Auto major M&M's unit: Like the others, drawn by the sops

HLL plant Haridwar: Fas moving with the first major advantage

HCL Infosystems at Rudrapur: The first big-ticket IT investment in Uttaranchal

New and old argue the point, but the new has already won. And the change is unrelenting. Delhi asked for it; others wished for it; we had it thrust upon us. When a new hill state was formed, we went overnight from retirement town to capital city."-Irwin Allan Sealy on Dariya Dun (Read: Dehra Dun) in Red.

Sunil Malhotra, a small time cloth merchant on Dehra Dun's busy Rajpur Road, does not quite share Sealy's cynicism. "The last three years have been fantastic," he says, "my business has grown in leaps." Malhotra is not alone. Talk to traders and businessmen, both big and small, and they'll tell you how, since the formation of Uttaranchal state six years ago (it was carved out of its larger cousin, Uttar Pradesh), their fortunes have turned around for the better. Says Pankaj Gupta, President (Uttaranchal Chapter), Indian Industries Association: "In November 2000, when the state was formed, there was virtually no industrial activity. Today, the who's who of Indian industry is vying to get a toehold here."

Drive about 20 or so kilometres outside the city centre and the reasons for Gupta's enthusiasm become apparent. Coming up on a plot of 65 acres is an information technology park and a little distance away, 50 acres have been earmarked for a 'Pharma City'. These are just two of the more than two-dozen private and government-supported industrial estates coming up in the state. Indeed, the numbers look impressive. Three of the biggest such industrial estates, all promoted by the State Industrial Development Corporation of Uttaranchal Limited (SIDCUL), are coming up in Haridwar, Pantnagar and Sitarganj with close to 6,500 acres of land marked for development. The total land area under development is to the tune of 8,000 acres. (See Building Industrial Estates).

Uttaranchal has, since 2003, attracted more than Rs 20,000 crore in investment (and this does not include projects that are still at the proposal stage), with more than 2,400 units (large scale as well as in the SME sector) either already functional or in the process of setting up shop. The state's revenue nearly doubled from Rs 553 crore in 2002-03 to Rs 1,005 crore last fiscal. In fact, Uttaranchal, which has always had a surplus economy, has seen an upswing of 39 per cent in the revenue collected in the first six months as compared to the same period last fiscal. "At a conservative estimate, this process will create some 150,000 direct jobs," informs S.S. Sandhu, Managing Director of SIDCUL and Tourism Secretary, "and at least 450,000-500,000 indirect jobs."

"All the big names are here," informs Sanjeev Chopra, Secretary, Industrial Development and it, the man largely held responsible for ushering in all the big-ticket investment into the resource-rich state. Talking of big names, auto majors such as Mahindra & Mahindra and Bajaj Auto have already started production whereas others like Tata Motors, Hero Honda and Ashok Leyland, are in various stages of setting up their units. Further, FMCG companies like HLL, Nestle, Britannia, ITC and Parle and it firms such as HCL and hp have either commenced operations or will do so within the next one year. Other investors to the state include Voltas, Asahi Glass, Greenply, Gujarat Ambuja, Shirdi Industries, Havell's Control Switchgear, and Alps Industries.

Sops do the trick

So, what is it that has changed in a state that was, till not so long ago, known for little else than its pristine hill stations and places of religion (it is euphemistically called "the abode of the Gods"). "It's largely thanks to the central government that accorded Uttaranchal a special category status and extended a concessional industrial package to us," informs Chief Minister N.D. Tiwari, as he takes you through how it all began. In January 2003, the then Vajpayee-led NDA regime at the centre extended a comprehensive concessional package to Uttaranchal that helped the state develop an integrated industrial package that included, among other things, lucrative tax holidays such as 100 per cent excise duty and income tax exemptions, subsidies on capital investment and CST and stamp duty concessions. (see The Sop Story).

"States like Himachal Pradesh (HP) were offering similar packages but there was adhocism when it came to how and where units were being set up," points out a top government official, who made discreet visits to Baddi in hp to study the process of industrialisation there, "we decided to be different and went about setting up well designated industrial estates." Chopra admits that it was hard to lure investors to begin with. "But once we had sold four-five plots, we were inundated with requests." SIDCUL officials point out that they now receive 4-5 requests a week to set up units. "We have to refuse requests now, as we are hard pressed for space," laments Sandhu.

"Today, the who's who of Indian industry is vying to get a toehold in Uttaranchal" Pankaj Gupta President, Indian Industries Association

"Sure there is unequal development, but that should not mean equal underdevelopment" Sanjeev Chopra Industry Secretary

But that's not all. All the stakeholders-politicians, bureaucrats, investors, local traders and even the public-who this correspondent spoke to, vouch for the efficiency of the state administration; this, despite being understaffed by as much as 65 per cent in some key departments. Says Pawan Munjal, Managing Director, Hero Honda, one of the largest investors in the state: "We received all possible support from the government, it was a cakewalk." Agrees George Paul, Senior Vice President, HCL Infosystems, which has come up with a facility at Rudrapur: "The administration is very proactive. SIDCUL was a one-stop shop that helped us in every situation." The dominant opinion, as this writer discovered, was that the investors in the state "felt that the government was accessible". Says the unit head of one of the auto majors that has set up operations in Haridwar: "I have worked in various states and dealt with governments there, but no other government has been as forthcoming as this one."

