f o r    m a n a g i n g    t o m o r r o w
JANUARY 28, 2007
 Cover Story
 BT Special
 Back of the Book

Taxing Times
The phase-out of central sales tax is yet another move towards ushering in the national goods and services tax (GST). The compensation to the states, in lieu of CST phase-out, will include revenue proceeds from 33 services currently being taxed by the Centre as well as 44 new services of an intra-state nature that will be traded by the states. However, VAT is the way forward, though much needs to be done to iron out the anomalies in the current VAT regime.

India, Ahoy!
Indian investments overseas are growing and how. For instance, total Indian investment in Latin America and the Caribbean has topped $3 billion (Rs 13,500 crore) so far. The latest investment is by ONGC Videsh, which acquired an oilfield in Colombia for $425 million (Rs 1,912.5 crore). Earlier, ONGC bought an offshore oilfield in Brazil for $410 million (Rs 1,845 crore).
More Net Specials
Business Today,  January 14, 2007
Nitish Kumar's Mission Impossible
Think Bihar and the image that comes to mind is one of crime, lawlessness and desolation. But the new Chief Minister is working hard to reverse the tide. And going by ground realities, the situation is actually getting better.

As the hammer of the pink tower clock on the roof of the Bihar state secretariat building strikes the gong 11 times, its echoes reverberate through the labyrinthine colonial era building. Deep down in its bowels, state Chief Secretary A.K. Choudhary and a team of bureaucrats are closeted in a video conferencing room witnessing a demonstration by a Gurgaon-based firm that is pitching for a contract to link up various departments and offices across the state through a Wide Area Network (wan). On the ground floor, Development Commissioner R. Jaymohan Pillai is poring over the proposals of companies that have expressed interest in setting up shop in the state. "We have to clear them within 30 days," he says. And Sushil Kumar Modi, Deputy Chief Minister and Finance Minister, just back from a meeting with bankers, is already into his next one-to work out incentives for potential investors and to determine the extent of credit flows to rev up the rural economy.

"Economic development cannot take place in a vacuum. So, along with industry, we are also looking at ways to develop the rural sector," says Nitish Kumar, who took over as Chief Minister of Bihar in November, 2005 (See Bihar is no Longer Lawless). He is setting his goals very high: the state's approach paper to the 11th Five Year Plan says: "An investment of Rs 1,66,593 crore will be required for Bihar to achieve a growth rate of 8.5 per cent." For the moment, though, he still presides over a state synonymous with potholed roads, lantern-lit villages, crime-infested streets and trains, teacher-less schools and abandoned factories; but that is changing, albeit, very slowly. The government is aggressively wooing investments, and moving proactively to improve the state's physical infrastructure and the law and order situation to create a conducive atmosphere for growth.

The state government is wooing investors with a variety of sops and facilities.
» Single-window system set up under the chairmanship of the State Industrial Development Commissioner to clear industrial projects within 30 days.
» Single-window system established in every district under the chairmanship of the District Collector to assist and expedite the setting up of industrial units. A similar provision has been made at the level of Industrial Area Development Authorities.
» Rs 200-crore provision for establishing a land bank.
» Entertainment tax holiday for multiplexes and cinemas with investments of at least Rs 1 crore.
» Reduction in stamp duty on property registration deeds from 8.4 per cent to 6 per cent.
» "Resurgent Bihar", an 'invest-fest' being organised in January to show case investment opportunitites to NRIs.
» An Empowered Committee under the chairmanship of the state Chief Secretary and comprising departmental secretaries set up to expedite decisions on investment proposals.
» Holding of regular "Open House" sessions with industrialists; these meetings, chaired by the Chief Minister, will provide entrepreneurs with a platform to air their grievances with regard to implementation of their projects and running of their industries.
The Bihar government has cleared investment proposals worth Rs 26,000 crore in the last six months. Listed below are some of the big ones:

NAME OF COMPANY: Indian Gasohol
WHAT IT PROPOSES TO DO: Establish 10 ethanol plants of 5.4 million tonnes each
INVESTMENT: Rs 13,451 crore
Source: Bihar Government

NAME OF COMPANY: Indian Gasohol
WHAT IT PROPOSES TO DO: Establish 4 maize processing units
INVESTMENT: Rs 2,500 crore

NAME OF COMPANY: International Amusement
WHAT IT PROPOSES TO DO: Develop a mega tourism city in Patna
INVESTMENT: Rs 1,322 crore

WHAT IT PROPOSES TO DO: Set up a tractor production unit
INVESTMENT: Rs 1,500 crore

WHAT IT PROPOSES TO DO: Set up a cellular network
INVESTMENT: Rs 1,000 crore

The first evidence of improvement is visible in Patna itself-the roads are free of the craters that were politely described as potholes. And there is a palpable change in the mood of the state's industrial sector. "Earlier, we lived in fear of being kidnapped and were regularly harassed by extortionists," says Birendra Kumar Mishra, Manager, Rainbow Biscuits, an SME on the Patna-Bakhtiyarpur Highway, "but thankfully, there hasn't been a single instance of kidnapping in the last six months." Says Bihar's Home Secretary Afzal Amanullah: "We have strictly enforced the law." In the last one year, more than 1,000 hardened criminals have been awarded life sentences.

"We will invest Rs 3,000 crore on repairing and building roads over the next two years"
Nand Kishore Yadav
Minister for Roads and Tourism

"The essential prerequisites for attracting investors is an enabling atmosphere, good law and order, availability of infrastructure like roads and power and adequate incentives," says K.P.S. Kesri, an agro-processor and President of Bihar Industries Association. "We have already approved 66 proposals worth more than Rs 26,000 crore," says S. Vijayaraghavan, state Industries Secretary (see ...And Investors Are Responding). And, hundreds of brick kilns have mushroomed along the banks of Ganga, suggesting that Bihar, like the rest of the country, is experiencing a construction boom.

