* Pro-business government attracts international companies
* Ease of acquiring land a key factor in new manufacturers
* Skilled labour, plentiful electricity add to Gujarat
By Anurag Kotoky
SANAND, India, Oct 4 Along a dusty,
traffic-choked road in the western state of Gujarat lies what
may be India's industrial future.
As laborers work under a blazing sun to widen the highway,
auto giants Ford Motor Co and PSA Peugeot Citroen
prepare to spend nearly $2 billion to build new plants
in Sanand, a sparsely populated collection of villages about 40
kilometres west of Ahmedabad, the state's main city.
More automakers and suppliers are expected to follow, taking
advantage of the state's business-friendly policies, including
comparatively little bureaucratic red tape and, crucially in
crowded India, ease of acquiring land.
"You have a pro-business environment from the
Gujarat government focused on getting companies like us to come
in," said Michael Boneham, who heads the Indian operations for
Ford, which will open its plant in Sanand in 2014.
The Indian auto industry, which grew 30 percent last fiscal
year before a recent slowdown, is a key growth engine for
India's underdeveloped industrial sector. New Delhi wants to
lift manufacturing's share of the economy to 25 percent over the
next decade from about 16 percent now, a daunting target.
While car sales have skidded in recent months on rising
interest rates and prices, the industry is expected to grow
10-12 percent for the year ending March 2012. The longer-term
potential is vast in a country that sold 1.9 million cars in its
last fiscal year. China sells that many in seven weeks.
By rolling out the red carpet to manufacturers, Gujarat is
taking on existing Indian auto hubs, including the southern city
of Chennai, known as "India's Detroit." Executives and investors
hope the competition between states ultimately results in
improved business conditions across India.
"When more states compete for investments, then more states
will become states where people want to go. This is a good
thing," said R.C. Bhargava, chairman of Maruti Suzuki ,
India's dominant carmaker.
Maruti, which is 54 percent owned by Japan's Suzuki Motor
and has been plagued by labour trouble at its plant
near New Delhi, will decide by the end of October where to build
its next factory and is widely reported to be leaning towards
Gujarat for a plant with capacity of one million cars a year.
Under high-profile but divisive Chief Minister Narendra
Modi, Gujarat stands apart in a country that doesn't always make
it easy for manufacturers.
Home to the world's biggest oil refinery, Gujarat accounts
for 22 percent of India's total exports, according to KPMG, even
though it is home to just 5 percent of the population. Gujarat's
economy grew by 13.8 percent annually in the five fiscal years
through March 2010, far in excess of the national average of 8.6
percent over the same period.
Modi, a member of the Hindu-nationalist main opposition
Bharatiya Janata Party (BJP), has leveraged the economic success
of his state to become a national leader and potential prime
minister despite accusations of complicity in religious riots in
2002 that killed hundreds of mostly Muslim victims.
The 61-year-old Modi, who wears a trimmed white beard,
recently held a widely-publicised fast to improve his image.
Gujarat, the birthplace of Gandhi, is known for its
abstemious people where most residents are vegetarians and the
sale of alcohol to locals is banned. The state's charms for
manufacturers include plentiful electricity and skilled labour.
"The biggest challenge for OEMs (original equipment
manufacturers), especially automakers, is the availability of
infrastructure such as power, roads, ports, rail," said Abdul
Majeed J. Shaikh, who heads the automotive practice at
PriceWaterhouseCoopers in India.
"From that perspective, Gujarat over a period of the last
three to five years has started using infrastructure as a key
thing to attract investors," he said.
An official with the state of Tamil Nadu, home to Chennai,
points out that the city has India's largest component supplier
base and three sea ports. He said Chennai continues to attract
automotive investment and will remain India's car-making hub.
"There is already a very healthy competition. But healthy
competition can become unhealthy also, because some state may
get desperate for investments and offer undue incentives," said
M Velmurugan, executive vice chairman of the Tamil Nadu
Industrial Guidance & Export Promotion Bureau.
"Many of our companies are being chased at, but even then we
are getting substantial investments," he said, without singling
out a specific state.
Sanand was put on the map in 2008 when India's Tata Motors
shifted production of its Nano, the world's cheapest
car, from West Bengal, where it was driven away by violent
protest from farmers. Tata Motors and the West Bengal state
government continue to fight in court over the factory site.
While Tata's Nano has not lived up to the hype that
accompanied its roll-out, posting sluggish sales, it has proven
a trend-setter in an industry where there are benefits for rival
manufacturers and suppliers to cluster together.
As part of an industrial policy introduced in 2009, Gujarat
uses a program called "Assistance to Mega and Innovative
Projects" that includes financial aid, road links, and help in
setting up ancillary units, which is important for car
manufacturers that rely heavily on suppliers.
At the "Vibrant Gujarat" event in January, investments
totalling 21 trillion rupees ($428 billion) were announced,
although it is impossible to know how much of that will actually
be spent. High-profile executives including Tata group Chairman
Ratan Tata spoke in praise of Modi and the state at the event.
Besides the Ford and Peugeot plants, which were announced in
recent months, officials have set aside land for their
"When you have significant volume from number of players,
whether they are global or local, you get the supply base to
come to you. No point setting up a factory if your supply base
doesn't come close to you because of incoming logistics costs,"
said Ford's Boneham.
Ford's Sanand facility will be in addition to its existing
plant in Chennai. South Korea's Hyundai Motor ,
India's No.2 player by market share, also makes cars in Chennai.
"Part of it is also a well-educated workforce, that we can
train and develop in the automotive game," said Boneham, who
said Ford chose Gujarat in part to put it closer to the western
and northern India markets, where 60 percent of cars are sold.
Perhaps most important for industry, Gujarat offers vast
holdings of government-owned land, removing a key hurdle that
plagues big projects elsewhere in densely-populated India.
Tata's car plant stands beyond rows of Nano cars, which cost
$2,880 for a basic model sold in Delhi. The land was originally
owned by the Gujarat government, saving Tata the hassle of
assembling the site on its own. The state bought land from
villagers to build the road to the plant.
Gujarat pays villagers what it considers to be a generous
price, determined by a third party.
"Then we give them 10 percent of the differential price if
we sell the land at a higher price, and on top of that, we pay
them 750 days on minimum wages if they lose all their land in
our acquisition," said a senior official at Gujarat's main
industry body, who declined to be identified.
Residents of Sanand, which is made up of 67 villages housing
fewer than 200,000 people, are divided on what the oncoming
industrial juggernaut means to them.
Kamal Khan, who earned 6,000 rupees a month as head watchman
at the farmland later awarded to Tata, has not seen any