MAGNIFICENT M.P. – FROM EXTRACTIVE TO TRANSACTIONAL

Shashidhar.S. Kapur

The general impression is that Kamalnath’s business is business .Thus from the  word go ,everyone is watching whether he can take the state’s economy to the  next level. Its tone was set with CM meeting select industrialists in a round table  conference at Minto Hall shortly after he took office .He sought their  suggestions , problems and set about finetuning his understanding and addressing the difficulties immediately. With the global Economy not in the best shape and the Indian economy sliding downwards it would need a bearish miracle to convert this crisis into an opportunity.

In the first half century of its modern avatar , Madhya Pradesh has been exploited with most activities of  an extractive nature. It is time for a change. The first step would be a vision – for economy in general and industry in particular .It  has to be based on uniqueness – without it , per capita growth would not be   maintainable. A vision sketch is being forwarded by Kamalnath which lays proportional emphasis on economic activity alongwith growth. For the industry his vision envisages to make MP into a logistics hub. The state needs some kind of  a Plan based on best practices to make the development sustainable .A plan being   bandied about by the government is to take agriculture and mining onto the next  level of processing. A model is needed too– unless you have a model you cannot  judge  scalability –Chhindwara Model is being tomtomed by Kamalnath .No vision can be implemented at the grassroots without a pilot .We are not aware of any pilot   for  capacity  building or social infrastructure  initiated by this government as yet. A Roadmap is needed to land where you wants to reach at the outset – there’s  been a talk of 15 to 50 yr. projection of goals. A Blueprint gives you a  mental image of what the future would look like -Kamalnath has said that he wants MP to be an Economic tiger. A great Policy framework would ensure deliverability. The approach of  this government is to have specific policies for  different industries. Discretionary measures are necessary to catalyse and  kickstart any venture – a slew of concessions were announced prior to , during and  after the meet.

A three pronged strategy was adopted – to concretise the low hanging fruits of  traditional strengths , build upon the groundwork done by Shivraj and to try and leverage Kamalnath network for sunrise areas.

Having done that, the official machinery went about projecting “ Trust ” as the  buzzword with Kamalnath as its mascot. Other buzzwords too were dropped like   “ futuristic ” and “ visionary ”. Alongwith there was a hardsell of  the USP of  Madhya  Pradesh  – Abundant land and water, Central  location , good connectivity , steady and low cost power ,  direct access to over half  the Indian market , peaceful state ,   sufficient semi –skilled ,non- combative  workers and Unions  etc. Another related approach to showcase sincerity of  purpose was to earmark eight core sectors including pharma , textiles , agriculture , and tourism.Special Packages for seven industries -HEG , Ralson Tyres, P&G, Jaideep Ispaat , Mapex Pharma  and  others- were announced  too. Dedication of projects worth 850  cr. before meet  – incl. an  IT park in Indore completed the  trailer.

It was a closed event where only serious players were invited .Initially around 700 were invited but the numbers dwindled by the time of the event .While many luminaries  including  Godrej , Kirloskar and  Jhunjhunwala turned up some of the big guns such as Adani , Mukesh Ambani   and  Mahindra  gave it a miss. At the outset it was planned to be a one day event  but later the exhibition was extended to three days for a PR topping.

All attempts were made to make it look “different ” – no pomp and show , more leverage with less amount  spent (concrete proposals  of  over a lakh crores with 35cr. spent on meet as against 70 cr. spent on earlier meet with hardly any tangible  results) , investors were given the stage while Kamalnath sat in the audience  ; many among them made specific promises and deadlines on the spot… and so on. The sessions too were business like , corporate  style  both in content and  presentation. Eight sessions over two days  included  those on  “ Urban Mobility and real Estate” , “ Emerging Opportunities in Industry ”   and  “ M.P.- an emerging  innovation Hub .” 

