Maharashtra’s stumble


By R. N. Bhaskar

rnb@yes2etl.com



It was suspected all along. That Maharashtra was slipping, and slipping real bad. It could be sensed as your vehicle rumbled on the road, trying to weave its way through potholes in the state’s premier city Mumbai. It could be seen in the aggressively lascivious eyes of all its inspectors – from those at the octroi nakas, through those in charge of shops & establishments, through those in charge of clearing real estate projects in the municipal corporations and even to those in charge of police stations.


The politics of appeasement and the lure of graft appear to have virtually crippled all decision making in the state – be it the (oft-promised) abolishing of octroi toll checkposts, or the repeal of the much abused Urban Land Ceiling Act (ULCA) or even the clearance of slums and the speedy building of decent infrastructure.


Naturally enough, work on the airports in Mumbai, Pune, Nagpur and elsewhere has stalled. Ditto for the flyovers, bypasses and the over-the-sea linkages between Mumbai and its suburbs. The only proposals that seem to get quick clearances are those of real estate development, many of which are subsequently found to have obtained clearances irregularly.


The corrosion is evident everywhere – even at police stations and on highways where heavy vehicles are permitted to travel in the middle of the road and sometimes even to the right; where dark tinted glass panes on cars that were forbidden a few years ago are now just allowed to coast along with sheer impudence, or in the vehicle headlights that blind oncoming drivers at night, defying the age old law observed internationally that headlights should be kept at low beam. The police force seems uninterested – not it isn’t weariness – in enforcing the rules. Yet when it comes to catching lovers trying to cuddle up near Mumbai’s sea-shores, or corralling girls at bars dancing to eke out a living, the police appear to be quite vigilant. It appears that a police force once reckoned to be the best in the country is being fast reduced to one filled with Peeping-Toms.


All this does point to a malaise. But this suspicion got a definitive thrust when, on August 14, 2007, the Reserve Bank of India (RBI) released a report showing how the state of Gujarat had mopped up Rs.73,170 crore or US$18 billion of Rs.283,605 crore (US$69.2 billion) that were invested in India during 2006-07. Gujarat had thus effectively accounted for almost 26% of all investments made in the country. In doing so, it had trounced the erstwhile industry leader, Maharashtra, which could only account for 8.6% of the funds.


Ask the critics and they will shake their heads sadly. It was only to be expected, they say. And they believe that the economic growth in this state will continue to take a battering in the coming years – partly because Gujarat has the benefit of a better quality leadership for corporate growth, and also because it will take Maharashtra years to clean up the administrative and political mess that successive state governments have created over the past 15 years.


The state government’s spokesmen protest. ‘The RBI has not taken all types of investment’, they claim. But they fail to explain how the state, which stood first on the same charts of the RBI in earlier years, has now been relegated to the third place.

.


Top 10 Investment destinations in India: 2006-2007

State

No. of projects

Amount (Rs. crore)

Amount (US$ bn)

% of investments garnered

Gujarat

86

73,170

17.8

25.8

Andhra Pradesh

105

25,173

6.1

8.9

Maharashtra

142

24,330

5.9

8.6

Tamil Nadu

157

24,299

5.9

8.6

Karnataka

91

19,930

4.9

7.0

Orissa

23

14,806

3.6

5.2

Uttar Pradesh

60

9,836

2.4

3.5

Rajasthan

38

9,806

2.4

3.5

Jharkhand

13

7,174

1.7

2.5

Delhi

19

6,359

1.6

2.2

Total

1,054

283,605

69.2

100

Source: RBI







There are other reasons why Maharashtra could continue to get trounced in the coming years as well. One is because there are serious efforts being make to wean away from this state the best of its talent in IT and finance. The other is because it won’t be long before Maharashtra ceases to be the ‘Gateway to India’. If current indications are taken into account, this state could lose almost 30% of its business to Gujarat over the next ten years. And other parts of India could grab another 10-20%.


And these are some of the details that will be dealt with in the sequel to this article.





Part II


No city can hope to be the national leader and also aim to become a global player if it does not even know how to ensure quality power supply.


True, power shortages have plagued even cities in the USA, but they are rare instances, and do not recur year after year, and day after day. The problem with Maharashtra is not that power is not being generated. It is that power gets stolen and also that the state does not have the political will to do anything about it. Consequently, the best paying sectors – namely commercial establishments and industries which pay the highest tariffs – get less power and the state earns less money (please refer to table 1). The only ones laughing their way to the bank are power thieves and their abettors.


