The Rajasthan report card

CM Vasundhara Raje is hardselling the state - pointing to improved infrastructure, hoping to attract the moneybags. What is the situation on the ground?

On November 30 and December 1, Rajasthan Chief Minister Vasundhara Raje will make her maiden hardsell to top Indian businessmen in Jaipur. The event has been named Resurgent Rajasthan.

Letters of invitation have been sent out to all leading businessmen, especially the Marwari lot which traces its origins to the state. One has even been dispatched to the biggest of them all, living in a palatial home in London. Raje and her bureaucrats have their fingers crossed in the hope that Laxmi Niwas Mittal may show up.

Raje does need to make the sales pitch as quickly as possible. At the moment, Rajasthan is just a blip on industry's radar screen.

While thousands of crores continue to pour into states like Gujarat, Maharashtra, Karnataka and Tamil Nadu, Orissa and Jharkhand have attracted large investments with their mineral wealth and the northern states of Uttarakhand and Himachal Pradesh have gained from special tax incentives offered by New Delhi.

Rajasthan, on the other hand, has lost some prestigious investments. After announcing that it had selected a site in the state, Hero Honda, the country's largest two-wheeler company, decided to put up the plant at Haridwar in Uttarakhand.

A top information technology firm moved a proposed centre from Jaipur to Pune. Cairn's much-hyped refinery at Barmer is more or less certain never to come up.

"For every project that has come to the state, ten others have been lost," says Kishore Khaitan, managing director of Basant Wire Industries Pvt Ltd and convenor of the Confederation of Indian Industry panel on Rajasthan's economic affairs. There could be some exaggeration in this, but the fact remains that Rajasthan hasn't covered itself in glory so far as industrialisation is concerned.

On their part, state government officials say a new cement capacity of 25 million tonnes is coming up in the state. This might be almost 15 per cent of the country's existing capacity of 160 million tonnes, but it is not enough to change the fortunes of the state.

Though no longer Bimaru, Rajasthan still ranks poorly in attracting investments and development indices like infant mortality and per capita income.

Only too aware of this, Raje plans to showcase an all new state to the business community during Resurgent Rajasthan "" one she says she has built over the last four years. "What industry needs is good roads, good power and trained manpower," says Raje, "And we have addressed all the three issues." In other words, get the infrastructure right and businessmen will march in.

Roads readiness
Roads have now come to be recognised as an agent for economic and social change. All-weather roads have integrated rural and urban markets and have helped producers reach their produce quickly to remote villages. Raje was quick to realise that roads could be the key to the state's transformation.

Rajasthan itself may not be a huge market but with a good road network in place, producers could ship their wares to the thriving markets to the south and north of the state in double quick time.

Raje's worst critics too admit that her biggest achievement has been in the field of roads. On an average, the state has added 12 km of rural roads every day in the last four years, connecting no less than four villages. A survey carried out by the Union rural development ministry found that Rajasthan's implementation of the Pradhan Mantri Gram Sadak Yojana was the best in the country.

Raje has also taken up the task to convert 1,000 km of state highways into world class expressways. It has formed an equal joint venture with IL&FS to upgrade six stretches. One of these is ready, while four others will get completed by the end of January next year. The last will take another year.

But the initiative has drawn flak from critics who feel the joint venture is loaded in favour of IL&FS, which gets a one per cent commission for arranging the debt of Rs 1,260 crore for the Rs 1,500-crore project and another four per cent fees for project management. On its equity investment of Rs 25 crore, the company gets Rs 72.60 crore upfront "" a return of almost 300 per cent! Raje's key bureaucrats defend the deal.

The commission for debt is way below the market norm of 3-4 per cent, they argue, adding the project management fee too is barely enough to cover the expenses. "There has to be some incentive for a company to invest in a project like this, where returns will come only after the 25th year," says an aide.

Power woes
Raje's efforts in power so far have been focussed on cutting transmission and distribution losses. Last year, her government launched the Feeder Renovation Programme, which has brought down such losses from 45 per cent to 37 per cent ""one percentage point cut leads to a saving of almost Rs 100 crore.

Sitting in the drawing room of her official residence at Jaipur,

Raje says this was achieved by throwing incentives at villagers. "We said, those villages that are able to bring down theft to below 20 per cent will get power round the clock," she says, adding: "As a result, 11,000 of the 38,000 villages now get electricity for 24 hours."

A lot of people take her claim with a pinch of salt. "I stay in various villages of the state but don't know even one that has power right through the day," says social activist and former National Advisory Council member Aruna Roy.

The fact remains Rajasthan does not feature amongst the best states in terms of power. Only 72 per cent of the villages in the state have been electrified (national average: 81 per cent) and 47 per cent of rural households have power.

Also, Rajasthan has not added in any significant way to its power capacity, though it plans to see 5,000 mw of new capacity in the next five years and hopes to be self-sufficient in power as early as 2008.

Chandrashekhar Vaid, a Congress MLA from Taranagar, Churu, says the state has spent as much as Rs 2,050 crore in one unit of 125 mw in Barmer and three units of 110 mw each at Dholpur, but with very poor results. "Barmer is shut and there is not enough gas for the Dholpur plants. The success rate of these is only eight per cent," says he.

Raje admits that there is a technological snag with the lignite-based Barmer plant, though she insists the 30-year-old Dholpur project is on track. "There hasn't been a single power riot in the state. We haven't raised electricity tariff in the last four years and we have removed the duty on captive power generation," she adds.