Problems to overcome

Having said that, there are problems. Many of them are historical and natural, while some others are of recent vintage. For one, infrastructure has always been a major constraint. "Even when the industrial policy for up was devised in the 1980s, the districts that now make up Uttaranchal were given little importance," says a local industrialist. It's only now that infrastructure has been accorded priority. For instance, the planned outlay for infrastructure this fiscal is Rs 4,000 crore compared to Rs 2,700 crore last year (approximate figures). Officials say that while the state government has been rooting for infrastructural development on its part with some success, its hands are tied when it comes to upgradation of roads and airports. Recently, though, Prime Minister Manmohan Singh did announce that the Delhi-Dehra Dun highway would be six-laned and the city airport modernised. "But these are managed by central agencies such as the NHAI (National Highway Authority of India) and the AAI (Airports Authority of India) and there is only so much that we can do," says a high ranking government official.

There is a virtual absence of basic infrastructural facilities such as housing, schools and hospitals, much to the inconvenience of those moving to Uttaranchal from other states. "We have to work hard to convince people to move here," admits the hr manager of an MNC on the condition of anonymity. Not surprisingly, the facilities that are available go for a premium. Real estate prices and house rents in towns like Dehra Dun and Haridwar have zoomed. "A house today would come for 10 to 15 times of what it would have cost you three years ago," says Gupta. "Many people now have an alternate profession-they have become real estate agents."

Then, there is the issue of unequal development. Uttaranchal has 13 districts, out of which only three-Dehra Dun, Haridwar and Udham Singh Nagar-are in the plains; the rest are all hills, mostly forested. These hilly regions, which make up 65 per cent of the state's land area and are home to more than half the state's population, have not seen any industries coming their way. "There is a lot of resentment in such parts, which have no infrastructure or employment opportunities worth the name," says a Dehra Dun-based businessman, "and this has made the government unpopular in those parts." Says Chopra: "Sure there is unequal development, but then you must also look at the counterfactuals. Should it mean we ignore those parts that can be developed?" The only viable industries, say officials, for such areas can be tourism or it, but little has yet been done in this regard.

INTERVIEW/ N.D. TIWARI, CHIEF MINISTER, UTTARANCHAL "Fears of flight of capital are unfounded"

Uttaranchal Chief Minister N.D. Tiwari spoke to BT's Aman Malik on his state's efforts to industrialise. Excerpts: What would you say is Uttaranchal's USP? We differ from most other states in our topography. More than half our land is mountainous. So heavy industry can only come up in the plains, whereas for the mountainous regions, we have an opportunity to develop agriculture-intensive industries. We also have good manpower resources. How would you ensure that there is no flight of capital once the tax holiday period comes to an end? Fears of flight of capital are unfounded. Please understand that we are a special category state and all the sops that are being extended are all thanks to the Centre. So our policy is very much in line with that of the Centre, which understands our specific needs and concerns very well. How would your state meet the skill gap considering you have virtually no trained labour to run the new units? The apprentice programme that we have launched in partnership with private industry where an unskilled worker is first made semi-skilled and then fully skilled in one particular technical aspect, will address this issue. We also plan to upgrade the GB Pant University of Agriculture and Technology at Pantnagar to a high-tech university to meet the technical needs of the agricultural sector. How has rampant industrialisation affected the more traditional businesses in Utaranchal? Industrialisation has impacted Uttaranchal in much the same manner as it did Switzerland, another hill economy, where people traditionally lived off dairy and farm products. Today, it is one of the most diversified economies globally. Our state has similar conditions, so why should the impact be any different?

Short on manpower

On the move: ABB's Haridwar unit is part of its $100 million investment plan in India

Building hopes: Large-scale construction is visible everywhere in the state

Added to this is the fact that the state faces a massive shortage of trained manpower, at least in the foreseeable future. Sectors such as auto and it require trained manpower; the state has 121 ITIs in all, most of which, officials admit, have outdated curricula. The industrial policy stipulates that companies meet at least 70 per cent of all manpower needs from within the state itself. So, the government now wants investors to adopt ITIs and devise curriculum suited to their needs. "Moreover, we have an apprenticeship programme," informs Sandhu, "where the government is chipping in with funds and the programme would be managed by the companies themselves."

For now, however, the shortage has ensured that some companies have had to dole out generous hikes in the range of 25-30 per cent within six months of commencing operations. "People are being poached on a very large scale," laments the factory manager of one of the largest units in Haridwar's industrial estate. Local traders also say that local businesses that have skilled manpower are on the verge of shutting shop, as virtually all their manpower has been poached by the newly arrived bigger players. The good part, however, say managers of units, is that workers haven't yet unionised. "Labour unions do not yet find this area lucrative enough," the HR manager of an FMCG major points out, "labour relations have thus far been very cordial."

"We received all possible support from the government, it was a cakewalk" Pawan Munjal Hero Honda

The most alarming problem that industry here faces is the lack of a long-term industrial policy. When asked how they planned to restrict the flight of capital once the 10-year tax holiday got over, some officials privately admitted that there was no long-term framework in place. "We are, however, confident that since names as big as HLL, the Tatas and the Mahindras have invested big money, they are in it for the long haul," says a top ranking official. "Having said that," he adds, "some small players might leave if no long-term policy is put in place."

But again, those in the know of things point out that Tiwari, who faces elections early next year and is on a sticky wicket, will ensure that this process, so long as he can influence it, is not affected. "Even if he loses the next election, he might still have a shot at the Rashtrapati Bhawan," a highly informed source points out, "so he would make all the right moves." Common sense says, so will the next Chief Minister (assuming that's not Tiwari). After all, it's no fun being the chief minister of a two-bit state.