However, the Opposition, and a section of the media, has alleged that the government has not delivered on all that it promised during the election. Modi partially concedes this debate. "It's just not possible to fulfill our promises in only one year," he says. "One of our most difficult tasks was to change the attitude of government servants who had lost interest in work. But this changed once they were convinced that we meant business," he adds. Local industrialists corroborate this claim. "Though the initiatives have not yet borne fruit, the new team has definitely made a good start," says Kesri.

"Changing the attitude of government servants was most difficult"
Sushil K. Modi
Deputy CM and Finance Minister
"We have strictly enforced the law to halt criminal activities in the state"
Afzal Amanullah
Home Secretary
"The essential prerequisite for attracting investors is good law and order"
K.P.S. Kesri
President, Bihar Industries Association

Having restored a semblance of order in a lawless state, Kumar's government is now focussing on improving its road infrastructure. "We will invest Rs 3,000 crore on repairing and building roads over the next two years," says Nand Kishore Yadav, Minister for Roads & Tourism. The new, and improved, network of roads across the state is expected to provide a fillip to tourism, on which the state is banking heavily to generate both revenues and employment.

It has drawn up a 20-year Master Plan for Development of Tourism, which envisages, among other things, the construction of 40,000 new hotel rooms in the next three years to cater to seven tourism circuits (Buddhist, Jain, Gandhian, Sufi, Ramayan, Ecological and Wildlife) that are being developed in the state. And golf courses are coming up in Bodh Gaya and Nalanda, to attract both foreign tourists as well as well-healed Indian travellers.

"Bihar Is No Longer Lawless"
Bihar Chief Minister Nitish Kumar works 15-16 hours every day. He took time out from his hectic schedule to talk to BT's

As the CEO of Bihar, what are your plans for the state?

Economic development cannot happen in a social vacuum. So, along with industry, we are also looking at ways to develop the rural sector. Our focus is on strengthening the educational and healthcare infrastructure in the state, and on providing safe and healthy drinking water. I firmly believe that we can eradicate 90 per cent of diseases if we can provide safe drinking water to everyone.

How are you planning to attract investments to Bihar?

Agriculture and heritage tourism are two sectors in which we have a natural advantage. So, we are focussing on these. We have received a large number of proposals for setting up industries based on sugarcane and maize. We have announced a number of tax concessions and will also provide capital subsidies of up to Rs 10 crore to attract such units. Then, we have also received proposals for other industries like steel, cement and capital goods. There are also two large NTPCc projects coming up-one in Baar and the other in Kahalgaon (Bhagalpur). Big groups like the Mahindras are also in touch with us and negotiations are on with them on setting up both agro-based and industrial projects in the state. (Tata Group Chairman) Ratan Tata, who is Chairman of the Investment Commission of Bihar, is advising us on how to make Bihar more investor-friendly.

How are you dealing with Bihar's image as a lawless state?

All that's in the past. Ask any rickshaw puller, taxi driver, doctor, teacher or contractor, and you will realise how much the situation has improved on the ground. The occupancy at the cinema halls during night shows is more than 80 per cent; that should prove how secure people are in Bihar today.

The Incentives
The government has announced a number of tax concessions to attract investments:
» VAT rates reduced on more than 150 items-from 4 per cent to 1 per cent on food grains, from 12.5 to 4 per cent on LPG, tea, coffee, tractors, tyres, plastic materials, and several other items.
» Existing industries exempted from paying electricity duty.
» New units exempted from paying electricity duty for 7 years.
» Central Sales Tax on Small and Medium Enterprises cut to 1 per cent from 4 per cent.
» Two-year entertainment tax holiday on cinema and theatres with investments of Rs 1 crore and more.
» Road tax on buses brought down to Rs 26,000 from Rs 1,24,000. On jeeps, this has been reduced from Rs 12,100 to Rs 3,888 and on auto-rickshaws, the levy has been cut from Rs 2,184 to Rs 992.
More to the Core
The government is trying to make rebuild Bihar's shattered infrastructure.
» Rs 3,000 crore allocated for building 4,000 km of new roads and for repairing the state's existing road network.
» 1,900 bridges to be constructed over the next two years.
» Private sector invited to build 5,000 MW of power generation capacity at Peerpainti, Katihar and Barauni.
» Augmenting electricity transmission and distribution capacity in rural areas.
» Inviting the private sector to build 40,000 additional hotel rooms in the state over the next three years to tap Bihar's tourism potential.

Such ambitious plans will need humungous amounts of energy. "We are a power-deficient state and produce only 10 per cent of our requirements," says Kesri. Hence, the government is looking at ways to augment the state's power generation capacity. Modi admits that his state needs to undertake major reforms in this sector if it has to achieve its other ambitious goals, but is confident that it will meet its target of generating 15,000 mw of electricity in the next 15 years.

Finding money for these ambitious plans could be a problem, but Kumar is confident he can pull it off. Bihar's finances are in a precarious state (the 2006-07 state budget was Rs 590 crore in the red), so it is counting on Rs 1,08,283-crore private investments and Rs 58,310 crore public outlay (with substantial central assistance) to fulfill its 11th Plan ambitions.

Is his programme do-able? The jury is out, but at least a beginning has been made.

Other Story Links...



Partners: BT-Mercer-TNS—The Best Companies To Work For In India