CHAPTER VIII

INDUSTRIAL LOCATION AT SELECTED CENTRES

-- RESULTS OF A FIELD SURVEY

The district-level analysis using secondary data provided several

pointers regarding the factors influencing industrial location.

It was felt, however, that a field survey of industrial units in

less developed areas would provide a deeper insight into factors

considered important by entrepreneurs when deciding plant-location.

In-depth discussions with industrialists would also provide a

firmer basis for evaluating industrial location policy~ and for

assessing the impact of subsidized assistance on the industrial

development of the lagging regions.

The field study attempts:

(a) to determine the factors which play an important role in

industrial location decisions;

(b) to determine the extent to which location decisions are

influenced by government location policy and/or incentives;

(c) to assess current government pOlicy for developing backward

areas through induced industrial development; and

(d) to determine the emerging regional patterns of industrial

development.

Methodology of the Field Survey

Information required for the analysis was obtained through

~6l

discussions/interviews with one or more senior executives/entrepre­

neurs in each unit selected as a case study. This method of

gathering information was expected to provide better knowledge than

a questionnaire-based study because the personal experiences of

the industrialists and managers could be shared. l

Selection of Centres Three centres were selected for the field

survey in each State, of which two were 'induced' growth centres

262

in backward areas, and one was a 'spontaneous' growth centre in a

developed area. In order to assess the impact of government policy,

the induced growth centres were those where Central and State

Government incentives were,available. Thus, these were centres in

districts deClared among the most backward and el igible for the

Capital Investment SubSidy of the Central Government. They were

also among those designated as 'growth centres' by the respective

State Governments. This status implied that the chosen centres had

been recepients of speCial promotional efforts by the State Govern­

ment institutions for industrial development (so that they may be

defined as 'induced growth centres').

Further, of these two induced growth centres selected in each State,

one was a centre where industry had developed rapidly, and the other

a centre which had proved to be a failure in attracting industry.

ThiS selection was expected to provide an insight into factors which

lead to industrial development at one location rather than another,

despite the availability of similar incentives at both locations.

I. See Appendix VIII.I for a list of topics covered in the interviews.

263

On the baSis of these considerations, Aurangabad and Kudal were

chosen in Maharashtra, and Ankleshwar and Godhra in Gujarat. All

these places were in CIS districts -- Aurangabad in Aurangabad

district, Kudal in Sindhudurg districts (earlier part of Ratnagiri),

Ankleshwar in Bharuch district and Godhra in Panchmahals district.

Aurangabad was designated a growth centre in 1970, Kudal in 1975,

and the t\\O Gujarat centres in 1977." Both Aurangabad and Ankleshwar

have experienced rapid industrial growth after they were designated

as growth centres. In fact, under the New Incentive Scheme of the

Central Government (1983), these two centres are no longer eligible

for the Capital Investment Subsidy, because industrial investment

in both places has exceeded Rs. 30 crores. Kudal and Godhra, on

the other hand, have not witnessed any significant industrial

development, and many existing units are in a poor financial

condition.

In order to determine the importance of incentives in site-selection,

a 'control' centre was selected in each State, where industry had

developed rapidly in recent years without the benefit of subsidies.

Such a centre may be defined as a 'spontaneous growth centre'.

Rather than choosing the old ind~strial centres of Bombay and

Ahmedabad, Pune was selected in Maharashtra and Vadodara (Baroda)

in Gujarat. Both these are newer industrial centres and industria I

growth has been rapid even in the past ten to fifteen yea.rs. That

is, in the .period when industry was offered financial incentives in

the less developed areas, industry nevertheless continued to be

located in these no-incentive areas.

Selection of the Units The number of industrial units selected as

264

case studies had necessarily to be limited if in-depth interviews

were to be obtained with senior personnel and/or entrepreneurs. It

was decided that about fifteen units would provide adequate informa­

tion and would also be a feasible number to study at each centre.

~everal criteria were followed for the s~lection relating to age,

size and industry group of the unit. 2

Factors Motivating Choice of Location

The motivating factors were expected to differ between units in the

spontaneous growth centres as against those in the induced growth

centres. The analysis was carried out separately for large and

small firms in order to ascertain whether there was a significant

difference in the motivating factors.

Spontaneous Growth Centres

Pune Pune has witnessed rapid growth of industry over the last

two decades. While most of the very large units, TELCO, Bajaj Auto

and Kinetic Engineering among them, were established prior to 1970,

the "later years have seen a profusion of medium and small scale

units, many of them manufactoring components required by the

larger companies.

The units surveyed were all representative of the second wave of

industrial development, i.e., of industry which was established

when the proce~s of industria1ization was well under way in Pune.