In his speech Kamalnath  said  that  “ While some talk  the talk  and others   walk  the  walk, we walk the  talk”… This is the best  time to invest in M. P.” , he added. Perhaps he was hinting at the  fact  that whereas  most  other  states were in the grip of  a downturn, Madhya Pradesh was  afloat , even rising – most likely on account of  over fifty thousand crores pumped into the demand economy via loan waivers and other relief.

Baby steps were taken towards value addition  – Garment parks from Textiles,  for instance. Some initiatives on improving the ease of Business included removing  SME’s  from the purview of  TRIFES and Industries department; changing the category  of   food processing  from green  to white  etc. A slew of  concessions was  announced – 40 hectares of  land  at half  the price  for investments  o f  500 cr  and  above. Alongside, a plethora of  incentives  were introduced – low cost power and other facilities of  SEZ at Mhosa – Bavai   industrial township. Policy mandating  investors to employ 70 percent  from  among local workforce if  they want state support was inked at the outset of  Kamalnath regime. The government also sent a clear signal to non- starters by  withdrawing 178 acres of  land in  Pithampur  given some  years ago to Japanese and Korean companies  which   failed to show up.

As  for the outcomes, prominent among the low hanging ones included HEG with over 1200 cr. expansion plan , among those on the basis of  enhanced infrastructure was the offer by Reliance to open 45 warehousing  units and  ITC announcing the biggest food  processing park is the  Kamalnath topping. Also ,the credit of setting up of a private employment exchange and skill centres across the state by CII can go to the state government and Kamalnath respectively. 2500 stalled SME projects kicked back to life once relieved from the  control of Industries department. Major  investments  include Solar energy , Logistics and Pharmaceuticals- all in the range of 10 k cr. Significant  job creations  include    10-12  thousand in Mhosa –  Bavai industrial  township.

Each aspect of the above narrative has a flip side too. What does “ Trust” mean  ?-  Consistent policies ; no milking by bureaucracy later ; co-opting the opposition;  last mile nuisance cleared – no Patwari-Inspector Raj  ; subsidies , incentives , waivers , extensions  etc.. With  opposition not involved there could be an  internal  “trust deficit”  resulting  in   hurdles during implementation .Kamalnath is  only  partly  right  in merely “ walking the talk”-  intellectuals must only “talk  the  talk “ ; industry  should almost entirely “ walk  the walk”   and  government  as  an integrator   ought to  back  the intellectuals and support  the industry  by  doing a bit of  both   simultaneously  in walking the  talk. All but one session – that about   “ M.P – an Innovation  hub”- were apt .While Madhya Pradesh can improvise a lot and innovate a bit, it can never be an innovation hub – at least not in our lifetime.

Public  sector  should’ve been  involved  in  much  significant  way  – without  it , MP can  never realize its full  potential , at  least in mega  projects and  integrated  townships.The ratio of  Public sector should  match the  level of  development. Ideally M.P   should be the Public sector capital of  India. BHEL ,Bina Refinery,  ordinance  factory  et al  can  be engaged in myriad  ways  .What  exactly is the Chhindwara  Model  ? -Basic infrastructure and low skills. Trying to replicate that across the state is neither feasible nor desirable.- no grassroots model can be scaled upto the top .Creating the social infrastructure and capacity building ought to be done simultaneously in the right ratio. The roadmap sets a target of  becoming number one in ease of  doing business – simultaneously , there   should be matching target for ease of  living too. Measures like earmarking an   IAS officer to coordinate  each industry sector  is  welcome : single window – cum  -single executive. However , the danger of  his developing vested interests is real . Hence  the tenure shouldn’t  be more than a couple of years. 3 yrs’ inspection  waiver to help a lot of  SME’s  but defaulters beyond the deadline must  be  blacklisted. Making  M.P. an Economic tiger makes sense only it is made an   economic elephant simultaneously – Economic growth with proportional  job  creation .Claiming that M P has the  best AI start ups doesn’t gel- it is pure hype. Only low end applications of  Hi- tech are possible in the State’s  ecosystem. Kamalnath’s insistence on ploughing back the capital subsidy back into the state , establishing ancillaries too within it , reserving the secondary and tertiary activities too for the people of  the state are force multipliers provided  they’re  implemented in letter.  Having  separate policies for  different  sectors should  be  accompanied  by a separate  vision for each area. Besides , there has to be  an  integrated policy for areas where  M.P.  is Unique  and /or  best. viz. the state  doesn’t  need a  different policy  for logistics beyond  the  initial stages  –  the  national , international polices will do fine .For , with the same policy the state’s  locational  advantage will give an edge automatically.

