Make in India: Delivering the industrial corridors

Make in India: Delivering the industrial corridors

The fact that India has a large infrastructure gap, which impacts competitiveness of manufacturing in India, is well understood. The financing and institutional capacity constraints imply that expecting a rapid build-up across all areas is unrealistic. Given this, the industrial corridors are essentially a prioritisation programme to leverage agglomeration benefits. Industrial corridors comprise of sets of projects– an industrial park, with access to sufficient utilities (power, water, etc), well connected to markets, ports and airports through road and rail. The limited funding and institutional capacity, if prioritised in this manner, can yield quicker returns (in terms of economic activity), than if the priorities of each ministry are different.

The Delhi-Mumbai Industrial Corridor (DMIC) has envisaged seven such industrial nodes, along the backbone of a Dedicated Freight rail-line (DFC), encompassing seven states. The large market in the north and Nhava-Sheva Port, along with the DFC, are the defining features of DMIC. The Chennai-Bangalore Industrial Corridor (CBIC) has identified three industrial nodes that will leverage the coastline from Chennai to Krishnapatnam in order to ride on the industrial growth in Chennai and Bangalore. The Vizag-Chennai Industrial Corridor (VCIC) will add industrial nodes along the Andhra Pradesh coastline, with land connectivity to India’s interiors and sea connectivity to global production networks in ASEAN. The Mumbai-Bangalore Economic Corridor (through the ecologically sensitive Western Ghats) and the Amritsar-Kolkata Industrial Corridor (through the most populous parts of India) are also in planning stages, along with a few state level initiatives.

Delivering the prioritised sets of projects so as to reap the agglomeration benefits is challenging in the Indian context. Ports, for example, are developed by the central as well as the state governments. While India has a large coastline, locations with deep drafts that can handle next generation ships are limited. (Over 50% of all container ships being built currently are of a size that will need drafts of over 15m). Deep draft ports are expensive to build, and therefore need to handle very large volumes to defray initial costs. The ability to handle large ships and large volumes is necessary to attract mainline carriers to Indian ports, which can significantly impact logistics costs and timelines for Indian exports. To put this in perspective, seven of the world’s 10 largest ports are in China, handling 275 to 600 million tonnes of cargo each year. India’s largest port, at 100 mtpa, does not even make it to the top 20. However, political expediency encourages the announcement of new locations and maritime states prefer the development of their own ports (even if not technically suitable) instead of preferring linkages to the best port locations.

Land for industrial parks is the second key issue. The NIMZ policy envisages 12,500 acre areas. Such large contiguous land parcels are possible only in areas that exist far away from established civilisation. DMIC has many such industrial nodes. However, proximity to urban amenities is a critical criterion in the choice of location by investors, and greenfield locations will be accompanied by this a challenge. The CBIC nodes, in contrast, are close to Chennai and Bangalore. As finding large contiguous land parcels is difficult in peri-urban areas; it will be a good idea to bring smaller parcels to be clustered together. Also, harmonisation of regulations across SEZs, NIMZs, EPZs, SIRs, etc, with a truly competitive tax regime, also remains a key requirement to be addressed by the Ministry of Commerce and Ministry of Finance.

Rail and road connectivity linking ports and markets to urban areas in case of greenfield locations and within the cluster for brownfield locations, is the third key piece. The Railways’ priority is to relieve congestion in existing sections and projects with visible traffic for adequate returns. Financial feasibility is, similarly, a key criterion for NHAI’s priorities also. Rail and road projects that are needed to make identified industrial nodes attractive for manufacturing (infrastructure led development, instead of infrastructure to relieve congestion) compete with financially attractive projects. For example, connecting Dholera to Ahmedabad is necessary to attract investors to Dholera, though the traffic will build up slowly as occupancy in Dholera builds up. While a DFC line for DMIC is in progress, similar projects for Chennai-Bangalore and Vizag-Chennai corridors are still in very early stages of evaluation. The existing rail network in the Chennai-Bangalore region is heavily congested, while the Vizag-Chennai region has very poor connectivity to its hinterland, limiting the ability to exploit the potential of the eastern coastline.

Finally, the role of state governments is equally critical in land acquisition as well as in utility infrastructure such as power and water. Here again, the corridor projects compete for attention with other industrial parks of the State Industrial Development Corporation (SIDC). These SIDC projects, without the need for SPV with the central government, appear to better meet the short-term needs of quick wins. The state Transco’s and discoms’ priorities are also to improve service to existing industrial areas.

Each component of the set of projects has different implementing agencies and competes with several other projects. The National Industrial Corridor Development Authority (NICDA) will have to do the challenging task of coordinating across central and state government agencies in order to give priority to the corridor projects. There are lessons in the Early Bird Projects planned in DMIC, which faced challenges while getting relevant stakeholders on board. Perhaps a corridor projects’ unit in each ministry and state governments is needed. The unit will need adequate institutional capability and empowerment as well as a separate budget. Such dedicated units, in coordination with the NICDA, can provide the priority and impetus needed to be delivered in tandem. Only then can India provide the plug-and-play readiness needed to compete with China, Taiwan or Indonesia and become a preferred manufacturing location.

Krishnan S Iyer

Chief Executive Officer at NDR InvIT

9y

Manish, Good Points, shall box you on a potential project I have my hands on connected to infrastructure in India.

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