And then you hear that the state wants to make Mumbai a Shanghai. Without good roads; without adequate power supply; without pavements where the weak and the old can walk without being threatened by an increasingly unmanageable traffic. Compounding all this is the increasing number of illegally constructed hutments and temples sprouting up on pavements and in gardens because the state is more interested in allowing the slumlords make money.



Table 1: Distribution Loss

Year

2006

2007

2008

2009

2010

Transmission Loss (%)

4.5%

4.9%

4.9%

4.9%

4.9%

Distribution Loss (%)

35.0%

33.0%

31.0%

29.0%

27.0%

Total T&D Loss (%)

37.9%

36.2%

34.3%

32.4%

30.5%

Source: Prayas and government statistics



Compare this with what Gujarat has done. Its cities are relatively slum free; its pavements are meant for pedestrians, and its roads are easier to drive on. Moreover, not only has it been exporting power to Mumbai, but it has also been meeting the additional power requirements of its resurgent industry.


More interestingly, it has now begun focusing on a sector which Maharashtra, particularly Mumbai, believed to be its birthright! Gujarat has begun planning infrastructure for a financial hub that can inevitably be at the expense of Maharashtra.


On on June 28 this year, Gujarat’s chief minister, Narendra Modi, announced that Gujarat would soon witness the setting up one of the largest International Finance Service (IFS) centres in the world.


Located between Ahmedabad and the city’s airport, along the banks of the Sabarmati River, this project is slated to become the new Financial Central Business District of the state of Gujarat. Quaintly christened Gujarat International Finance Tec-city (or GIFT), it could become a globally benchmarked International Finance Centre. Involving a financial outlay of Rs.24,000 crore (see table 2)


Table 2


Table 2

Gujarat’s GIFT: Investment outlay

Heads of investment
Rs.crore

Estimated eventual investment

24,500

Land/Site Development/Core Internal Infrastructure

3,500

Building Construction

12,200

External & Internal Infrastructure

8,800


Moreover, if all goes well, the IFS sector alone could result in 9 million jobs and contribution to GDP of an additional US$ 385 billion by 2020.


The scale and magnitude of this project is best appreciated when compared with some of the biggest financial services centres across the world (see table 3). It must be mentioned here that while the others are already set up and functional, GIFT is still a plan, though much of the groundwork has been done, and most of the required clearances are already in place. Yet, the sheer size of what has been planned and is currently under implementation is almost breathtaking.



Table 3

Comparing GIFT with the world’s best


Shinjuku Tokyo

Lujiazui Shanghai

La Defense, Paris

London Dockyards

GIFT, First phase*

Land in acres

395

420

395

259

500

Built Space in sq mtrs

1,600,000

4,500,000

2,500,000

1,100,000

7,500,000

Green belt in sq mtrs

120,000

363,500

40,000

NA

589,248

Height in mtrs

250

450

200

250

400



GIFT is unlike many of Maharashtra’s plans that appear to revolve around real estate development. Gujarat has already acquired and transferred the first 500 acres of the (unencumbered) land to Gujarat Finance and City Development Company (GFCDC) Limited. GFCDC is 50:50 joint venture of the Gujarat state government and IL&FS. (Infrastructure Leasing & Financial Services Limited), and has been mandated to set up this city within the next five years. Some of the contracts have already been signed, and the others should get signed within the next two months.


Interestingly, there are many unique aspects to this city:


Not surprisingly, a quarter of the built-up space that is sought to be constructed has already been booked by organizations like IL&FS (1 million square feet) Chescor Capital (2 million sq ft), Kotak Mehindra Bank (300 acres or 13 million sq ft), Sembawang Engineers and Constructions of Singapore (1 million sq ft), Fairwood Associates (1 million) and the Institute of Chartered Accountants of India (not specified).


It is, therefore, only a matter of time before more financial corporations begin to set up their own facilities there. Could it be that Mumbai will lose – maybe in a decade’s time -- its halo of being the only financial centre in India?



Part III


Mumbai’s rise to pre-eminence was on account of several factors:


First, it was a port, hence rightfully earned the sobriquet of being the “gateway to India”.

Second, it was home to some of the most enterprising communities from the Gujarat region. It may be recalled that (Maharashtra and Gujarat formed a single state known as the Bombay Province under the British, and Greater Maharashtra after India got its independence. Maharashtra came into being only in 1961 when the single state got divided into two – the other being Gujarat. The Gujaratis, the Palanpuri Jains, Kutchis, the Parsis and the Muslim trading communities (like the Aga Khanis, the Bohras and the Memons) all migrated to the port city and their financial and entrepreneurial talents helped this port city to grow and become one of the largest urba n centres in India.

Lastly, it was governance. Mumbai’s administration was considered to be one of the very best in the country. Its police was reckoned to be at par with Scotland Yard.