There is only so much a government can do ; besides , on an individual level a  promoter may help the CM or his constituency only to the extent it helps his own  self worth. Beyond that , on a corporation to state  basis it is hard negotiations  and  gritty bargaining. The limits of  any government are  that it can at best improve   the  environment and  ecology – as  for raising the  competitiveness  and  invoking the  animal  spirits , that has to come apolitically…Thus the story is that when one doesn’t have money  to pay for treatment one has to sell the kidneys. Fine enough- but only tough negotiations will get the right price for kidneys. Madhya Pradesh is a poor state whose kidneys are commodities and data .Till date , it has been a resource provider and a surrogate  economy .With smart moves it can be ensured that by the time the single kidney person dies its progeny becomes healthy. Madhya Pradesh can become a resource  utiliser and autonomous economy.

How does one make sense of the complete picture ?A rough and ready  guesstimate could be to weigh the sum of concessions , incentives given with the   overall investment claims. For instance , if the value of total land given or FAR  increase adds up to the more than the current claims of  total investment worth one lakh crores then it has to be compensated with more jobs or  greater capacity  building .Our estimate is that the concessions are greater than equal to investment. That too is more than welcome –it’ll improve equity by creating jobs. Only when concessions are fifteen percent or more over and above the investment , it is a cause for worry .For ,that would mean transferring wealth from public to corporate…Care must be taken to compensate the existing industries against subsidies to the new ones. Wherever conditions have been tweaked the matching  commitments too must be tweaked rationally. viz. if  the lease has been increased from 33 years to 99 yrs , the condition of  jobs too should be increased over three  generations  instead of  one. Maximum watch has to be kept on two tools of  neo  colonization – resources and data. Ideally data should be collected by the  government to the maximum extent and provided  for only single use for one time payment–like the OTP. Presently , the state may not be in a position to quantum  crunch data   but in  days to come  it’ll become a raw  material for  governance. Another  benchmark ought  to be  foreign investment , exports-we  could only  spot   one  major investment  by an Israeli firm and  export expansion  by the  Trident  group – too little to pass  any judgment but at least a beginning has been made. First time  investors is another  indicator  of  the  leverage of  the  CM and  the new government- India  Cements was  the standout  commitment.

PC Sharma (Minster –PR), Chief  Secretary and others kept throwing  numbers – for investments ranging from 40 thousand crores to one lakh crores and from one lakh to two lakh jobs. It was more of a People’s relation than Public relations exercise –masses like big numbers but classes get put off  by poor math. Congress  wasn’t  gracious enough to acknowledge the groundwork done by BJP-  both visible and invisible – the infrastructure and putting a foot in the door by MOU’s. The overall transformation of the meet was from “secret”  to “hidden” – not  open. Global investors summit was secretive about the facts on ground and the Investor’s meet has kept the figures on board hidden. Being opaque about the numbers has created uncertainty. This has implications for the implementation. By acknowledging and  involving the opposition Congress may have bought some sort of  insurance policy against sabotage .Now , it’ll be  an all out war  on ground. BJP  knows that if  it allows this to fructify , its innings as the opposition may be much longer than a single term. Government announced some investments pre – meet , others during the meet and rest are  slated to concretise by March  2020. The Upper limit  for visible result on ground is 2022 – three years down the line. There is not much room for defaulters – it is perform or perish for Congress.

