unions
The woes of the state’s industry were not limited to its far-flung location, but the monopolistic transport unions which charge exorbitant freight, almost as high as 40 per cent than prevalent elsewhere, make goods produced in the state non-competitive. This acts as another deterrent for investors to venture into Himachal after the lapse of 2003 Central financial package.
The issue has been petitioned before successive state governments by various industry associations for the last several years, but no mechanism has been devised to resolve this issue amicably. Since the transport unions wield a sizeable clout among political parties, no party wants to lose out on their vote bank by taking any decision, which will prove detrimental to their poll prospects.
“To find an amiable solution, the Confederation of Indian Industry (CII) has now demanded that the state government should provide them security to ply their own fleet as the transport unions do not allow this liberty,” said IMJS Sidhu, its chairman for Himachal chapter.
The cash-strapped state government has failed to spare funds to pay its share of 42 per cent of the CGST to the industrial units, which were availing the benefits of the Central incentive package prior to the introduction of the GST. Investors said a state of uncertainty has been created with the financial incentives of the earlier industrial package remaining unpaid though this demand has been vociferously raised by the various industry associations since 2017.
Lack of adequate infrastructure to blame
Lack of adequate infrastructure in the state’s industrial clusters was another concern for investors. A multifold increase in the industrial investment in the last about a decade-and-a-half has failed to match the state’s infrastructure though some key projects did get initiated.
The much-hyped 33.2 km Pinjore-Baddi rail line, which was conceived a decade ago, as well as the four-laning of the 35-km Baddi-Nalagarh National Highway-21-A, which was conceptualised about four years ago, were yet to even begin as the issue of high rates of land acquisition has put a spanner in the work. The issue has remained unresolved despite several rounds of talks having been held with the state and the Central authorities. The BBN area continues to remain the hotspot of industrial activity and poor infrastructure reflects poorly on the state government.
Hopes high from tourism sector
With a footfall of 196.02 lakh in 2017, comprising tourists from India and abroad, and the availability of a plethora of unexplored tourist sites, the state government had high hopes for this sector, which contributed 6.6 per cent to the state’s GDP. Accounting for 25.9 per cent of the India’s total hydel power potential, it is another key focus area of the state government.
Optimistic about seeing favourable results in the series of investor meets planned by the state government, Sailesh Aggarwal, president, Baddi Barotiwala Nalagarh (BBN) Industries Association, said: “There is an urgent need to address the long-standing problems of poor connectivity and lack of infrastructure in the BBN industrial cluster, which accounts for 89 per cent of the state’s industry.”
He said it was lamentable that the key projects including Pinjore-Baddi rail link and four-laning of the Pinjore-Baddi national highway have failed to see the light of the day even years after they were conceived.
“The state government has to address these key issues and it can’t remain non-committal if it seriously wants to lure investors. Some serious steps have to be taken soon before the next round of investor meet in June to send the right message to the prospective investors,” Aggarwal said.
“The budget of the BBN Development Authority, which is supposed to develop the area’s infrastructure, should be enhanced to ensure speedier development of infrastructure as potholed roads present the area in poor light to investors. The exemplary road network laid by the neighbouring Punjab was laudable and investors here should get a similar feel, Aggarwal said.
“Since the industry was a major contributor to the state’s gross domestic produce, key woes of the industry should be resolved on a priority. The availability of cheap and quality power was earlier the state’s highest selling point. This advantage has, however, been lost with several states including the neighbouring Punjab and Haryana, becoming power surplus and offering competitive rates to the industry 24x7, Aggarwal further said.
Echoing similar views, Satish Goyal, chairman, Himachal Chambers of Commerce and Industry, said: “The government should ensure rail connectivity to the Paonta Sahib and Kala Amb industrial belt.” He observed that key industrial clusters such as Paonta Sahib should be notified as food parks and this would make available Central schemes for setting up food processing industries in the region as ample raw material was available within the state.
Goyal also voiced his discontent against the imposition of state-specific levies such as Additional Goods Tax and Certain Goods Carried by Road Tax, which have failed to provide a level-playing field to investors across the nation, as they enhanced the value of the finished good and made it difficult for them to compete with goods manufactured in other states. He said: “Despite raising a demand to subsume these taxes after the introduction of GST, the state government has not paid heed to this key demand.”