Of the large and medium units surveyed, 40 per cent had been establ­

ished at Pune because of the 'push' from Bombay and another 40 per

cent were branches/subsidiaries of locally-based companies. The

2. See Appendi x VII!. 2.

TABLE VIII.l(a) MOTIVATING FACTORS IN THE SPONTANEOUS GROWTH CENTRES -- PUNE

Motivating Factor Large & Medium Units Small-Scale Units Number of Kespondents Stating Factor as

Most Im- Very Im- Impor- Total Most Im- Very Im- Impor-portant portant tant portant portant tant

Not permi tted near Bombay 4 4

Nearness/access to Bombay 6 4 . 10 1 4

Local entrepreneur 4 4 4

Another local unit existing 4 4 1

Nearness/access to market 2 3 5 10 3 1 1 Nearness/access to raw

materi a 1 s 4 6 10 1 3

Adequate transport and comm-unication facilities .;. 8 2 10 4 1

Other facilities available 4 4 8 2 3

Skilled manpower available 6 4 10 1 1 Cheap land 4 4 8 3

Industrial estate available 7 8 2

Total

5

4

1 5

4

5

5

2

4

2

N 0'1 (J'1

266

remaining 20 per cent of the units had been located here because

their major market, the automobile industries, were located at Pune.

The existence of a local market was, in fact, an important

motivating, factor for all the units surveyed.

to t!>o\'V\ba~ An important consideration was nearness~so that access to raw

materials and markets, as well as to business and government

contacts in Bombay, did not constitute a problem. Other important

motivating factors were the availability of good transport and

communication facilities, and skilled labour of all types~ Being

an old educational centre, Pune has no dearth of skilled and

managerial personnel. In fact, the development of industry,

together with the availability of relatively cheap housing and

well-developed amenities, has induced many talented persons to

settle and work in Pune, in preference to Bombay. The availability

of cheap land (as compared to Bombay), easy access to raw materials

in all parts of the country and the availa~ility of an industrial

estate, were also considered important factors.

The most important motivating factor for the small-scale units waS

that the market for their products was in Pune. All the units

surveyed were market-oriented, and this was the most important

factor for 60 per cent of the units. Other important motivating

factors were that the entrepreneurs were local, good transport and

communication facilities and other urban amenities were a,vailable,

and that there was easy access to inputs either locally or from

Bombay.

Thus, the establishment of Pune as a major industrial centre'may

be attributed to a combination of 'push' and I pull I .factors. The

increasing restrictions on industrial expansion in Bombay, together

with exorbitant land prices and the non-availabil ity of sufficient

land for industrial use, represented the major push factors. The

pull factors were Pune's inherent locational advantages, such as

nearness to Bombay and the pre-exi stence of industries and develop'ed

facilities. In fact, 60 per cent of units surveyed here were

located at Pune because of the prior existence of industry, and the

remaining units were located at Pune due to the push from Bombay.,

Vadodara The pattern of industrial development in Vadodara has

been similar to that in Pune, and there was considerable similarity

in the motivating factors. Upto 1949, Baroda was an independently

governed State. In order to attract industry, several tax

concessions were provided and urban facilities were developed. The

three big industrial houses in Vadodara, Alembic, Sarabhai and

Jyoti Engineering, started operations before 1949. The development

of industry from 1949 to 1960 was mainly due to the expansion of

the existing units. After 1960, the establishment of the Oil and

Natural Gas Commisslon (ONGC) and the Indian Petro-Chemicals

Limited (IPCL) complexes provided a further boost for industry,

and especially for chemical and petro-chemical industries.

Of the large and medium units surveyed, 40 per cent had been

established by Bombay-based companies. The two most important

motivating factors for these companies to set up units in Vadodara

were the absence of labour trouble and the fact that one or more of

the directors of the parent company had local (Gujarati) origins.

After the outbreak of labour' trouble in Bombay, and with the

267

TABLE VIII. I(b) MOTIVATING FACTURS IN THE SPONTANEOUS GROWTH CENTRES -- VAUODARA

Aotivating Factor Large & Medium Units Small-Scale Units i~umber of Respondents Stating Factor as

Most Im- Very Im- Impor- Total Most I~-·Very Im- Impor- Total· portant portant tant portant portant tant

Not permitted near Bombay 4 1- . 4 !- .

Local entrepreneur 3 j 3 2 5 Another local unit

existing 1 .- .

Nearness/access to market 3 5 8 4 5

Nearness/access to raw materials 3 4 3 10 2 2 5

Adequate transport and communication facilities 3 7 10 2 2 4

Other faci1ities·avajlab1e 2 6 8 1 3 4 Skilled manpower available 1 5 6 2 2 Absence of labour trouble 3 4 7 3 3

Cheap 1 and 6 2 8 ,- ' 1 3 4 Industrial estate

available 6 7 1 4 5

soaring costs of production there, an alternative site had to be

found. Many entrepreneurs, both Gujarati and otherwise (but

especially the former), selected Vadodara because this was a

developed area with less labour indiscipline and lower costs than

in most developed parts of Maharashtra.

Other than these I push I factors, important consideration has

been the access to raw materials. any of the units surveyed

o.btained the bulk of their inputs rom the IPCL or could obtain

their inputs locally. The availab lity of good transport and

communication facilities, other ur n amenities, skilled manpower

and land at relatively cheap rate were important factors.

269

For 60 per cent of the small-seal units surveyed, the most important

motivating factor was that the en repreneur was local. Other reasons

were that most raw materials req ired were available locally, and

that the firms were supplying th bulk of their output to local

industrial consumers.

