India maps industrial park route to turn factory giant

The Centre is working on a plan to build more than 20 dedicated, mega industrial parks across the country by 2030, two officials close to the development said. The objective is to make India the third-largest contributor to global manufacturing from fifth currently. The ministries of pharma, textiles, petroleum and natural gas, and commerce are involved in these discussions.

The plan is to build five chemical and petrochemical manufacturing hubs, seven textile parks, five leather and footwear parks, four medical devices parks, and three bulk drugs parks, to provide designated area to companies in the sector, the two officials cited above told Mint on condition of anonymity.

“The idea is to designate areas where it is easier to provide facilities for companies,” the first official said, adding that there has been criticism that India’s manufacturing development “has been sporadic and not planned, unlike China, where it has been planned through several parks”.

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These parks will be a mix of both greenfield and brownfield, with most of them designed and implemented afresh and some existing parks upgraded.

“The aim is to increase India’s contribution to global manufacturing to at least 4% by 2030,” said the second official. This person pointed out that going by current projects and in the absence of these parks, India’s would only grow to 3.25% of global manufacturing.

According to a World Bank data, the top five performers in manufacturing value-add output are China at $4,975 billion, US at $2,497 billion, Japan at $818 billion, Germany at $752 billion and India at $456 billion. India’s contribution is about 3% of total exports.

Queries sent to the ministries of pharma, textiles, petroleum and natural gas, and commerce remained unanswered till press time.

India’s big move

Indian industrialists have indeed been holding China up as an example of having used such parks to build its manufacturing industry. At a recent Mint CEO roundtable, Mahesh Chhabria, managing director of diversified conglomerate Kirloskar Industries, pointed out that despite being the second largest manufacturer of footwear pairs, India still imports soles and uppers from China.

“The way China created a cluster on footwear is mindblowing,” Chhabria said. “In a cluster of 10 sq. km, I can source anything and everything, from the smallest guy to the biggest guy, to make my footwear.”

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Chhabria added that big global brands succeed in China just because the sourcing is right in the backyard, just in time. “All design shops that make the uppers in the footwear are available to be outsourced there itself. Where does that concept exist in India?” he said.

India’s move to create such dedicated manufacturing parks is an attempt to replicate China’s success, where these parks have played a big role, the first official cited above said.

A banker, who deals with a lot of global companies, said that India should work on planned manufacturing centres like China.

“India has seen manufacturing grow, but China’s development has been more focused,” this person said, also requesting anonymity. He added that the parks would help attract several global corporations that want to enter India.

Global organisations have noted the role of China’s industrial parks in the country becoming a manufacturing powerhouse.

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“Over the past four decades, China has successfully built and operated a variety of industrial parks at home and abroad, overcoming issues that hinder the development of parks, such as infrastructure financing and coordination of policies and measures, and has accumulated a rich repository of experience, knowledge and good practices,” United Nations Industrial development organisation had said in a study in November 2020.

How parks would help

For the pharma sector, for instance, analysts say dedicated parks would help companies scale up efficiently and at lower costs.

A pharma facility would require several common infrastructure facilities, including a central effluent treatment plant, solid waste management, and a common warehouse, among other things. “When it is an industrial park, the costs of these things get shared among players inside the park…no one player bears the cost,” said Aditya Khemka, fund manager at Incred Asset Management.

He added that there is also a need to focus on the functionality of parks before scaling them up. “Because the implementation of the parks has not been done properly, the infrastructure has not been created, the roads are not there or the railway structure is not there, these parks are more or less dysfunctional,” Khemka said. “So, before you open more paths, the idea always should be to first operationalize what you have.”

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In the past, India has seen partial success with SEZs (special economic zones) that have seen services sector benefit from the tax benefits. The new plan, however, will focus less on tax incentives and more on making available facilities to ensure businesses have enough resources to grow.