On Fragile Ground

In four years, Orissa will have the largest network of ports in eastern India to support the burgeoning trade between India and Myanmar and Asean countries, the best cargo-handling and communication facilities, surplus power to make the state a net importer and one of Indias strongest industrial bases.

By then, Orissa will be among the top three states in India in terms of economic indicators like productivity, employment and economic growth and one of the top five contributors to Indias export earnings....

These are not, as you would expect, extracts from a government-sponsored handbook on Orissa. They form part of a study conducted earlier this year by Coopers & Lybrand on the investment opportunities in the state.

 

The consultancy firms prognosis about Orissa, which ranks among Indias most backward states, is based on the fact that . over the past five years, the state has unobtrusively but steadily emerged a front-runner as an investment host. Till June 1996, the state had received investment proposals worth Rs 97,298 crore, putting it behind only Gujarat and Karnataka.

The problem is Orissa has also emerged a leader in terms of the gap between intention and achievement. Of the 124 projects proposed in the state so far, only 68 projects (worth Rs 19,116 crore) are under implementation. This works out to only 19.6 per cent of investment proposals, putting Orissa at number ten in the state rankings.

Added to this, much of the euphoria over the states attempts at economic reform in the early nineties seems to be waning. The states share in the national total of investment proposals has dropped to nine per cent this year from 9.7 per cent in 1995 and after touching a peak of 10.6 per cent the year before.

This declining interest by investors in the state in such a short time only exposes the fragile ground on which Orissas investment-promotion drive is built.

One of the major weaknesses of the states reform programme is that it has concentrated on signing memorandums of understanding or MoUs rather than ensuring that projects are actually set up. Nor does it distinguish between genuine investors and frivolous ones.

Take, for example, the rush of investment into steel (see page 3). The state has signed a record 13 MoUs for steel projects. In the past three years, only three have actually got off the drawing boards.

Last year, Chief Minister J B Patnaik led a high-level delegation of senior officials and businessmen to Israel to explore opportunities for channeling investments in agriculture, horticulture, irrigation and food processing from that country. Seventeen MoUs were signed during the trip; none of them have progressed beyond that.

And this October, Patnaik went on another investment-scouting mission to seven south-east Asian nations during which over a dozen MoUs were signed for investments worth nearly $3 billion in steel, mining, infrastructure, engineering, petrochemicals, automobiles, power, electronics and tourism.

Naturally, everyone is uncertain about the fate of these projects. What the state needs to translate these MoUs into reality is follow-up action, says J K Singh, chairman of the Mesco group of industries.

The lack of follow-up is compounded by the poor quality of industrial and social infrastructure. Orissa has a literacy rate of 49.1 per cent compared with a national average of 52.1 per cent and, except for power, is deficient in most other infrastructure sectors.Over the years, entrepreneurs have shown interest in the state because of its natural advantages which include its strategic location on the east coast across the sea from Myanmar, the gateway to the emerging powerhouses in south-east Asia, vast deposits of minerals, easy access to water sources and a relatively peaceful political environment.

These natural advantages are more than offset by such deficiencies as the lack of integrated growth centres, vital road and rail links, port facilities, a steady and quality power supply system in the past (see page 2).

As important, the bureaucracy has not yet realised the need to turn more industry-friendly. Investors complain of harassment by middle-level bureaucrats for land, power and water connections (page 4). That partly explains why investors go slow on their projects or abandon them.

Chief Minister Patnaik is partially aware of these deficiencies. Earlier it was an acute power crisis that discouraged industry to come to the state. But now though the power situation has improved, it is the poor infrastructure and the row over environment that have created hurdles in the industrialisation process, he said in an interview for this survey.

He is not, however, ready to admit the states lack of preparedness to sustain a massive flow of funds. Says Patnaik, Some of the major investment proposals are in the core sector... where the gestation period is quite long... So, there is nothing to worry about the delay in implementing some of them.

One of the biggest flaws in the states attempts at economic reform is that it has neglected homegrown industries and the small-scale sector. This is in sharp contrast to states like Maharashtra, Gujarat and Tamil Nadu that have attracted investment from global majors mainly because of their strong and ready-made industrial bases.

In Orissa, local industry has been left in the lurch in the administrations new-found craze for investments from abroad and big domestic business houses.

That is why the state has seen the Tatas exploiting the chrome resources in the Sukinda Valley for years without setting up a conversion plant in the state until it took over a small charge chrome unit from the government sector in 1991.

On the other hand, the homegrown Indian Charge Chrome, a sister concern of the local Imfa group, is yet to be given adequate captive mines and has been closed for lack of this raw material.

Similarly, the Orissa government had done nothing to help the public sector Nalco get clearances from the Centre for its Rs 1,658-crore expansion plans, which have been pending for four years.

Some recent incidents of vandalism perpetuated by miscreants, allegedly supporters of the ruling Congress leaders, against a few business houses has also vitiated the atmosphere in the state.

Companies at the receiving end have been the Balasore-base unit of Polar Latex, the Choudwar-based ICCL and the paper unit of Ballarpur Industries whose senior officials were assaulted and property destroyed over such issues as employment to more local people, staff transfers and payment of dearness allowance. These incidents do not augur well for a conducive industrial climate in the state, says Amarendra Dash, chairman of the state unit of the Confederation of Indian Industry.

Within the government, too, there are differences over the priorities of the economic programme. Industries minister Niranjan Patnaik, for instance, argues for greater emphasis on the primary sector (agriculture, animal husbandry, forestry and mining). Although its shares in the state domestic product is declining, Patnaik recently told the Assembly, the sector still accounts for the largest share at 44 per cent and provides employment for over 65 per cent of the states workforce

Unless the earning capacities of the people are supplemented through the development of the primary sector, market conditions will not be conducive for the growth of the secondary sector, Niranjan Patnaik said.

In leading the state towards industrialisation J B Patnaik has demonstrated his strong political will on occasion. One example is his staunch support to the Tata group for its 10 million tonne-steel project at the port town of Gopalpur against considerable local opposition. Another is his decision to privatise or liquidate 11 perpetual loss-making public sector firms.

His seminal role in reforming the power sector, making Orissa the first state to do so, against voluble protest from politically powerful sections of the electorate, is also worth praise. So is his request to the World Bank to help revamp the states finances, even though it may mean cutbacks in vote-winning welfare expenditure.

Indeed, no one can fault the chief ministers intentions.But investors would be convinced if he were more consistent and less discriminatory in this show of political will.