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Corporate Nov 19, 2012

TN might offer land sops, but Guj growth model more sound

By Firstbiz Staff

Even though Gujarat has topped the list of states with the highest share of private sector investments across India, it has failed in employment generation, and in the last one year has also lost out in attracting several MNCs to competing states like Tamil Nadu, Maharashtra and Madhya Pradesh.

Large multinationals like L'Oreal, tractor manufacturer John Deere, Korean car manufacturer Hyundai and cosmetics company Amway have shied away from Gujarat as better land prices and incentives are being offered by competing states, an Indian Express report highlighted today.

While Amway has picked Tamil Nadu because of a refund of the capital investment made by the company over a period of eight years, others like Hyundai Motors also chose the Southern state due to better land sops.

This is largely because Tamil Nadu has set up industrial parks and special economic zones (SEZs) to offer tax incentives. FDI is allowed in the manufacturing industries based in SEZs.

Modi's vision is long term and it's a sound one

However, according to rating agency CLSA, Gujarat has a far better chance of sustaining its growth trajectory when compared to Tamil Nadu or Maharashtra, despiterepeated criticism over little signs of improvement in Gujarat's Human Development Index (HDI) and Infant Mortality Rate (IMR).

CLSA's argument is that Gujarat's low reliance on central funds ( ration of the state's own tax revenue to total tax revenue is one of the highest among all Indian states at 84%) and priority focus on manufacturing, which accounts for 40 percent of the state's GDP, makes Gujarat's growth model more robust.

"Unlike most large economies, India's economy has evolved differently. It has transited from an agrarian economy to a services powerhouse, without going through a phase where manufacturing dominates. But Gujarat has bucked this national trend," the report said.

It added that other industrialising states such as Maharashtra and Tamil Nadu have seen a fall in the share of industry in overall GSDP. "The state's industry GDP contribution to the national GDP has consistently increased from 8-8.5 in 2000-01 to 11-1.5 per cent in FY11," the report said.

While there is no denying the fact that business environment in the state has surely improved ever since Modi took over as CM , many economists and sociologists argue that despite the successful manufacturing growth in the state, employment has suffered tremendously because investments are primarily made into mega projects like refineries which are capital intensive but don't create jobs.

"Manufacturing in Gujarat, has been capital intensive, is characterized by low employment generation, slow growth in wages, increasing use of contract workers, and overall reduced position of workers in the manufacturing sector." Prof. Atul Sood of Jawaharlal Nehru University, was quoted as saying by the Hindustan Times earlier this month.

However, a retired top bureaucrat had told Firstpost that even though today there is jobless growth in the state, it is only a temporary phase. "Once ancillary industries start coming up around these big players, there will be enough jobs for the youth. Modi's vision is long term and it's a sound one,'' he was quoted as saying here.

And it is this long-term vision that even CLSA is bullish on. With improved governance, Gujarat's HDI and IMR would soon converge with other competing states, the report said.

by Firstbiz Staff

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