Cut to today. Its governance standards have all but collapsed. Despite court orders to the contrary, even more hutments continue to pockmark the city’s pavements. The Brihan-Mumbai Municipal Corporation (BMC) has become one of the sleaziest organizations in the country, in close rivalry with other departments (Shops & Establishments, sales tax, Octroi and the police as well) known for their sticky fingers. Significantly, when the BMC was indicted by the Mumbai High Court in the infamous Sara Complex case, the maximum punishment the BMC awarded to the guilty was withholding a couple of increments!

Mumbai’s reputation as a financial centre is also under threat with the announcement of the Gujarat International Finance Tec-city (or GIFT) near Ahmedabad. Mumbai may not lose its pre-eminence overnight, but the drift could begin as early as in a few years’ time. Remember, it took Gujarat 40 years to become the most important investment centre in the country, trouncing the erstwhile Numero Uno, Maharashtra.


Now the most important factor that made Mumbai important – its port – is also under threat. Gujarat plans to aggressively promote four private ports – Mundra, Pipapav, Kandla and Dholera,. The state could thus actually oust Maharashtra from being the trade gateway to the country. And Gujarat’s plans appear to be working.


Thanks to Reliance and Essar with their private captive jetties, Gujarat has already become the major port for iron ore and petrochemical traffic in India. Kandla, which has the government owned Petronet and the private sector Adanis as its main shareholders, has already become the key point for LNG imports into the country.


But the biggest threat to Mumbai could come from the most incredible private port set up by the Adani group at Mundra.


It has already become the point from where almost 60% of India’s coal imports take place. This could soar because Adanis are themselves setting up a 2,640 MW power plant at Mundra and so are the Tatas with the ultra mega power plant of 4,000 MW.


It has become one of the key import points for grain by the FCI thanks to the excellent temperature controlled silos it has built for grain imports. And it is the largest import point for edible oils, partly because the Adani’s Wilmar plant at Mundra has become the second largest producer of packed edible oil in the country.


Moreover with IOC and Hindustan Petroleum setting up very large oil storage capacities at Mundra 7.2 lakh tonnes and 3.06 lakh tonnes respectively – with pipes taking the oil directly to their Panipat and Bhatinda refineries, this port has already emerged as the largest private oil storage tank farm in the country.


But what makes Mundra a major threat to Mumbai (including the JNPT) are some very unusual features:


It enjoys the deepest draft (17.5 metres) allowing very large ships to berth there.

It has put up a single point mooring (SPM) a kilometer out in the sea allowing even Panamax sized (32,000 tonne) crude carriers to be docked there. This could make Mundra the preferred destination for any large ship with cargo meant for India. And it has eight multipurpose berths that can handle all types of dry and liquid bulk cargo


It is the only port which has excellent railway linkages because Adani owns the 65 km railway stretch linking Mundra to Adipur where the national rail network already exists. The port already handles double-decker contrainer rakes on these lines, and could become the major route through which imports and exports relating to North India take place. This is because there is a good 300 km difference between Delhi and Mumbai on the one hand and Delhi and Mundra on the other. Moreover, having a rail facility which takes the cargo right upto the port is an added advantage. Maruti, Hero Honda and a host of other vehicle manufacturers are already in discussions with Mundra to shift their operations from Mumbai to Mundra.


What makes Mundra more attractive is that it has excellent security because the entire 6000 acre area of port, SEZ and the railway line are unified under the Mundra Port’s security, which none of the ports can boast of. Mumbai’s ports, for instance, are plagued with the scourge of pilferage, accounting for losses of 10-15%.


Then come the last two aspects which could actually give Mumbai the knockout punch. Adani has already built a private airstrip of 1.9 km within Mundra. It is now being extended to 2.5 km. While this airstrip is currently being used as a private airstrip for Adani’s personal aircraft, it is slated to become an international cargo hub from next year and an internal passenger airport within five years.


And plans are underway to built a toll-highway in partnership with several corporates linking Mundra to Adipur, thus connecting the port to two national highways. Compare this with the pot-holed roads just outside JNPT and even BPT that service Mumbai.


This would make Mundra the only port in the country to have air, water, road and rail linkage, and with enough land to set up container freight stations, manufacturing units and even townships.


The only way to counter this would be for Mumbai to invite private investment in all its ports, and to allow them air and road linkages. But the state government of Maharashtra has not even been able to clear one airport. It is unlikely that it will be able to match the advantages that Mundra and other ports of Gujarat offer.


The more one thinks about these things, the more is one convinced that Mumbai’s property price bubble is precisely that – a bubble. Nothing more.