Fortuitously , a few good signs came soon after the meet .CMIE reports said that the unemployment rate has declined by 40 percent in 10 months – from 7 to 4.2.Our guess is that it means that gainful employment has increased primarily due to cash in hand of  loan waiver , not necessarily jobs.The business like approach of  government was seen in a quick follow up. COMPIST ( Confederation of  Madhya Pradesh industries , services and trade) was organised immediately afterwards in Bhopal.

It was mainly about MSME’s  and traders -basically trying to placate the   BJP  voter. From Modi’s entire political politics  –  it  is Kamalnath’s total economics – involving  most sectors thereby leaving no space for the opposition.

Kamalnath going to Dubai to seek investment was avoidable – there could be  some noises about conflict of  interests eventhough the ostensible purpose is to attend the Asian Business meet. Besides , Shivraj too had tried it earlier in a much better global economic climate without much success. Ideally, some other minister  or Scindia could’ve been sent.Moreover , the idea of  Kamlnath talking to  hyperloop cargo people is interesting in the context of  Madhya Pradesh .Also, there were talks  for  an Emirates Cargo   hub , a Dubai flight  from Bhopal  and another IT park in Bhopal

The PR overflow continued long afterwards. Magnificent MP advertisements  appeared on many national channels –the  English ones in particular .Where is the point of  having a programme about MP  becoming an innovation hub ? That’s  bunkum.MP can never be that… it can do reverse  engineering , Jugaad  viz . kabadiwala .com – it is not innovation but improvisation.

  Our take is that without strengthening the cooperatives , focusing on MSME’s ,  promoting handicrafts , supporting  organic and capacity building equity would suffer. Furthermore , unless simultaneous  regional balancing is done in the right  ratio the divide would  become unsustainable. Those who promise  and do not deliver the expansion , their current incentives be withdrawn in stages; the ones  who came  in during   BJP  regime and  are  reluctant  to  expand  should to be disincentivised  for  future  expansion in the  state  and the futuristic proposals   which fail to turn up ought  to be blacklisted at the end of  three  years  (since  they  were promised on the personal rapport of  CM). Wherever   MP  is  Unique  – it  must  internationalise –   viz   tourism ;  Give  concessions thru  “Friends of  M.P”  and other  such bodies in India and abroad. Also,  MP must have disproportionate     CSR.

   We suggest  having waste disposal banks on all sides at the inter state borders- let the waste from all states come here for non-hazardous treatment and recycling ; Dry ports  should  be built on  all sides  to leverage the  central location  ; Cargo  hubs on all sides too  ;Set  up big industries  in other  Metros  with  share capital and workforce ; make  M.P the ancillaries hub ; the  backroom office of  India , workshop of  the country; initiate Placement services of  Migrant  labourers.;  Institute both skill development as well as capacity building – else only low   skilled labour would get absorbed and no start ups would flourish. There is a need  to build industrial townships –  going beyond mere industrial areas in the backward regions –only  that will attract  quality human capital.

With these moves MP  can be a full spectrum  economy – an extension of  the mixed  economy-   in  the near future . At these crossroads , it  can either  become  an internal colony or bulwark against  vagaries of  Global economy. In this   model, it may not grow as much as other states when  the global  economy is  bullish but it’ll never crash in the down cycle. During the downturn ,all the  national companies will come here to catalyse the  next up cycle.The demand for Jugad pro ducts  would be hiked  by throwing  money at the bottom which in turn  will increase the demand  for innovative products. An economy which is pendulous but not cyclical – which has ups and downs but no crashes . Only by leveraging the  virtual economy in the  right way  can  MP  flip the disadvantage of  being landlocked ,poor connectivity , low manpower et  al .Tools  such as virtual education and  telemedicine could play a big  role.  GST  advantage  should be maximized. Madhya Pradesh has the potential to be a champion of  dirty jobs , a fulcrum of  renewable energy ,a data storage hub ,   leader in E-  commerce ,a trading  hub and the commodities capital.

