## Saturday, September 22, 2007

### The outlook for Maharashtra and Gujarat

R. N. Bhaskar has written a three-part article in DNA about the decline of Maharashtra. This particularly caught my eye because I just noticed that in the CMIE Capex data, Maharashtra is at rank 10 amongst the 20 large states when ranked by the value of projects under implementation' expressed on a per capita basis. I was very surprised when Maharashtra came out at the median and not around the top. The top five are Haryana, Orissa, Himachal Pradesh, Gujarat and Uttarakhand.

I have long noticed the theme of finance follows trade'. Where international trade blossoms, there is a natural consumption of international financial services. Bhaskar rightly points out the edge that has developed with Gujarat in ports. He writes about the remarkable Mundra port. I have long been struck by the fact that Gujarat has roughly half of India's ports. Putting together the picture on roads, ports, and the possible freight corridor, this could give Gujarat a very good position on international trade.

So could Gujarat make a play for doing international financial services? The MIFC report is not deeply bound to Bombay: it focuses on getting the framework of financial and monetary policy in order, so that India can produce IFS. While Bombay has a natural edge, it doesn't have to be the case that an IFC takes root in Bombay. After all, only a few hundred years ago, Surat was a big commercial centre and Bombay was a barren island. :-) Bhaskar talks about the work that is going on at the outskirts of Ahmedabad to will a finance cluster named GIFT' into existence. GIFT has a new website. Update: Some people in government seem to think similarly about the lack of binding to M' in the MIFC report.

1. I don't think we can take the investment rankings very seriously - not on the basis of the sparse evidence presented - it is just over a 2 year period.

I suspect, though don't have the data, that these ranks jump about a lot. Though there are some chronic laggards the top 5-7 rankings would change a lot. We need to be particularly wary about small states rankings - one large project can skew the rank.
Haryana gets high rankings, I supect due to huge investments in Gurgaon (IT and ITES) but should the credit go to Delhi or to Haryana? NOIDA (in UP) does too but it is small compared to the size of UP.

HP and Uttrakhand are obvious beneficiaries of the tax advantages of locating there - but also due to their small populations - 6 and 9 million, repectively - less than several large cities in India.

All I would say is more work needs to be done before jumping to conclusions.

As for IFS in Gujarat, one sans alcohol (???), pulling that off would be quite something, though I wonder if there could be a SDZ (Special Drinking Zone).

2. Addendum: Haryana (Gurgaon, particularly but other areas too adjacent to Delhi) has also attracted huge investments in real estate, construction encompassing residential, comercial and hotels, largely due to proximity to Delhi.

3. HP and Uttrakhand are beneficiaries of several hydropower projects each of which can be several thousand crores. That can easily influence per capita investment figures, given their low populations.

4. All your criticisms are valid, but one. We should take these investment rankings very seriously - it's top quality data.

The Maharashtra vs. Gujarat comparison is striking. There isn't any special story like Haryana / HP / etc. going on. If anything, Maharashtra benefits from the Reliance SEZ coming up on the mainland.

I am *shocked* that Maharashtra scores median and no more. This is supposed to be the great glittering globalised state.

5. It is interesting that Gujarat is being seen as a contender for MIFC. The people who believe that the restriction on alcohol will be an impeding factor should consider the example of Dubai. I believe the social environment in Gujarat is way more conducive to business environment than any other state.

The only impending factor is the bias against Gujarat in New Delhi.

6. So the lesson seems to be any creation of IFCs is really dependent on states rather than centre - although they can help with policy initiatives. If a few states take recommendations of MIFC to heart, when the policy changes do come along these states (or rather cities in these states) could be top tier players in the country and one (or more) could compete globally.

Mumbai still has significant default advantages even if it starts late, but others cities have a chance with a slight advantage to cities on the coast.

Instead of addressing MIFC to uncaring MoF, may be it should be marketed to progressive states.

7. My comment on alcohol was in a lighter vein. However, to set the record straight - there is no prohibition in Dubai or in UAE. Some restrictions do apply.

Please try an internet search on "alcohol in Dubai"

While it would be to much to claim that availability of alcohol explains the "success" of Dubai (and UAE too, - Abu Dhabi is fast emerging as another important investment centre) it, along with a more "liberal" environment does make them far more attractive than other places in the Gulf.

8. Narendra modi government took a difficult decision by allowing Alcohol without any restriction in Special economic zones in Gujarat. But I think IFC doesnt come under SEZ.

9. Just wanted to place on record the fact that 250 acres of the Finance city being set up near Ahmedabad is slated to be an SEZ, and the remaining 250 acres as a domestic area.

10. Surat is equaly strong and growing city.
Surat diamond is know not only nationaly but internaly.
Apart from Diamond Surat has also Textile business which provides clothes to india.

11. I just visited Gandhinagar last week and sent to see the GIFT site for myself. All that is there is the foundation stone at the site that was placed following Narendra Modi's visit. Initial soil testing appears to have been performed. Otherwise, the land is barren. No digging or any form of consttruction activity has started. It is hard to imagine a project of such massive proportions could be completed in 2 years. There is a lot of speculative property price increase however. nothing else.

12. I just visited Gandhinagar last week and sent to see the GIFT site for myself. All that is there is the foundation stone at the site that was placed following Narendra Modi's visit. Initial soil testing appears to have been performed. Otherwise, the land is barren. No digging or any form of consttruction activity has started. It is hard to imagine a project of such massive proportions could be completed in 2 years. There is a lot of speculative property price increase however. nothing else.

Please note: LaTeX mathematics works. This means that if you want to say $10 you have to say \$10.