Govindraj Ethiraj: The end of big projects?

DOUBLE EDGE

Sometime in the mid-90s, in the era of 17 per cent interest rates, I was speaking with an on-the-ascent industrialist with interests in, well, mostly steel. Sitting back in his recently refurbished office in Mumbai's Nariman Point, he spoke of the many new opportunities that were springing up, in telecom, power and even the media.

The conversation turned to the location of his plant in coastal Maharashtra, where most of his present investments were going. I remarked that another metals company was going to set up a large plant there. "Oh that," he said, "they won't allow it to come up." "How do you know that," I asked. "Just wait and watch," he said.

He was right, the company in question had to pack its bags and go south, where it faced a fresh round of environmental problems but come up it did. My interlocuter's own diversification efforts into power, announced with considerable fanfare and ministerial blessings, ran into truckloads of opposition later. "They" did not spare him, either. Even today, it's not clear where that project, worth billions of dollars, stands.

A few weeks ago, on a flight back from Delhi, I met a Reliance Industries official. The conversation, perhaps prophetically, happened a few days before Nandigram came to boil. "How were Reliance's SEZ projects going," I asked. Not very well, he said. According to him, there was a growing feeling internally that the projects were losing steam. "There are too many problems, too much effort," he said, referring to, among other things, the Public Interest Litigation (PIL) cases that had slowed the pace of the Haryana SEZ project.

The official said that Reliance, true to its style, would battle it out. But the whole thing was just looking too difficult, that's all. A few days later, reports surfaced saying the Maharashtra government might halve Reliance's Maha Mumbai SEZ project, located outside Mumbai city, from 10,000 hectares to 5,000 hectares. Whether that happens or not, the sense of smooth sailing that seemed to be there a few months ago is gone.

In Orissa, officials working for Korean steel major Posco appear uneasy. The state government insists Posco's $12 billion project will go through. But that's if the locals allow it to. And they, like their peers elsewhere, are not in a mood to give in. The same locals have blocked Tata Steel's ambitious 10-million-tonne Gopalpur steel plant. Work on land acquisition in Gopalpur began more than a decade ago. Corus must have appeared on the Tata radar less than a year ago and the deal, for all its roller coaster dynamics, is sealed.

And finally, Mumbai city once again faces the spectre of power cuts. Make that south Mumbai. Large swathes of northern Mumbai are already reeling from massive load shedding. Reliance Energy and Tata Power, the two firms that could have helped by building capacity, are accusing the government of not letting them do so when they filed their proposals. My question is: Even if the government did let them go ahead, what are the chances any of their projects would have come through by now?

So that's the story. Chances are most large manufacturing or "core sector" projects will not get off the ground. If they do, commercial conclusion in most cases seems distant or hazy. The reasons are many. They range from land acquisition hurdles to environmental opposition. And the usual bureaucracy!

The good news is that direct jobs may not be the biggest casualty. But their ability to generate economic spin-offs will be. I don't know if it's good or bad but most Indian entrepreneurs' appetite for expansion and growth is being whetted by global acquisitions.

It's tough to picture Tata Steel and the Aditya Birla Group's Hindalco pursuing greenfield projects in India with as much vigour as they could have perhaps done even a year ago. That's the manufacturing part. Big projects in infrastructure face the same hurdles and constraints. Mumbai's feeble attempt to clear up land around the airport is a case in point""forget a new one.

Has all activity ground to a halt? Not quite. A specially prepared study by the Business Standard Research Bureau that looked at listed companies and their project investments and schedules for 2006-07 threw up over 40 companies in various stages of capital investment. Companies like Asian Paints, Kesoram Industries, DCM Shriram and Tata Coffee, to name a few.

Interestingly, the key investment for several companies (Abhishek Industries, Sintex Industries and Shree Cement) has been in fairly large captive power plants (18 Mw on average)""a continuing indicator of either the inadequate or poor quality of power. Several new sugar, chemicals and petrochemical plants have gone on stream. But notice that all these, without exception, are "small" projects or additions to capacity. The only few large announced projects in recent years (previous fiscal) include the Reliance refinery and a few power and other projects in the public sector.

What does this mean? For one, I think a reality check on big manufacturing/infrastructure projects is called for. That means not getting carried away with announcements. Second, we have to accept that "they" will not permit or resist strongly big manufacturing or infrastructure. They, as I have discovered over the years, is a useful term to denote environmentalists, land owners and tillers, bureaucrats and politicians (within or out of government). And of course business rivals.

govindraj@business-standard.com