Thus, at both the spontaneous 9 owth centres located in developed

areas, the most important motiv ting factors were that all the

necessary economic and social infrastructure was available,together

with manpower of various skill, and that access to raw materials

and markets was good. In both these centres, the prior existence

of industry has erable part in attracting industry

in the last decade. the location decision was made,

the advantages offered by the e developed areas outweighed the lack

of subsidies and incentives ere.

Induced Growth Centres

The motivating factors of firms in the fast-developing backward

locations of Aurangabad and Ankleshwar were quite different from the

270

responses obtained in the least developed unsuccessful growth centres

of Kudal and Godhra. The diffe ence was partly due to the

character of industry at the ce tres; smarl-scale units dominated

in the two latter centres.

Aurangabad Since the 1970s, ndustry has developed rapidly in

this growth centre. Prior to t is recent industrial growth,

Aurangabad was known only as a ourist centre. Local touristic

attractions assisted in the de lopment of facilities, such as

a good road network connecting uranga bad to Bombay and other

major cities, an airport facility, and urban amenities. The

establishment of the Marathwad University here meant that skilled

personnel were available locally. The restriction of industrial

growth in Bombay (and,more rec ntly, in Pune), together with the

promotioRal efforts of the Sta e Government institutions, assisted

the development of industry at this location.

The single most important moti ating factor for the large and

medium units 'surveyed was that expansion was not permitted in

Bombay or Pune. 70 per cent 0 the units gave this response, and

most of these were branches or subsidiaries of companies based

in Bombay or Pune. aining units, the most important

motivating factor was that thi location provided access to

markets in South and Central I dia. These factors, combined with

the availability of incentives and relatively cheap land, led to

TABLE VIII.2(a) MOTIVATING FACTORS IN THE SUCCESSFUL INDUCED GROWTH CENTRES -- AURANGABAD

;""otivating Factor Large & Medium Units Sma 11 -Sca Ie Uni ts Number of Respondents Stating Factor as

Most Im- Very Im- ImpoYT- . Total ·Most Im- Very Im- Impor- Total portant portant tant portant portant tant

Not permitted near Bombay 7 7

Nearness/access to Bombay 4 5 9 2 2

Loca 1 en trepre 4 4 Incentives available 5 0 4 4 Nearness/access to market 3 2 5 2 Nearness/access to raw

materials 3 3 1 1 Adequate transport

facil ities 4 3 7 1 3 4

Adequate communication facil ities 4 2 6 3 3

Other facilities available 4 4 3 3

Skilled manpower available 2 2 2 2 Lower wages 1 3 4 Cheap 1 and 9 1 10 4 4

Industrial estate available 3 3 6 2 2 4

Airport facility 4 4 8

the establishment of the units at Aur gabad. These two factors,

incentives and cheap land,made it pas ible for the companies to set

up units at lower fixed cost in Aura would have been

possible in more developed areas.

Though Aurangabad is not well-conne ted by rail .(there is only a

metre gauge connection), 70 per cen of the respondents considered

the transport and communication fa ilities satisfactory. The

road connections to Bombay and oth r places were adequate, so that

transporta tion was not a probl em. Hhat was more important for

units with head-offices in other was the existence of air-

links with Bombay and Delhi. s enabled senior executives of

the'companies to visit Aurangaba notice so that some

degree of 'management control' Since urban amenities

were fairly developed, the unit did not have to provide these

facilities for its employees. All these factors made Aurangabad

the best among the 'backward' ocations in Maharashtra.

All the small-scale units eyed were established here because

financla1 i ncenti ves were Thi s particul ar backward

location was selected becaus all the entrepreneurs were local.

Another important factor wa the poss i bi'l ity ~f marketing

products to other in the industrial estate.

Thus, the availability of ncentives and relatively cheap land,

combined with a fairly dev loped urban structure, have been the

most important factors co industrial growth in

Aurangabad. This was con idered the best location when expansion

in Bombay/Pune was not a lowed, and if a backward location was to

272

273

be selected in Maharashtra, so as to enefit from the incentives. 3

Ankleshwar '''' "''''~'''9G. bo.J., While industrial develo ment~gained momentum in the

mid. to late 1970s, growth of industry at Ankleshwar has been especia­

lly rapid in the 1980s. This centre as been developed as an

industrial complex for chemical and c emical-based industries.

Though Ankleshwar is a small town and has few urban facilities,

it lies on the national highway conn cting Bombay and Vadodara,

and is well-connected by road and rail to both cities.

The most impor:tant motivating factor for nearly half ~f the large

and medium units surveyed was the Ip sh ' from Bombay. Further

expansion was not permitted in and a ound Bombay, costs of produc­

tion had become prohibitively high, nd laoour trouble was

considerable. Since Bombay was the perational base for most of

these units, an alternative site had to be found near Bombay. In

Maharashtra, high incentive were all in relatively

remote areas whereas Bharuch distric , in Gujarat, was nearer

Bombay and was eligible for incentiv s. An additional attraction

for the chemical industry was

a chemicals complex.

kl eshwar had been designed as

These factors were considered impor nt by the majority of the

larger firms. The Gujarati origin f the entrepreneur was the

3. Of all the places designated as growth centres in Maharashtra, the three relatively developed owns were Nasik, Nagpur and Aurangabad, with the latter hav ng two advantages over the others. Firstly, it was located in a CI district, so that higher incentives were available. Sec ndly, industrial licences were often granted on the condition hat a CIS district was selected. Of the three CIS districts in M harashtra (under the old Central Government scheme), Aurangabad rovided the most urbanized location.

