West Bengal’s tryst with foreign investments floundering

West Bengal’s tryst with foreign investments floundering

In October 2005, the West Bengal government signed an agreement with Indonesia’s Salim Group to set up the first two-wheeler plant in eastern India with an investment of $250 million (Rs987.5 crore). Two years later, even the construction of the factory is yet to begin.

India’s eastern state that will be showcasing its potential at a global chief executive meet in the Indian capital this week, may have a hard time convincing overseas investors that it’s as attractive an investment destination as it’s made out to be.

Dogged by issues ranging from violent protests by farmers over forced acquisition of land for industrialization, to proposed relocations of previously assigned industrial hubs, West Bengal’s progress for getting projects going has been patchy at best. Barring the petrochemical project set up by Mitsubishi Chemical Corp. at Haldia, about 170km from Kolkata, the state has very few successes in foreign investment.

The state’s big ticket foreign investor is the Salim Group, which was entrusted with several mega projects, including two special economic zones (SEZs), a four-lane express highway, a bridge and an integrated township besides the two-wheeler plant, altogether involving about Rs20,000 crore investment. To date, none of these have taken off for different reasons.

One SEZ project made national news, when the state government tried forcible acquisition of farmland for the project at Nandigram, a 170km from Kolkata. It triggered a major debate on land acquisition across the country. The government was forced to relocate the SEZ, which was slated to be a chemical hub. Today, the struggle is still on to find a sustainable base for the project. The highway and the bridge projects are also hanging fire over the issue of land acquisition.

Land availability is not the only thing that ails the Salim projects, as is clear from the case of Mahabharat Motors Manufacturing Co. , the two-wheeler plant and the integrated township project named Kolkata West International City. While at Mahabharat, the delay has to do with finding a technical collaborator for the project, in the case of the housing project, it had to do with an environmental clearance. Tagged as the state’s first 100% foreign direct investment in realty, the project had Salim and another Indonesian group Ciputra, as its main stakeholders. An official of Kolkata West International City Pvt. Ltd, who did not wish to be identified as he is not authorized to speak to the media, said that Ciputra Group has stepped away from the construction work that it was handling earlier and the job has been contracted to Unitech Ltd. Still, the state says it is getting a lot of investment deals signed.

“We received proposals for projects over Rs1,00,000 crore in the current calendar and recorded an implementation of projects involving investments over Rs3,000 crore in the previous calendar," said Sabyasachi Sen, the state’s principal secretary for commerce and industry. It wasn’t immediately clear what the quantum of proposals last year was.

The stagnating Salim projects are not the only examples of West Bengal’s poor record at pushing through projects.

Ural India Ltd, a joint venture between Russia’s UralAZ Joint Stock Co., the local Motijug Group and the West Bengal Industrial Development Corp. was inaugurated last year with an investment of Rs550 crore. At full capacity, the plant was expected to make 40,000 heavy-duty trucks, dump trucks and tippers, counting on demand from the defence sector, which was expected to be the company’s biggest customer, and demand from other sectors such as infrastructure, mining, road construction. To date, the company is limping with a production of just two trucks a day, and caters only to the mining sector. It still awaits the land it had requisitioned for setting up a test drive track simulating battlefield conditions, an imperative if it has to secure defence orders.

“We are working on acquiring the land, which has to be contiguous," says Sen.

Meanwhile, a senior officer of the Army’s Ordnance Corps, who did not wish to be identified because he isn’t authorized to speak to the press, said the defence forces already have enough heavy trucks similar to Ural.

“The Swedish Scania, the Tatra (produced at Bharat Earth Movers Ltd), Ashok Leyland and Tata Motors already fulfil our needs," he said. “A new model will only complicate inventory management," he added.

The Left Front government of the state which gave the German retail giant Metro AG permission to operate in the state, even offered land for the outlet—except the land was embroiled in an ownership dispute. As a result, Metro found itself in the middle of a 45-year-old litigation. The company has finally managed to extricate itself from the litigation, but its project has been delayed by several months.

Protests against acquisition of farmland are not isolated to West Bengal. Similar protests have occurred in Orissa and Maharashtra. But the situation is particularly grim in West Bengal which has very little non-farm land.

The removal of the chemical hub from Nandigram has upset a major plan for industrial development in and around Haldia, which the government had hoped to turn into a petroleum, chemical and petrochemical investment region. It already has an agreement with the public sector giant Indian Oil Corp. for setting up a second refinery in the region with an investment of about Rs15,000 crore.

The government has also been ardently wooing the world’s second largest chemical company and biggest plastic maker Dow Chemical Co. to set up base in this region. These ambitious plans have been tripped up as the state is still struggling to find an alternative to Nandigram. Its selection of Nayachar, a riverine island has raised several questions related to infrastructure and connectivity; the move is also likely to be rejected by the Union environment ministry because it violates existing laws governing the development of coastal areas.

The state is witnessing a spate of primary (high grade) steel-making projects proposed largely by smaller secondary (low-grade) steel makers.

Chief Minister Buddhadeb Bhattacharjee’s grand plans for reviving the state’s industry got a major boost with the coming of the Tata Motors Ltd’s project for making the country’s cheapest car at Singur, 40km from Kolkata. The Singur project has barely survived protest over land acquisition and Tata Motors is working towards meeting its 2008 deadline for rolling out its first car. When it does, it will likely be the state’s first big-ticket roll-out.