Wooing Japan, the Gujarat way

Gujarat Chief Minister Narendra Modi’s 6th Vibrant Gujarat, (the three-day event was inaugurated on Friday) features hundred Japanese participants. Never before has any investment summit in India, in fact, attracted such big participation from foreign investors. As regards the Japanese, their investments were hitherto mainly in Haryana and Tamil Nadu.

Why has Gujarat suddenly emerged as an attractive destination, notwithstanding the State being landlocked by deserts and a border with Pakistan, and being ruled by the main Opposition, Bharatiya Janata Party? In India, politics overrides the economy in driving investments.

2012, the turning point

During 2000-11, Gujarat was only the fifth biggest destination for foreign investors in the country, with direct investments worth $7963.7 million flowing into the State during this period. Also, till 2011, Gujarat largely attracted investors from the US, Singapore and the UK.

The year 2012 was a turning point, when Japanese investors came calling. It started with Maruti-Suzuki deciding to set up an automobile plant and Toto, Japan’s leading sanitary-ware company, starting a manufacturing unit in Gujarat.

Besides Maruti-Suzuki, a slew of other auto MNCs, such as Ford, General Motors and Peugeot are in the queue to chart out their expansion plans in Gujarat. Maruti-Suzuki setting up base is certainly going to induce a number of auto parts companies with Japanese joint ventures also to put up manufacturing facilities in the State, making it a new auto hub in addition to Pune or Haryana’s Gurgaon-Manesar and Tamil Nadu’s Sriperumbudur belts.

Big land bank

Till recently, Gujarat was predominantly a destination for domestic investors, especially for the pharmaceutical, petro-chemical and diamond processing industries. It contributed about 35 per cent to the country’s pharmaceutical industry and 34 per cent to country’s petro-chemical industry. But now, it is increasingly attracting FDI, for which there could be many reasons. While the charismatic leadership and decisiveness of Narendra Modi is certainly a factor propping up foreign investors’ confidence, no less is the big land bank that the State Government has managed to build.

At present, one of the main hurdles for any investor in the country — domestic or foreign — is in acquiring land. Land acquisition has become a key issue, more so in the wake of the uncertainty resulting from the Land Acquisition, Rehabilitation and Resettlement Bill of 2011, which proposed to make it mandatory for companies to acquire at least 70 per cent of the land by themselves from the farmers. That alone has made firms cagey about planning any big investments.

Gujarat, to that extent, has acquired an edge over other States by creating a huge land bank. The State Government is now in the process of acquiring over 25,000 hectares for land bank, as part of its goal to provide a one-stop solution for offering land for industrial use. Land disputes and displacement have been less ‘bloody’ issues in Gujarat, compared with West Bengal, Orissa or Maharashtra. The credit here goes to Modi’s Government, which acquires the land on its own, thereby placing no responsibility on the investors to undertake rehabilitation or resettlement activity.

Maruti-Suzuki alone was given 700 acres to set up its automobile facility, which is scheduled to produce 2.5 lakh cars involving an investment of about $1.2 billion by 2015-16. Toto, likewise, was given 45 acres for investing $80 million in setting up its sanitary ware unit at Halol. At the present reckoning, Japanese investment in Gujarat may reach $2 billion by the middle of this decade. And it is not just the big Japanese MNCs that are investing. Modi’s Government has also allocated land to Japan External Trade Organisation (JETRO) — a trade and investment agency under METI, Government of Japan — to promote Japanese SMEs in Gujarat.

manufacturing spur

It goes to Modi’s credit for realising that sustainable growth in Gujarat can only come from industry and manufacturing, and not just agriculture. Manufacturing today contributes 33 per cent to the State’s GDP against only 10 per cent from agriculture. But catalysing growth based on industry and manufacturing means attracting huge investments not from just domestic, but also foreign investors. It is this vision that made Modi roll out the red carpet for Ratan Tata to relocate his Nano car project from Singur in West Bengal, the moment he saw Mamata Banerjee launching an agitation over land acquisition.

He assured Tata of land without entailing any rehabilitation or resettlement obligation.

That was the starting point for Maruti-Suzuki and other auto giants from the US and France also to look at Gujarat.

A large land bank, reliable power supply and a good port infrastructure (including in locations such as Mundra and Pipavav) are huge positives as far as attracting investments is concerned. The proposed Delhi-Mumbai-Industrial Corridor project will benefit Gujarat further, as 38 per cent of the project will pass through the State.

And being financed with Japanese loans worth $90 billion will further draw Japanese investments into a State that contributes 15 per cent to India’s industrial output and 21 per cent of exports.

(The author is Adviser, Japan External Trade Organisation (JETRO), New Delhi. Views are personal)

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