TABLE VIII.2(b) MOTIVATING FACTORS IN THE SUCCESSFUL INDUCED GROWTH CENTRES -- ANKLESHWAR

Motivating Factor Large & Medium Units Small ~cale Units Number of Respondents Stating Factor as

Most Im- Very Im- Impor- Total Most Im- Very Im- Impor- Total portant portant tant portant portant tant

I~ot permi tted near Bombay 5 5

Nearness/access to Bombay 5 3 8 2 3

Local entrepreneur 1 2 3 1

Incentives available 3 4 4 11 2 1 3

Nearness/access to market 2 2 Nearness/access to raw

material s 3 3 1 1

Adequate transport· facil ities 3 8 11 1 2 3

Adequate communication facilities

Other facilities available Skilled manpower available Absence of 1 a bour troubl e 2 2 4

Lower wages 1 2 3 -Cheap land 3 6 9 1 2 3

Industrial estate available 6 3 9 2 1 3

Chemical complex 2 6 8 1 1

N ....., ~

most important factor for only ne unit.

For small-scale units. the mas important factor for choosing this

location was the availability f incentives. All these units had

been set up by non-local entre reneurs, and all these entrepreneurs

had units in Bombay or Thane .. They had selected this location

because it was in a CIS distri t and near Bombay.

The main reason why such a la ge number of Bombay-based companies,

and especially pharmaceutical and chemical firms, have chosen to

expand their activities in An leshwar, rather than in Maharashtra,

is because this is the only c emicals industrial estate in a CIS

district near Bombay. (Roha, in Maharashtra, is also a growth

centre and chemicals complex near Bombay, but most plots there

have been booked, so that th re are few plots available.)

Chikhalthana estate in Auran abad was to have been developed as a

chemicals estate. If this h d been done, it may have affected

the development of Ankleshwa .

Industrial development in t e two successful induced growth centres

of Aurangabad and Ankleshwa may be largely attributed to the 'push'

from Bombay, combined with he availability of maximum financial

incentives and cheap land. lhese locations provide a dual

advantage to entrepreneurs -- the benefits of subsidies as well as

easy access to the requisi e facilities, inputs and markets.

Kudal Industrial growth in Kudal has not been successful. Kudal

is a village, where econom c facilities are few and poorly­

developed. The choice of udal as a growth centre was dictated

more by populist political considerations -- a growth centre was

275

TABLE VIII.3(a) MOTIVATING FACTORS IN THE UNSUCCESSFUL GROWTH CENTHES -- KUDAL

~~ot iva t i ng Factor Large & Medium Units Small-Scale Units

I~umber of Respondents Stating Factor as

Most Im- Very Im- Impor- Total Most Im- Very Im- Impor- Total portant portant tant portant portant tant

i~ot permi tted near Bombay 2 2

Local entrepreneur 2 2 2 10 12

Incentives a'vailable 3 3 10 2 12

Nearness/access to market 1 1 2 6 6

Nearness/access to raw material s 1 2 2 2

Adequate transport facilities 4 4

Adequate communication fac; 1 iti es 7 7

Other facilities available 5 5

Skilled manpower available

Abs.ence of" labour troubl e 6 6 .. Lower wages /l. 3 7 Cheap land '2 3 8 8

Industrial estate available 2 2 10 10

to be establ ished in the backward Konkan region -- than by expected

growth prospects. Little has bee done to make this an attractive

location for industry. The MIDC state was established in 1976 but

few plots were developed till rec ntly and, even today, most plots

are not developed because there i no demand.

There were only four large and me ium scale units, all of which were

surveyed. Half of these units we e expansions of Bombay-based

companies and had been persuaded 0 locate here by SICOM. Of the

other units, one was resource-bas d and the other was market­

oriented. An important considera ion for 50 per cent of these

units was that the entrepreneur w s from Kudal or nearby. The

availability of financial incenti es and cheap land were also

important ..

The most important motivations fo all the small-scale units to

select this location were that entrepreneurs were local (either

from Kudal itself or· nearby) and hat fir:lancial incentives were

available. 75 per cent of the en repreneurs had been working

outside Kudal, mainly in Bombay. When the subsidies were made

available, they decided to set up their own enterprise in their

homeland. Kudal was preferred to other locations in the region

because there was an industrial e so that developed plots,

and power and water connections, uld be available. The transport

and communications networks were 1so better compared to other

areas in the region.

Kudal was considered a goad centr 1 location for tapping markets

in the Konkan region, Goa and Kar a taka. For 50 per cent of the

277

units, lower wages and less la ur trouble than in the developed

areas were important factors. There were a few strikes some years

back, but there is little labou unionization even today.)

Godhra Though Godhra is less remote from the developed areas

than Kudal, industrial develoJl11 nt there has not fared any better.;

tiodhra is located about 80 kilo etres north of Vadodara, on the

ra i1 way 1 ine connecting Vadodar and Del hi. It is a town and

urban facil ities. though not ve y deve.loped, are considerably

superior to those· in Kuda 1.

