Morgan Stanley sees Orissa as metals hub

State has potential to attract $30-40 billon over next five years

Morgan Stanley has predicted Orissa can emerge as a hub for metals business in India.

Orissa has the potential to attract investments up to $30-40 billion over the next five years if the state and central government work together in utilizing the opportunity presented by the current global metals cycle, the latest Global Economic Forum report of the international financial service company said.

"While Bangalore evolved into the heart of India's software industry during the 1996-2000 global technology sector boom, in the current global materials up trend, the Eastern Indian state of Orissa is beginning to attract similar attention", the report said.

Over the last two years, a number of Indian metals companies have signed memoranda of understanding (MOUs) with the Orissa government for setting up mining and manufacturing operations.

According to the Centre for Monitoring Indian Economy (CMIE), while Orissa accounted for only 6.3 per cent of projects 'under implementation' as of January 2005, its share of India's aggregate outstanding projects 'announced' has risen to 17 per cent.

Its share in manufacturing sector projects 'announced' in India is even higher at 38 per cent.

The CMIE study said, the investment value of projects announced in Orissa has shot up over four times to $24 billion as of January 2005 from $5.5 billion in January 2004.

Orissa accounted for about 28.5 per cent of the incremental country-wide capex plans announced.

Investments under implementation have risen at a slower rate but still are very high, growing at 74 per cent YoY as of January 2005 to $11 billion.

About 47 per cent of the incremental investments are in the mining and metals manufacturing sectors.

However, the report has sounded cautious optimism over the rush of investment to the state.

"Our optimism on these investments materialising has been softened by the past track record".

In the 1994-1996 global commodity up cycle, the value of projects announced in Orissa had risen to 5 per cent of India's GDP, but implementation rate peaked at 2.3 per cent of GDP. The value of projects announced then was even higher than the current cycle peak of 3.7 per cent of GDP.

Although, we see greater signs of commitment from investors this time round, matching initiatives from the government will be needed to ensure that Orissa's potential in manufacturing is finally converted into reality", the report added.

Morgan Stanley has identified state's poor infrastructure and weak financial condition as the biggest constraints in rapid industrialisation of the state and called for greater cooperation from the Centre to remove these hurdles.

"We believe that the onus lies with the Central government to grab this opportunity. So far, the Centre has not been very proactive in providing a red carpet welcome to investors by agreeing to take responsibility to provide a world class basic infrastructure", it said.

Enumerating the dominant position of Orissa regarding minerals like bauxite, iron ore, coal and chromite, the report pointed out that the state also had a location advantage.

"Orissa is situated on the coastline of Eastern India, which is closer to the large fast-growing Asian markets, including China. We believe that these natural resources and location advantage provides a unique opportunity for Orissa to become a metals, mining, and manufacturing hub", it observed.

It added that the success of Nalco has demonstrated the state's comparative advantages and encouraged the other two major Indian metal companies, Hindalco and TISCO to initiate large investments for alumina and steel, respectively.

The other big-ticket investment proposal in this sector was the alumina project planned by the UK-based Vedanta group.

These three companies combined are planning to invest $6.3 billion.

On the hope of Orissa being the gateway for increased flow of FDI into India, the report has mentioned about the 10 million tonne steel project of POSCO and BHP Billiton at an estimated cost of $7-8 billion, efforts of Rio Tinto to revive its joint venture with the Orissa Mining Corporation, and the interests shown by BHP Billiton, Dubai Aluminium (Dubal), and Russian Aluminium (Russal) for alumina/aluminium ventures in the state.