The  Madhya Pradesh Model should  be high GDP -cum – equitable .If  instead the  GDP  alone  approach is pursued a  similar  situation  would  recur in industry  fifteen years down the line as in agriculture .Underutilized capacities with products nobody wants to buy. Care should  be taken to export  at least fifteen percent from  districts , regions and state. A transactional approach will take you only so far .It  may give short term gains to a select few but a sustainable and inclusive approach is possible  only when the long term vision is sacrosanct.

Government can still invite the opposition to push the projects stalled from their  tenure. The ones apart from cronies would come  (Though  they are  too few and  far in between these days).Who wouldn’t like to come with both the government and opposition wooing them in core strength areas ?

Even if  Kamalnath is able to get half of  what he has said that would be doubly as creditable given the national and international economic climate .Next phase  would  be of  negotiated  deals- involving  both transactional and shared aspects …which  may be a generation away. As  of  now , this “Bimaru” ( Backward)   turned  “ Sucharu (developing / emerging) state has the potential  to kickstart  the Indian Economy by converting  its  disadvantages and unfavourable  climate  into an opportunity to  become  “Dudharu” (rising / growing ) in the near future . Becoming  magnificent( leader ) may remain a pipe dream without a vision-cum-plan. With a transactional – cum – sharing approach ,the dream may come true in the next generation- by MP@100.

P.S .: We will update the  above essay in March  2020-around the time of  proposed  follow up Global investor’s  summit in Dubai- for the initial signs and come up with a new version at the end of one  year of the meet. Our parameters would go by the lower limit of  40 ,000  cr . by March  2020 .  It  is claimed  that  31, thousand  cr  . has already  been  invested in the  first 10 months  ; so ,getting  an  additional 9000  cr. should be the bare minimum in the next six months. On the upper side we would go by the assertion of  1 lakh  cr. for this meet and  as much  investment  in one  year as  in the past  decade . Based  on  simple math to get even the passing  marks , at least 1.5  lakh crores  should  be  on ground at  the end of one year of the meet to compare with the previous 15 year  rule.

ADDENDUM

• Eight  core  sectors- Textiles ,  Pharma , Automobile ,  Agriprocessing , mining , real estate , logistics
• Special Packages  for 7  industries – HEG , Ralson , P&G, Jaideep Ispaat, Mapex  Pharma  , Satguru  Cement , Springway  Mining.
• Eight  Sessions: “ Urban Mobility and real Estate”  “ M.P .-a  Logistics Hub , ” M.P. a pharmaceuticals hub”  and  “ M.P.- an emerging  innovation Hub .”  on the first  day ; “ Emerging  Opportunities in    Industry .”  “Textiles  and  garments” ; “ Opportunities  in  food   processing “  and  “ Tourism  opportunities in  M.P” on the second.
• A  shortlist  of  concessions- 40 hectares land at half  the price for      investments  of  500 cr and  above; 100%   reimbursement of  stamp duty;  5-10 years  of  electricity duty exemption.;  between 5-13 thousand  per person subsidy for job  provision.
• A  shortlist of Incentives- Low cost power and other facilities like SEZ at Mhosa – Bavai industrial  township . ; 15%   or  15  cr.” investment assistance “  on gross fixed capital investment. ;  50% or  upto  1 cr.  infra   development  assistance .
•   Ease of Business–  removing TRIFES  and Industries  deptt.  from  SME’s
• Investments  short list

Solar  Energy -10K cr ; Logistics-12   k cr; Pharmaceuticals-3Kcr.;  Tyres –  3 K  cr.  food   processing   -3k  cr.

•  Jobs   shortlist

Integrated – Industrial  township  at Mhosa – Bavai  -10 -15  thousand    jobs.

•   Interesting Investments – Cyber security systems in Indore.