There is no large-scale unit in Godhra; there is only one medium-: c .

scale unit. The most important motivating factor for units

surveyed at Godhra was that the entrepreneur was local and that

incentives were available. ~an of the entrepreneurs had taken

up occupations outside Godhra, stly in Vadodara and a few in

Bombay, and had set up their un ts with the assistance of the

subsidies provided. Fixed cost were relatively lower than in

the developed areas; especially cost of land and buildings

(because of the discriminatory ricing policy), and markets could

be reached in Vadodara, Panchma als district itself and in the

neighbouring districts of Madhy Pradesh.

Thus, at Kudal and Godhra, the vailability of incentives,

combined with local entrepreneu ship, has resulted in small-scale

industrial growth but, for reas ns discussed later, the development

process has not gained momentum

278

TABLE VIII.3(b) MOTIVATING FACTORS N THE UNSUCCESSFUL INDUCED

GRUWTH CE~TRES -- GODHRA

:~otivating Factor Numbe r of Respondents Stating Factor

Most Ir - Very Im- Impor- Iota 1 portan portant tant

i~earness/access to Vadodara ? 7 9

Local entrepreneur 9 5 14

Incent ives ava il a bl e 5 9 14

Nearness/access to market 5 5

Nearness/access to raw materials 1 1

Ade'quate transport facil ities - 4 7 11

Adequate communication facil ities

Other facilities available 5 5

Skilled manpower available

Absence of labour tro'ubl e 6 6

LO\Er wages 3 5 8

Cheap land 3 3 11

Industrial estate available 3 6 9

i~ote The single medium~scale u nit is included in the sma 11-scale responses.

lOcational Disadvan ages in Less Developed ~reas

as

At the time of site-selection, an entrepreneur weighs the advantages

and disadvantages of alternati~e locations. There are, however,

several operational problems \1hich remain unknown until the unit

279

, is establ ished. If theSe probl ms affect the whole location and,

hence, affect industry in 1, other firms may be dissuaded from

choosing such locations. its already operating at these

locations may be faced with clo if the problems are very severe;

this may provide an explanation the high rate of mortality in

the area. On the other hand, i is possible that the entrepreneurs

in the developed areas have an exaggerated view of the problems

faced in the less developed ar In order to ascertain the

gravity of the problem, entrep eneurs· perceptions were studied

in the spontaneous and induced growth centres.

Spontaneous Growth Centres

I

None of the respondents in the developed area centres of Pune and

Vadodara had any major complai ts about their present locations.

Due to the restrictions place on expansion in the developed areas,

many had already established nits in less developed areas or were

planning to do so. They were therefore, quite knowledgable

regarding the disadvantages 0 backward locations. Surprisingly,

there was little difference tween the responses of large and

small firms.

Of the large and medium scale ~nits surveyed at Pune and Vadodara,

40 per cent perceived the most important problem in the less

developed areas as the diffi ulty in obtaining skilled manpower,

and especially managerial pe The near-absence of urban

facilities is the main reaso which dissuades talented people

from working in backward are s, because their families would be

deprived of these amenities. Even if they can be persuaded to

280

TABLE VIII.4 DISADVANTAGES IN LESS DEVELOPED AREAS :..- PERCEPTIONS IN THE SPONTANEOUS GROWTH CENTRES

l) i sadvan tages Large & Medium Units Small-Scale Units i~umber of Respondents .Stating Disadvantage as

Most Im- Very Im- Impor- Total Most Im- Very Im- Impor- Total portant portant tant portant portant tant

Pune Shortage of skilled manpower 5 5 .,.. 10 1 3 4 Poor facil ities 2 5 3 10 1 4 5

Shortage of inputs 1 2 5 8 1 1 2

real costs 2 3 .. 4 4 Higher 'hidden ' costs 1 2 3 6 1 2 3

,Lack of management control 1 4 2 7

Poor market access 1 1 1 2 1 4 Vadodara Shortage of ski'll ed manpower 3 6 2 11 3 2 5

Poor facilities 6 5 11 3 1 4

Shortage of inputs 1 2 3 7 1 2 1 4 Higher real costs 2 2 4 1- . 2 3

Higher 'hidden ' costs 4 2 6 2 2

Lack of management control 3 4 8

Poor market access 1 3 4 1 3 1 5

N 00 -I

w:>rk in backward areas, they oft n leave at the first available

opportunity. Therefore, despite higher salaries and perquisites,

the lbestl people are rarely fou d for units in the less developed

areas. There is also a very hi h turnover of staft" at all levels

in these units, with resultant losses in plant productivity. In

order to tackle these problems, the larger firms include the

provision of medical, recreatio al and schooling facilities in

their estimation of costs for p ojects in backward areas.

The other major probl em is the ac k of adequate transport and

corrmunication facilities. is linked with the loss of

lmanagement control I because i becomes relatively difficult for

sen"ior executives from the hea office of the company to regul arl y

visit the unit and, often, eve to communicate at shor~ notice.

The usua"1 mode of travel "used top-level executives, by air,

is available in few backward a Even ot"her modes of transport,

and local transport facilities, are in~dequate. Telephones are

poor and telex facilities are sual Iy absent. Today, communications

are the lifeline of industry, nd delays caused by poor facilities

-result in financial losses.

