Remaking Make in Telangana

Notwithstanding the business-friendly policies of the State government, the industrial and investment climate is vitiated in Telangana due to the high mortality of industries and businesses across the State in the last two years. As per the Ministry of Corporate Affairs, of the total 61,333 companies that closed operation in India during 2012-16, 7,627 companies were from Telangana.

This means Telangana alone accounts for a whopping 12.5 per cent of industrial mortality in India. A report entitled ‘Telangana: Gateway to the Future of Manufacturing,’ released by Yes Bank and Confederation of Indian Industry (CII), states that: “Such a high mortality rate could greatly impact the overall investment climate in the State and adversely influence investor confidence.” The Micro, Small and Medium enterprises (MSME) sector bears the brunt of the mortality in the industrial sector. While the Telangana government is enacting laws for industrial project approvals and self-certification to create a facilitating and enabling environment for investment, the MSME sector suffers from high levels of morbidity and mortality. The present government need not be blamed for the entire problem.

The new State certainly inherits the legacy of the past and the overall structural problems in the sector found across the country. But, a State that has relatively higher levels of skill deficit cannot afford the extent of mortality reported in the MSME sector. The MSME sector is a true story of ‘Make in Telangana’ as this sector is employment-intensive and contributes significantly to skill formation. The sector improves the overall productive capacity of the state’s economy.

The contribution of this sector to exports is also significant. Despite its micro and small character, this sector has a major contribution to the economy and well-being of people. Therefore, special measures are required for its revival. Otherwise, the trend can make a significant dent into the image of ‘Brand Telangana.’

The manufacturing sector across the world is witnessing a rapid infusion of advanced technology. To remain competitive, the manufacturing sector, especially the MSME sector, needs to invest in and adopt emerging technologies, along with emphasis on research and development in future technologies.

The adoption of new technologies is vital for economic sustainability of this sector as improved technological competence enhances productivity and competitiveness. But, the shift from labour-intensive manufacturing to more advanced production processes significantly reduces the employment generating potential of this sector. The manufacturing sector thus faces the dilemma of remaining competitive through technological upgradation and reduced role in employment generation.

Long spells of power crisis in the year’s preceding the bifurcation had a debilitating impact on the sustainability of the industrial sector in general and the MSME sector in particular. The economic headwinds faced by the premier public sector industries in the State due to policies of liberalisation also have a negative impact on the MSME sector that is largely dependent on these heavy industries for forward and backward linkages including for the market.

The State of Telangana as analysed by the Yes bank and CII report has several inherent advantages for Telangana to emerge as a manufacturing hub. These include location and connectivity, demographic advantage, relatively cheaper labour costs, existing industrial base, presence of institutions of excellence etc.

Telangana, besides being centrally located in geographical sense, is surrounded by States with high domestic demand for finished goods. Fairly high degree of road, rail and air connectivity to the state of Telangana allows for seamless transport of raw materials and finished goods. The introduction of GST, feels the industry bodies, would greatly benefit the State due to creation of a unified national market.

As per 2011 Census, Telangana has higher labour force participation rate of 66.8 per cent which is far greater than the national rate of 52.9 per cent. The availability of surplus work force in the State is yet another advantage for the State to expand its manufacturing activity. Industrial sector accounts for 26.7 per cent of Gross Value Addition (GVA) of the State while it employs only 17.8 per cent of the total work force in the State.

This indicates the availability of surplus of work force needed for the growth of manufacturing sector in Telangana. The strong industrial base of the State provides the fertile ground for the growth of MSME sector in particular and manufacturing in general. The State already has strong base in several sectors including pharmaceuticals, electronics and electricals, defence and aerospace engineering, information and communication technology and biotechnology, textiles, automobiles etc.

Despite all such advantages, higher levels of mortality of companies and businesses are a matter of great concern and policy introspection. Despite surplus availability of labour force and its low cost, skills deficit haunts the State. The State has relatively higher levels of unskilled and semi-skilled work force. Skill advancement is, therefore, an imperative. The region in the united state itself saw a proliferation of engineering colleges.

But, this proliferation should not be confused with betterment of standards of education and learning. Improvement in the work culture and significant enhancement of skills is of vital importance for sustainability of manufacturing sector. More focus is needed on labour absorbing manufacturing.

Focus on labour-intensive sector that can provide employment opportunities and achieving higher rates of growth in manufacturing sectors are not mutually exclusive goals. The State of Telangana was fought on the demand for providing jobs for the local youth. Any deceleration in this regard would be anti-thesis of the new State.

The specific advantages of the State need to be taken into account while formulating an effective strategy for Make in Telangana. For instance, the Yes Bank and the CII study rightly identifies that the State has rich potential for the growth of agro-based and food processing industries. Telangana accounts for 17 per cent of India’s cotton production. Besides, the State is a leading producer of crops including paddy, maize, jowar, red gram, green gram, Bengal gram, groundnut , soya bean, mango, cotton, chilies , sugarcane etc.

The State is passing through an agrarian distress. The agricultural sector, therefore, cannot retain high levels of work force. There is an urgent need to diversify the occupational patterns. The growth and revival of manufacturing sector is vital for this. Greater integration with national and global value chains would enhance the capacity of manufacturing sector in the State.

The MSME sector urgently needs infrastructural, technological and fiscal support. Despite clear guidelines from the Reserve Bank of India (RBI), the credit access to this sector is under severe stress. A clustered approach may be useful to overcome the infrastructure deficit.

Innovation and enterprise are the driving engines of growth in the modern economy. This requires an overhaul of industrial and skill eco system. The region has terrible experience with the industrial hubs like Patancheru. Industrial development in this area has made the lives of people toxic.

Therefore, emphasis on green manufacturing is vital. Emphasis on less water-intensive industries is essential as the State has higher incidence of dry land agriculture which requires augmented irrigation support. Doing business at ease alone would not result in industrial revival and growth. A comprehensive menu of policy measures is essential to remake ‘Make in Telangana.’