The high price of cement manufactured in the state was also attributed largely to these two taxes. The state produces 11.45 million tonnes cement annually at major cement plants including Ambuja Cements Limited, Ultra Tech, ACC and CCI. Lack of infrastructure has also acted as a major deterrent for the investors in setting up a cement plant in the remote Chamba district, where no bidder has come forward, despite inviting global bids twice in the past one year.
Unavailability of adequate housing in industrial clusters another handicap
Unavailability of adequate housing in the industrial clusters was also seen as another handicap to sustain the quality workforce and this problem was especially visible in the bordering areas of Parwanoo, BBN, Kala Amb and Paonta Sahib among others.
While the 2003 Central industrial package did revolutionise the state’s industrial sphere, it has introduced an unsavoury practice of political interference in the multi-crore scrap disposal business. Browbeating of investors to give business to particular traders has become a major bone of contention in the industrial areas, where law and order problems were also emerging due to this multi-crore business.
Facing a brigade of unemployed youth
Facing a 9.25 lakh-odd unemployed youth brigade, an effort has been made to make 80 per cent employment to local youth a must in the new industries, while this figure was 70 per cent for the existing industries by the state government. The investors while agreeing to the urgency of this step termed it as another stumbling block though little investment has been registered in the state after this norm was introduced last year.
Riddled with several challenges and limitations, it remains to be seen if the state government could rope in a sizeable amount of investment and address the key needs of the educated unemployed youth, which increase every year.
Desperate to woo investors, the state government is now undertaking a series of global investor meets. The target of attracting investment worth Rs 80,000 crore through a series of investor meets in seven major sectors, including agri-business, manufacturing, tourism and hospitality, power, healthcare and wellness, infrastructure and logistics and information technology and skill development, has been drawn up by the state government. The first such meet was held in Bengaluru last month, which saw keen participation by top investors including Toyota Kirloskar Motors, Max Hypermarkets, Wipro, Dell, Indo Nissin, Volvo India, Indian Design, Amazon India, TVS Motor Company, India Electronics & Semiconductor Association, Automotive Axels and Royal Orchid Hotels. The government was hopeful that major investment would be made in the state through this inaugural meet and its second phase was being planned for June at Dharamsala. As a preparation to facilitate investors, the state government has created a land bank comprising over 1,600 acre land, which includes a bulk drugs pharmaceutical park, biotechnology park in Solan district, integrated industrial townships in Una and Kangra and textile park in Una among other projects.
Similar efforts in the past fail to yield results
The phenomenon of investor meets was not new in Himachal and even in 2016, the then Congress government had undertaken such an exercise across the nation. Despite key investors eliciting interest in various sectors, the results had been dismal. Investors feel nothing much has changed since 2016 though they hoped the state would fetch new investment in various sectors which it was displaying as areas of key priorities promising high returns. Showcasing Himachal as an ideal investor destination which has transitioned from an agrarian economy to an industry and service-led economy, the state government was highlighting its improved ranking at the 16th position attained last year in the ease of doing business. Major Central projects which were likely to come up in the near future such as the mega tool room, gas pipeline, composite pharmaceutical lab, etc., were also part of the state government’s key assets, which it hopes will lure investors.
"There is an urgent need to address the long-standing problems of poor connectivity and lack of infrastructure in the BBN industrial cluster, which accounts for 89 per cent of the state's industry. It is lamentable that the key projects including Pinjore-Baddi rail link and four-laning of the Pinjore-Baddi national highway have failed to see the light of the day even years after they were conceived. The state government has to address these key issues and it can't remain non-committal if it seriously wants to lure investors. Some serious steps have to be taken soon before the next round of investor meet in June to send the right message to the prospective investors." Sailesh Aggarwal, President, Baddi Barotiwala Nalagarh Industries Association
"The government should ensure rail connectivity to the Paonta Sahib and Kala Amb industrial belt. Key industrial clusters such as Paonta Sahib should be notified as food parks and this will make available Central schemes for setting up food processing industries in the region as ample raw material was available within the state." Satish Goyal, Chairman, Himachal Chambers of Commerce and Industry