Apart from these problems, re pondents felt that though subsidies

lower fixed costs, operating osts are higher in less developed

areas. 4 Transport costs are enerally higher, since most of the

4. The only financial data p ovided by all the surveyed units related to total investme t, turnover and loan capital. Data relating to costs (expenditure) and profits were provided by public limited companies. Even here, units which were not separate companies did n t provide complete financial data

" relating to the surveyed unit. Therefore, no analysis of cost or profitability va iations at different locations could be attempted.

282

marketing is through Bombay or nother large city, and the raw

materials are also transported rom developed to backward locations .

. Inventory costs are higher because larger stocks of spares and

essential inputs need to be maintained, since they are not easily

available in backward areas. here is a general lack of support I

personnel for repair and maint nance, so that full-time engine.ers

have to be retained by the uni , which represents an additional

cost. Though wages are slight y lower, units which are related to

larger companies based in the eve10ped areas have to pay similar

wage rates at all locations; his is ensured by the internal

company union. ing are al so higher in backward

areas. Added to these higher real costs are the Ihidden 1 costs

or daily problems such as abs nteeism and unpunctuality among

workers, high turnover of man ower, breakdowns and delays in

communications (which are imp rtant in view of the greater

distance from developed area delays in obtaining I:x:Jth vital and

minoi spares and other input These problems, which are not

faced in developed areas, 10 the general productivity of the

unit.

For small-scale units, the m st important problems were perceived

as the higher transportation costs for raw materials and products.

It was generally considered that operating costs are higher in

backward areas. For instan e, in developed areas, it was possible

forc'the small units to buy nputs locally from other small units

at lower costs; this was no possible in the less developed areas.

The lack of skilled personn 1 in backward areas was considered a

disadvantage by the small-s ale respondents as well .. Small units

283

are more susceptible (than la ge units) to losing their trained

workers to the larger units n arby.

The general opinion of respon ents in the developed area centres

284

was that, although incentives in· lowering fixed costs, subsidies

cannot compensate for the hig er operational costs and other daily

problems faced in the 1 essdev loped areas.

Induced Growth Centres

The major problems faced at al the four centres loc'ated in the

backward areas were related to non-availability of adequate

manpower at all 1 evel s, the 1 a k of the necessary transport and

communication facilities. whic made access to raw materials and

markets difficult, and inadequ te social amenities. The difference

between the centreslay·anly i the degree of,these shortages.

There were, hO\\ever, considera le differences of opinion, regarding

the locational problems, betwe n respondents from large and small

units.

Manpower For the large and m dium units, the greatest difficulty

related to the high turnover of staff at all levels. Since there

was a general shortage of skill d and managerial manpower, there

was great competition among fir s for the available personnel.

~iven a more lucrative job, whe her locally or in a developed

area, staff·switched jobs. Thi was true not only for workers,

who often left after completing their training, but even for

managers. Many of the managers in the larger units were non-local,

and were especially tempted by j b offers in developed areas. This

problem was acute in Aurangabad nd Ankleshwar, where a large number

TABLE VIII.5(a) DISADVANTAGES IN THE SUCCESSFUL INDUCEU GROWTH CENTRES -- AURANGABAD

ui sadvantage Large & Medium Units Small-Scale Units

i~umber of I{espondents Stating D1 sadvantage as

Most Im- Very Im- Impor-: Total Most Im- Very Im- Impor- Total portant portant tant portant JX)rtant tant

Shortage of skilled manpower 5 4 10 1 2 3

La bour trou bl e/a bsenteei sm 4 4 2 10 1 2 1 4

Poor transport facilities 3 3 1 , Poor commuRicatjon

faci' Hies 2 2 1 , Other facilities poor 5 3 8 1

Shortage of inputs, spares and components 2 3 1 2 3

Higher real costs 1 2 2

Higher'hidden' costs , - . 3 4 7 "

1 2

Poor market access .1 , 1 2 3

N OJ Ul

TABLE VIII.5(b) DISADVANTAGES IN THE SUCCESSFUL INDUCED GROWTH CENTRES -- ANKL~SHWAR

Disadvantage Large & Medium Units Small-Scal e Units

Number of Respondents Stating Di sadvantage as

Most Im- Very Im- Impor- Total Most Im- Very Im- Impor-portant portant tant portant portant tant

Shortage of skilled manpower 3 6 2 11 1 2

Labour trouble/absenteeism 2 4 2 8 1

oor transport facilities 3 1 9 1 2

Poor communication facilities 5 2 4

Other facilities poor 4 5 -9 2

Shortage of inputs, spares and components 1 6 7 2

Higher real costs 2 2 1

Higher 'hidden' costs 1 5 2 8 1

Poor market access 1 1

Power shortage ? 3 5 2 1

Total

3

1

3

2

2

2

1

1

1

3

N OJ 0)

TABLE VIII.6(a) DISADVANTAGES IN THE UNSUCCESSFUL INDUCED GROWTH CENTRES -- KUDAL

iJi sadvantage Large & Medium Units Small-Scale Units

Number of Respondents Stating D1 sadvantage as

Most Im- Very Im- Impor- Total -Most 1m- Very Im- Impor-portant portant tant· portant portant tant

