Rajasthan decks up for investors

India's largest state has caught the attention of investors of late but has a long way to go.

In one of his earliest interactions with the press after the formation of Niti Aayog, India's premier think tank, two years ago, Vice-Chairman Arvind Panagariya took exception to Rajasthan being referred to as a “BIMAROU” state. The oft-used acronym means diseased or sick in Hindi and is made up of the Indian states of Bihar, Madhya Pradesh, Rajasthan, Odisha and Uttar Pradesh. It was coined in the 1980's by prominent demographer and economic analyst Ashish Bose to refer to the poor economic conditions in these states.

Panagriya said: “The term 'BIMAROU' is a fictitious term to be used for Rajasthan. In real perspective there is nothing like BIMAROU. There are several states which lag behind Rajasthan in terms of development and in the years to come it will be ahead of even West Bengal in terms of its GDP. “At the end of the day, employment and growth are important. Manufacturing contributes 10 per cent in GDP in Rajasthan and the state is now progressing in this sector.”

Panagariya had not spoken off the cuff or too soon. In a survey conducted by the Department of Industrial Policy and Promotion (DIPP) and World Bank Group last year, Rajasthan was placed eighth out of the list of 32 states in ease of doing business. The state scored 96.43 per cent against 98.78 per cent of Andhra Pradesh and Telangana, which were the top two states in the survey. Not only had it improved its score from 2015, it had also left behind in its wake more affluent states like Tamil Nadu and Delhi. "Our implementation score has increased by over 30 per cent compared to last year, and four of our reform activities have been recognised as national best practices,” says state industries minister Gajendra Singh Khimsar.

“These achievements are testament to the effectiveness of the Rajasthan model of development. We will continue to build on the success."

The change albeit has been gradual and did not happen overnight. Even though Rajasthan is the largest state in India in terms of size, a significant portion of the land is arid and sparsely populated. Traditionally it relied on mineral deposits of limestone, marble and precious stones, agriculture and tourism for its economy. Industrialisation is a recent phenomena in Rajasthan. In 1987-88, the manufacturing sector contributed a mere 1.3 per cent to the state Gross Domestic Product (GDP). Today, its contribution stands at over 13 per cent.

2004: The Eureka moment

Tucked far away on the Western border of the country in Rajasthan surrounded by the barren Thar desert from all sides, Barmer has always been the quintessential sleepy little town. Despite being the fifth-largest district in the country in terms of size, its population of just 2.6 million makes it one of those places bookmarked for punishment postings for bureaucrats, civil servants or police officers. Yet, the destiny of the city changed forever in 2004 when British firm Cairn discovered oil deep within its sandy top soil.

That particular block of land had been earmarked for oil exploration but had been given up for good by global oil major Shell. Scottish explorer Cairn Energy then bought out the block in 2002 and struck gold two years later. With initial estimates for the oil in the range of 450 to 1,100 million barrels, it was the biggest oil discovery in India for over two decades and anywhere in the world that year.

As the company set up its camp offices and started acquiring land for the project, the landscape of the region changed. Property prices soared, infrastructure development kicked off and hotels and malls mushroomed in the city. Oil put Barmer and with it Rajasthan on the world map.

“Land prices have shot through the roof. The discovery has changed the city forever,” says Lalit Kumar Kiri, a local who was a beneficiary from the oil discovery by providing supplies and services to Cairn.

The 2004 oil discovery happened early in Vasundhara Raje's first stint as the Chief Minister of the state between 2003 and 2008. It showcased the impact private investment and industrialisation can have in ushering development in the region and pulling people out of poverty.

India Inc was warming up to the prospect of investing in the state and in 2007 Raje decided to host the first edition of Resurgent Rajasthan Investors summit. It generated assurances of 357 projects with commitment of Rs 1.67 lakh crore ($15bn). As is the norm with these summits, not all of them have fructified. Till date, only 40 per cent of the projects that were promised have been completed or are under process that amount to a total investment of Rs 39,000 crore ($5.8bn). It was a start nevertheless.

Delhi Mumbai Industrial Corridor: Rajasthan's highway of growth

Much of the infrastructure development in the state in the recent past has happened in lieu of government of India's ambitious flagship project of developing an industrial corridor between Delhi and Mumbai. Around 40 per cent of the 1,500 odd kilometer corridor that is being developed with a cumulative investment of nearly $100 billion, passes through Rajasthan. The state will have two investment and three industrial areas as a result of that. In her current stint, Raje has been exhorting businessmen, both homegrown and foreign - those from Bengal with origins in Rajasthan as well as South Korea, Japan and Singapore - to invest in the state along the industrial corridor.

“Every state has its advantages and disadvantages. Our problem is we do not have much water as it is an arid state. However, we are uniquely placed geographically as you would have to transit through Rajasthan if you want to get to the coast from the North,” says Veenu Gupta, Principal Secretary, Industries.

“We have good connectivity and by 2018 the freight corridor will greatly reduce transportation time to Kandla and Mundra ports.”

Already, there has been a spurt in investments along this corridor. Japanese car major Honda recently started its factory in Tapukara while world's largest two wheeler manufacturer Hero MotoCorp also set up its state of the art factory at Neemrana. Hero has also set up its global R&D facility in Kukas near Jaipur. As is the case with automobile factories, many other ancillary units have also sprouted in the region. Construction equipment maker JCB and Saint Gobain are some of the others to invest in Rajasthan.

Beyond the industrial corridor, there are many other smaller steps that the government has taken to lure the investors. In 2014, Indian President Pranab Mukherjee used a rare provision in the Constitution under Article 254 (2) to give his consent to Rajasthan′s amendments in the labour law. The new labour laws over-ride laws of the union, and indicated the intent of the government to pave the way for easing processes for business. Since then, the laws have been tweaked multiple times to facilitate investors. In all, 61 article laws have been repealed, and 187 amendments have been enacted till now.

By the time Raje resurrected the Resurgent Rajasthan summit in 2015, she had laid the foundation. The homework had been done. The summit saw 295 proposals being signed for a cumulative investment of Rs 3.3 lakh crore ($44bn). The projects included Aditya Birla Group's promised investment of nearly Rs 11,000 crore ($1.6bn), including Rs 7,000 crore ($1bn) for setting up two new cement plants and Rs 3,000 crore ($448mn) for establishing a 500 MW solar power plant in the state and Adani Group's Rs 10,000 crore ($1.4bn) over four years for the expansion of its thermal and solar power plants in the state.

"We have learnt some lessons from our first Resurgent Rajasthan of 2007. This time, we have been carefully scrutinising investors and want to ensure that only those serious about investment sign memorandums with us,” says Industries Minister Gajendra Singh. “If we get even 60 per cent of this investment, it would mean a lot of money."

Yet, these are only baby steps and the full potential of the state is yet to be exploited. According to a study done by ASSOCHAM, Rajasthan does not even figure in the top 10 investment destinations in the country and neighbouring states like Gujarat, Madhya Pradesh and Haryana consistently attract more investments.

“We are just at the tip of the iceberg,” Raje had said while inaugurating the summit in 2015. “A lot more work has to be done.” The story of the resurgence of Rajasthan is still being written.