The highroad to riches: The Mumbai-Pune expressway throws open the state's hinterland to would-be investors

Good evening ladies and gentlemen,
It is indeed a privilege to be with you here today in Mumbai. Ten days ago, this city experienced, again, very, very unfortunate attacks by unknown persons, and bomb blasts. Indeed, the first were about a 100 metres away from where we are now. But I decided to come, to be here, because business has to go on, just as life has to go on.... The Mumbaikar has my admiration.
Gerard Kleisterlee, President & CEO, Royal Philips Electronics
September 4, 2003

The capacity of Mumbai to shrug off the blanket of fear and terror, and to ignore the putrid stench of blood and gore, as if they were routine metropolitan irritants, has taken the form of an almost worn-out cliché. But this hackneyed truism of "life must go on" will always be relied on simply because the city keeps doing exactly that, one terrorist attack after the other. But as Kleisterlee alluded at his presentation (on the Digital Divide) to captains of Mumbai industry last fortnight, life goes on in Mumbai because business has to go on. Or if you're just a cog in Mumbai's wheel of commerce, you'd prefer to believe that business goes on because you go on.

FACT SHEET

AREA: 308,000 sq km POPULATION: 96.7 million STATE DOMESTIC PRODUCT: Rs 2,41,877 crore PER CAPITA INCOME: Rs 24,736 ROADS: 2,22,600 kms POWER (TOTAL GENERATION): 15,148 MW MAJOR INDUSTRIES: Infotech, engineering, automobiles, chemicals and fertilisers, pharma, automobiles, electricals and electronics.

That's why a day after the routine kneejerk bout of fear and rumour in the wake of the two bomb blasts at the Gateway of India and the bustling Zaveri Market in Mumbai's innards on August 25, you could have been forgiven for wondering whether the terror acts were just a bad dream. The local trains were once again bursting at the seams, rush-hour traffic was at its snarling best, and anything money could buy-including body and soul-was once again available on every city street and its corner.

Now, as far as size goes, Mumbai may be just an innocuous appendage for map makers of Maharastra, but it's the lynchpin around which most of the state's-and indeed the country's-business revolves. All roads literally lead to Mumbai. That explains why Maharashtra tops the charts on the infrastructure front. It also explains why raw materials and skilled labour are available in plenty in this state. "What Mumbai does for this state compensates for what politicians don't," quips Arun Firodia, Chairman of the Pune-based Kinetic group.

INTERVIEW/SUSHIL KUMAR SHINDE "Maharashtra Will Soon Be 60% Urbanised"

Maharashtra CM Sushil Kumar Shinde: Infrastructure is his #1 priority For the past six months Sushil Kumar Shinde, Chief Minister of Maharashtra, has had his hands full, sorting out the fiscal mess. His other priority is to beef up the state's infrastructure. Can he do all that? Excerpts from an exclusve interview with BT. Mr. Shinde, what is your reaction to Maharashtra being ranked No. 1 by BT? This only reflects the confidence that people have had in our six-month old government. We have assured the Centre that we will adhere to fiscal discipline. Besides, we have undertaken reforms. But Andhra Pradesh and Karnataka are fast catching up... We have also given concessions to information technology and IT-enabled industries. We are developing Mumbai-Pune-Nashik as the golden triangle for it. We are also marketing ourselves aggressively. A nodal agency has been put in place in MIDC and a high-ranking official has been nominated to liaise between investors and the government. When our team recently went to America to attract FDI, we hired a nodal agency to liaise (with investors). This time, we involved embassies. Recently, Azim Premji, Chairman of Wipro, sent me a letter appreciating the promptness shown by my industry secretary. What about law and order and security? What I can tell you with confidence is that extortion and gang wars have reduced substantially. Bomb blasts are due to terrorism and terrorism can't be dealt with by a state alone. The Centre, state and people have to fight it out together. We have succeeded in investigating and solving the August 25, 2003, bomb blasts. Maharashtra's finances are in a mess... The World Bank has appreciated our efforts, especially our reforms process. We have already achieved 20 per cent savings on salary-related accounts through a ban on recruitments, redeployment of surplus staff and voluntary retirement schemes. We have laid restrictions on expenditure. But despite a cut in expenditure, development activities and plans have not stopped. What's the next stop for Maharashtra? We are encouraging public-private partnership in infrastructure. The government has outlined its policy for private sector partnership in infrastructure. We would be putting a law in place shortly. It's called the Maharashtra Infrastructure Development Support Act or MIDAS. It looks at the policy framework and seeks to support private sector investment. Through this law, we would create a single-window clearance for infrastructure projects. We may also privatise the Mumbai-Pune expressway. Townships may be owned privately. Maharashtra is already 48 per cent urbanised. Soon, we want to take this to 60 per cent.

Of course, sometimes it's what politicians do that takes the sheen off the strides made by the state, as the infamous Enron saga (a project that was goldplated to keep the powers that be happy), and similar dubious business-political liaisons of the recent past prove. In the past, politicians have displayed little will to market Maharashtra; that resulted in several high-profile investors ignoring the state for greener pastures. In the mid-nineties, for instance, Ford Motor toyed with putting up a plant in Maharashtra, but finally decided on Tamil Nadu.