Still, industry is far from happy. A company that runs an up-market holiday resort in the state says that it hasn't been given a power connection even two years after it first applied. It is now running the resort on diesel generators! Rajasthan officials too admit that the cost of industrial and commercial power in the state is amongst the highest in north India and there is an urgent need to bring it down.

Some of the woes will be addressed soon as Congress MP and industrialist Navin Jindal is setting up a 1,000 mw lignite-based unit at Barmer. Its first unit of 250 mw is expected to be ready next year.

Manpower training
Having provided industry with good roads and offered hope for more power in the future, Raje has also set about improving the availability of trained manpower in the state "" the third pillar of her strategy to attract investments to the state.

With this objective in mind, her government has approved no fewer than 153 new industrial training institutes, 26 polytechnics and about half a dozen engineering colleges through public-private partnership.

The state will provide the land for these institutes while the private partners will take care of the buildings and teaching infrastructure as well as the staff. Her idea is to have one industrial training institute in every block of the state.

Striking water...
If all goes well, the state will soon have an answer to the fourth problem industry as well as people of the state face: Water. Rajasthan is India's largest state and accounts for five per cent of its population, but it has only one per cent of its water resources. Clearly, water is a scarce commodity in the state.

The government has been doing its bit to harness existing water resources in the state. Works on 150,000 water structures have been taken up in the last two years. No less than Rs 1,500 crore was spent on drinking water last year. A Water Act is in the state Assembly, which, apart from other things, talks of taxing the use of water in industry and mining. "It could be in the form of investments in recycling," says an official.

Now, the state has literally struck water. Recently, a state-owned company, while prospecting for minerals at Nagaur, hit upon an underground reservoir of saline water. The same company has now decided to put up a desalination plant at the site, which will be ready by September next year. State officials say the deposit is good enough to feed 400 villages.

Raje says that Cairn Energy has struck a similar deposit at Barmer and options are being looked into on how to bring the water to the ground. There could be more good news. Studies carried out by the Geological Survey of India have shown that there could be large pre-historic deposits of sea water in Rajasthan. "The interim report says it could give us 120 million litres of water per day for 100 years," says one official.

Ground realities
But will it be good enough for businessmen to loosen their purse strings? Several businessmen

Business Standard spoke to said ground realities in the state are still daunting and the bureaucracy isn't responsive enough. New investments, they point out, are restricted to the Delhi-Jaipur corridor. These too are spillovers from neighbouring Haryana.

Sachin Pilot, the Congress Member of Parliament from Dausa, says there is unprecedented angst amongst the youth in Rajasthan, which has tarnished the state's peaceful and low-crime reputation. He, of course, is referring to the recent Gujjar riots. "This is the natural outcome of a state in transition," replies Raje.

She is confident that she now has a proposition that few prospective investors can afford to overlook. To tie up some loose ends, Raje had asked the Confederation of Indian Industry and Yes Bank to prepare a draft for a brand new industrial policy.

The draft was submitted in October. A new Municipal Act is in the making, which, according to Raje, will be a model for other states to follow. "I want to go one step ahead of Bangalore. People should live and work in our cities," says she. Is anybody listening?

PUTTING HER HOUSE IN ORDER - FISCALLY

Fiscally, Rajasthan was amongst the most stretched states and ranked at the bottom along with West Bengal, Punjab and Orissa when the Bharatiya Janata Party government, led by Vasundhara Raje, took over four years ago. Its revenue deficit was running at over 4.5 per cent and the fiscal deficit at over 7.5 per cent of the state GDP. Clearly, the state was living way beyond its means.

Cut to the present. The state has wiped out its revenue deficit and the fiscal deficit is below the target of three per cent. "My best day was when (Planning Commission Deputy Chairman) Montek (Singh Ahluwalia) complimented me on my fiscal position," says Raje, adding: "The planned expenditure has gone up three times (from Rs 2,000 crore in 2002-03 to Rs 6,000 now), even though we have not raised a single tax."

Raje has been able to put her house in order through a series of innovative steps on the revenue as well as the expenditure side. Amongst the first steps she took was to revamp the state liquor policy. Instead of parceling out zones to large contractors, shops were auctioned individually. Result: revenue from excise on liquor jumped from Rs 900 crore to Rs 1,600 crore.

Rajasthan used to give housing loans to its employees. The Raje government has sold the entire portfolio to HDFC for about Rs 300 crore. Not only did the state get some cash, it also cut down all future administrative expenses on the loans.

The state has put a stop on all hiring of clerks. In fact, all clerical work is now outsourced. People from appointed vendors come to government offices with their computers on demand to provide clerical services. All employees being recruited have been put on probation for two years to cut down the salary bill.

With its emphasis on public-private partnerships in education and healthcare delivery, the state hopes to cut down on recurring expenditure on the likes of teachers and nurses. "This will make these employees more efficient and save us the burden of salaries," said a senior ranking official in the finance department. Raje has also done some aggressive swapping of debt to pare the state's interest burden.

The official discloses that the average debt cost has come down from 10.5 per cent in 2003 to 8.5 per cent , resulting in annual savings of Rs 200 crore. "We have re-purchased our power bonds and got some other bonds off our back," says he. "You need to step back and become a partner in the process. I believe in the CEO concept," says Raje.