Shortage of skilled manpower 2 3 ·4 2

Labour troubl e/absenteei sm 2 2 1 4 1

Poor transport facilities 2 2 4 6 4

Poor commun1cation faci lit ies I- 1 3 2 7

Other facilities poor 3 1 4 2

Shortage of inputs, spares and components 1 2 3 5 4 2

Higher real costs 1 2 3

Higher 'hidden' costs 1 - 1 2 2

Poor market access 1 1 4 5

Water shortage 1 1 3 4

Total

6

6

10

9

2

11

5

2

9

7

N 0:: .....,

TABLE VIII.6(b) DISADVANTAGES IN THE UNSUCCE$SfUL INDUCED

GROWTH C NTRES -- ~ODHRA

Ji sadvantage Number of Re s nd ents Stating Disadvantage as

Most Im- er y Im- Impor- Total portant rtant tant

Shortage of skilled manpower 3 2 5

labour trouble/absent-eeism 2 4 6

Poor transport facilities 2 2

Poor communication facil ities 2 5 1 8

Other facilities poor :3 4 7

Shortage of inputs,spares " and components 2 2 1 5

... .. . Higher real costs 1 6 7

Higher 'hidden ' costs 2 6

Poor market access 4 9

Power shortage 5 .1 9

Water shortage 2 3 j 8

Communal trouble 3 4 2 9

of units have been established.

Another complaint was that absenteeism is high and labour is

indiscipl ined, unpunctual and disloyal. ~Jhi e there was 1 ittle

labour trouble in the Gujarat centres, this s considered a major

problem in Aurangabad and, to a smaller exte in Kudal. In both

places, a few years back, many units were clo ed due to strikes or

288

lock-Juts. The main reason for abour disputes is that local labour

in the less developed areas is xpected to be docile and malleable,

lnd wages are assumed to be in the develo!'ed centres. It

is also expected that, since th re are relatively few industrial

units, labour would be loyal. All these expectations have been

belied. Hitl1 the growth of tr de unionism in Maharashtra, W'Jrkers

in backward areas expect wage similar to those offered in the

established industrial centre. Even so, the average wage rate in

Aurangabad is lower than tha in Pune. 5 It was observed that units

1.n the backward areas {espec ally small-scale units) have a labour

cost advantage; ·average wage rates show a clearly decl ining trend

from the developed to the ckward area centres. Un the whole,

due to greater trade union ctivities in Maharashtra, wage rates

in the survey centres in t State were higher than those in the

Gujarat centres.

Shortage of the required. npow~r was considered a problem mainly

by respondents in the two successful induced growth centres. On

the whole, since relative y little skilled labour was required by

small-scale units; this s not as serious a problem for these

units. the small-scale sector in

Aurangabad and Kudal co plained of experiencing labour trouble,

it was found that they to dismiss the striking

workers without much di

Transport The respo ses of large and small units were similar

in thi s regard. were considered inadequate

5. See Appendix Tabl VIII.3(k).

289

mainly in Ankleshwar and Kudal. A kleshwar had a local transporta­

tion problem, whereas Kudal ' 5 unit had a probl em transporting goods

to and from Kuda 1 •

There are few buses plying- within the Ankleshwar industria'1 estate

and many units have had to provid company transport for their

employees. Due to the near-abse ce of 50c;al amenities here, Many

employees reside at Bharuch, and a few even at Vadodara, and commute

dail.y to Ankleshwar by train, so that punctuality cannot be ensured.

This is an example of the daily problems faced in backward areas

because of inadequate infrastru tural development.

Transport was the most major pr bl em in Kuda 1. Though Kudal is

located on the national highwa from Bombay to Goa, it is an inter-

mediate stop for buses and tru ks plying the route. There is no .' . -.. , '. '"

railway line nearby and the n rest airport is at Panjim, 200

kilometres away. This is a r mote location at the southernmost

tip of Maharashtra, and it cut off from the mainland by the

Western Ghats. Therefore, h transport rates are charged, es~ec-

ially because only one mode f transport, road transport, is

available. Since Bombay is

most units, transport costs

source of inouts and markets for

high. 6

Communications communica ions were a major problem in all the

centres, witn the exception of Aurangabad. This was the only

survey centre which had dir ct dialling facilities for local and

out-station calls, and tel x facilities. At the other centres,

J. this problem becomes m re acute in the mango season, when it becomes very difficul to obtain transportation to Bombay, and exorbitant rates are harged by transporters.

290

telephones were manually operate, trunk calls were difficult to

obtain and telex facilities were absent.

The lack of adequate communicat on facilities was a more acute

problem for the larger units be ause they found it difficult to"

communicate with the parent co pany based elsew~ere. The small -' ,

scale respondents, on the othe hand, considered the communica"tion

facilities mOre or less adequa e.