Shinde Bounces Back

But as BT's survey reveals, Maharashtra has done well to bounce back to top dog status. Chief Minister Sushil Kumar Shinde is over the moon, and he can't hide it. "The No. 1 position only reflects the confidence the people have in our eight-month-old government," says the cm, in typical political-speak (See "Maharashtra Will Soon Be 60 Per Cent Urbanised"). Slightly more helpful than that soundbyte is the sheet the cm hands over, which places Maharashtra at the top in terms of total investments, foreign direct investment (FDI) and the rate of implementation.

There's also a mention in the sheet of the World Bank and the Confederation of Indian Industry's Competitiveness of Indian Manufacturing (2000-01), which ranks Maharashtra the best. Then, there's a survey by the Federation of Indian Chambers of Commerce and Industry on FDI, which ranks the state-if you haven't guessed by now- No 1.

To be sure, right from the time economic reforms began in 1991, Maharashtra has been hot property, attracting close to 20 per cent of all investment into the country since then. It's also generated almost a fifth of all jobs. And there's little sign of any let-up. According to government-provided information, 14 major projects have been proposed, including a Rs 750-crore passenger car unit by Skoda Auto, a 1.5 million capacity consumer durables plant by LG Electronics, a Rs 500-crore expansion by Indo Rama, a biotech park, 14 private it parks in and around Mumbai and Pune, and, for good measure, a wine institute.

The reason why companies are hot-footing it to Maharashtra is straightforward. "Everybody wants to be near the market," says Firodia. Proximity to vendors, coupled with a large market translates into cost savings for manufacturers on the logistics front. Huge volumes mean fatter margins. LG Electronics found the market size, business environment and infrastructure conducive for business and that's why it zeroed in on Maharashtra (See Why LG Chose Maharashtra).

A veritable powerhouse: Tatas Motors' Indica plant in Pune and the booming wine trade in Nashik are just two indicators of the state's rising prosperity

Not Just Mumbai

Pune, the next big market after Mumbai, has transformed into an infotech city. That there are 26 engineering colleges in and around Pune and an estimated 1 lakh engineers helps. What also helps is the state government's new it and it Enabled Services policy, which puts down the roadmap for the industry. That's been enough incentive for Infosys to buy up 100 acres of land in Pune. It now has 125 acres of land in the city, home to its infotech park. Now the company plans to invest Rs 250 crore in this facility, which would house 5,000 software professionals. The Pune centre employs 2,200 people and generated a revenue of Rs 380 crore last year. "Thirty per cent of the software professionals in India are from Mumbai and Pune," says Satish M. Josh, Senior Vice President, Patni Computers. In a bid to ease the pressure on Mumbai, Shinde talks about developing a triangle between Mumbai, Pune and Nashik. The idea is to move most manufacturing out of Mumbai to Navi Mumbai, Thane and beyond and reserve the city for services such as banking, entertainment and information technology.

"What Mumbai does for this state more than compensates for what politicians don't" Arun Firodia, Chairman, Kinetic Group	The state's it and ITEs policy has succeeded in attracting a host of tech biggies such as Infosys S. Gopalakrishnan, COO & Deputy MD, Infosys Technologies

Growing Discontent

Talk is one thing; concrete action, quite another. Industrialists in this neck of the woods have their gripes, security being one of the major ones in the wake of the recent bomb blasts. Last fortnight, heavyweights like Anand Mahindra, Rahul Bajaj and Deepak Parekh met Shinde and expressed their concern. There is also a feeling that the government is not doing enough to better the infrastructure. "Earlier, agencies like Maharashtra Industrial Development Corp (MIDC) and State Industrial Corporation of Maharashtra were more focused," says Kewal Handa, Executive Director (Finance), Pfizer. Handa, who was also part of the team that met the cm on August 26, says that the government has made no effort to remove the Urban Land Ceiling Act. "There is no agency to focus on creating more jobs," he adds. MIDC Chairman Vidyadhar Kanade obviously disagrees. "I think Maharashtra is marketing itself well and continues to have a tremendous headway over other states." The billion-dollar question, of course, is for how long?

WHY LG CHOSE MAHARASHTRA On most criteria, the state scored first.

LG's Greater Noida plant: The upcoming Ranjangaon plant will save the company Rs 100 crore on logistics alone It's the market, stupid. It's as simple as that. With almost every state government bending over backwards to woo investors, there's little to differentiate in terms of sops being doled out by Maharashtra to LG Electronics. After shortlisting four states for its second plant-being set up at a cost of Rs 500 crore to make 1.5 million microwave ovens, air conditioners, refrigerators and TV sets-LG chose Maharashtra (Ranjangaon, just outside Pune) over Andhra Pradesh, Tamil Nadu and Karnataka. On various criteria, Maharashtra topped the charts, including business environment, proximity to ports and logistics savings. But the clincher was market penetration, which is highest in Maharashtra for LG products. Over 14 per cent of LG's sales come from this state. Proximity to the coast will ensure tremendous savings, too. LG currently exports out of its Greater Noida plant in UP. Once the Maharashtra plant gets going-by November 2004-it will save Rs 100 crore annually on logistics alone. "The cost saving itself would payback the Rs 500 crore investment," says S.N. Rai, GM, Corporate Logistics, LG India. LG considered political instability too before making a decision. There would have been many states that scored high on this parameter-at least higher than UP, where LG has been doing business so far. But then if you have the right product in the right market, governments won't make a difference, despite their sincerest efforts.