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Modi's jobs deficit: J&J's largest India plant idle 3 yrs after completion

Sources familiar with J&J's operations in India told Reuters, production at the plant, at Penjerla in Telangana, never began because of a slowing in the growth in demand for the products.

Zeba Siddiqui Aditya Kalra | Reuters  |  Penjerla/New Delhi 

Johnson & Johnson
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It was supposed to be Johnson & Johnson's (J&J) biggest in It was to eventually employ at least 1,500 people and help bring development to a rural area near in

Yet, three years after the U.S. company completed construction of production facilities for cosmetics and on the 47-acre site, they stand idle.

Two sources familiar with J&J's operations in and one told Reuters, production at the plant, at Penjerla in Telangana, never began because of a slowing in the growth in demand for the products.

One of them said that demand didn't rise as expected because of two shock policy moves by Narendra Modi: a late 2016 ban on then circulating high-value currency notes, and the nationwide introduction of a (GST) in 2017.

J&J spokespeople in its operations in India and at its global headquarters in New Brunswick, New Jersey, declined to respond to a list of questions from

Modi's office did not respond to a call and an email with questions.

Aimed at rooting out corruption and streamlining the tax system, the double whammy of 'demonetization' and GST - were two of Modi's signature policy moves. But instead of encouraging economic activity as intended, they did the opposite, at least in 2016-2018, by sapping consumer demand, according to some economists.

Many businesses, especially small and medium-sized enterprises, complained publicly - some in their financial statements - that they suffered a drop off in orders. The suspended J&J project stands as one of the most vivid examples of the impact on the broader investment picture.

In the first month after demonetization, some business surveys showed that sales of products such as shampoos and soap fell more than 20 percent.

Lack of jobs growth and a farm-income crisis because of low crop prices have hurt Modi in the current general election, according to several political strategists.

Still, Modi and his ruling Hindu nationalist are expected by many of the strategists to be in a position to get a second term - probably with support of some other parties - when votes are counted on Thursday, partly because of his strong stance on national security issues.

 

BIG INVESTMENTS, GREAT EXPECTATIONS

A range of Modi's business policies, such as capping prices of medical devices, forcing tech to store more data locally and have in the past two years hurt plans of American multinationals such as J&J, Mastercard, and Walmart-owned

The groundbreaking of the in Penjerla, its third in the country, was carried out with much fanfare in 2014, attended by Telangana's Chandrashekar Rao, who hailed the foreign investment as a big win for local communities.

A document dated April 2017 that lists products the company planned to make at the facility, submitted to the government and reviewed by Reuters, names baby oil, baby shampoo, baby lotion, baby hair oil, face wash and creams.

Shaukat Ali, running a tea shop under a bamboo stall on barren land outside the plant, said local workers check in routinely for possible vacancies at the J&J site, but nothing has come up in years.

At the local board office, the member said the had all the required approvals and he was not sure why it hadn't started production.

"It is unusual for such a big plant to stay idle for so long," he said. "But there is no problem from our side."

Chandrasekhar Babu, an additional director at the industries department, said a J&J told him the plant hadn't started due to lack of demand.

GST and demonetisation were two key reasons the plan didn't kick off, one of the sources said, adding that lack of consumer demand since then dented company's plans.

The second source familiar with J&J's plans said the company miscalculated Indian market demand.

On a recent visit by a to the J&J plant, plush, furnished conference rooms and cubicles sat inactive; M. Sairam, who said he was the site manager, told production areas with machines were idle too.

 

PLANNED FURTHER EXPANSION

Local officials had hoped the initial would be only the beginning. After the groundbreaking in 2014, Pradeep Chandra, who was Telangana's special chief of industries, told magazine that "based on the extent of land (J&J) have acquired we believe that they are looking at much larger expansion here."

at the time said the would employ some 1,500 people.

A J&J official, who was not identified by name, was reported subsequently in December 2016 in India's as saying that the $85 million plant would be operational by 2018 after it had overcome procedural delays. The was quoted as saying the company had earmarked an additional $100 million for expansion.

Vikas Srivastava, the of J&J Consumer(India), who was at the 2014 groundbreaking, did not respond to calls for comment.

Reuters also talked to two workers outside a sprawling Procter & making detergents and diapers, which is next to the They said they were part of the P&G plant's production team and the plant had been running below capacity.

A P&G denied that, saying the plant was "operating at full capacity in line with our business plans".

"India is a priority market for P&G globally and in recent quarters, P&G's business in India has registered strong double-digit growth consistently," the company said.

The weak rural economy, where most Indians work, has also hurt growth in sales of basic items such as detergents and shampoo in the past year.

Hindustan Unilever Ltd, an industry bellwether that would compete with the likes of J&J and P&G in some categories, said its volume growth shrank to 7 percent in the quarter ended March 31, down from double-digit growth in the previous five quarters.

The company warned that the daily consumer goods segment in India was "recession resistant ... not recession proof."

First Published: Mon, May 20 2019. 10:28 IST
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