Urban Ameni ties The lack 0 urban facilities of the quality

available in large cities was considered a negative factor by

respondents in the large and edium units. This was mainly

because these units employed non-local managers, who perceived

local amenities as inadequat In fact, facil ities in Auran~abad,

though n~~ a~" SO~h"ist;cated as those ava i1 a b1 e in .~.mba~Y.?r pune.~

were fairly developed. Ho ver, most senior employees, habituated

to 'big-city' standards, we e not satisfied with the facilities

available. This is the rna n reason why units in the less developed

areas find it difficult to obtain people at the senior level s.Uf

the four backward area ce tres, Kuda1 had the least developed 'urban

facil ities. This has pro ed, and will continue to prove, a major

detracting factor for non-local entrepreneurs and managers.

The small-scale responde ts at all the centres considered the local

amenities quite adequate.

Raw Materials and Marke ing '1arketi ng di d not const; tute a

problem for the'larger nits because they had well-established

markets. ,". common com aint was that inputs had to be brought

from the developed are This not only involved higher costs,

291

292

but often resulted in lower capacity utnization because of the

delays involved. Ihe alternative was to maintain higher inventories, .

which again resulted in higher costs. Thus, even for the large and

medium units, repair and maintenance constituted problems.

For small units, especially in Kudal, procuring raw material sand,

marketing their output were both problems. This was mainly because

these units attempted to market their products in the developed

centres, from where they also obtained the bulk of their in~uts.

While inputs were more expensive in the backward areas, the

products of small towns were regarded as inferior by buyers in the

developed areas, so that goods had to be sold at relatively low

rates. It was found tMt only entrepreneurs with contacts in the

developed areas, or with marketin<] offices there, were successful.

. ". ..... '. . '.. -- .....

Costs of Production It seemed that total costs were generally

lower in the less developed areas, at least for large firms, but

I hidden I costs outweighed the real cost advantage. 1·'hile few large

and medium units complained of higher total costs in the backward

areas, many of the small-scale respondents felt that their opera­

ting costs WDuld have been lower in the developed centres.

Loca 1 Probl ems Apart from the general problems faced by units in

all the four induced growth centres, there were local difficulties,

espeGially in the unsuccessful growth centres.

Though power shortage is a general prOblem in Gujarat, industry in

backward areas is guaranteed fe\\er power cuts.i-bwever, of all the

Gujarat centres surveyed, the largest number of complaints

.',

regarding power cuts and fluctuations were received in Godhra.

Another local prOblem in Godhra was communal trouble and this is a

recurring problem in this area. Additional difficultie,s in Kudal

and Godhra are that the industrial estates are not as fully equipped

as they are supposed to be. For example, there are inadequate fire­

fighting facilities and water supplies are poor.

These were the major problems faced by the units surveyed in the

backward area centres. there are a whole host of day-to-day

operational difficulties,',which individually appear to be minor but,

when compounded, are likely to dissuade potential entrepreneurs

from choosing such locations. Many conditions, whose im~ortance

is bverlooked in developed areas because their existence is assured,

pose major hurdles in backward regions. Entrepreneurs are faced

293

' ... "wfthJt\on o\Jt1uns··;:'·~tre,·' to .. ~ ocate--tlhi ts tn ·a····develrrpe<1 'area ,·where··' .--.

requisite facilities are available, but subsidies are not and, two,

to locate units in backward areas where financial subsidies are

available but facilities are poor. Though many entrepreneurs prefer

the former type of location, it has become increasingly difficult

to exercise this option in view of the government policy regarding

industrial expansion in developed regions. This is one reason why

backward areas which are near urban agglomerations, or VJhich have

easy access to such places, are attracting more industry than

relatively remote areas; the former represent a locational

compromise for the entrepreneur.

Impact of Government Intervention

Role of Government Incentives

All the units surveyed in the backward area centres had availed of

incentives. In Aurangabad and Kudal,all the units surveyed had

been set up with assistance from either SICOM or the MSFC. In

Ankleshwar and Godhra, the units had received assistance from the

GIIC or GSFC. Apart from this concessional assistance, the Central

Government incentives had been utilized. The main State Government

incentives utilized in both the States were those relating'to sales

tax. !'Jith the exception of Aurangabad, units at the other centres , 7 were exempted from payment of octroi duty.

If incentives had not been available in the backward areas, very

294

.,.' fe'w 'of the'tih itS''SIlf'v:eye"d' \'l)uld" ha~ been- e'Sta bl+shed 'at their ,. ...• """,",

present locations. Most of the large and medium units, and many of

the sman-scale units, would not have been set up in a backward area;

the locations selected \\Ould have been around industrially developed

centres. ~10st of the sma ll-sca 1 e units \\QuI d not have been set up

at all, either in backward or developed regions.

In this context, it may be noted that one of the effects of providing

subsidies to industry in backward areas has been to raise the

borrowed capital in the units. S There was a significant difference

in the debt ratios (measured as the ratio of loan capital to total

7. In 1982, the Chikhalthana industrial estate was included in the Auranagabad Munici pa 1 Corporation 1 imits, so that property taxes and octroi duty are now levied on the industrial units.

8. See Appendix Table VIII.3(h).

TABLE VIII.7 CHOICE OF LOCATIUN WITHOUT INCENTIVES

Location Preferred Number of Respondents Located at

Aurangabad Ankl eshwar Kudal

LSI & SSI LSI & SSI LSI & SSI

Present Location

De ve loped Area

No Unit

Total

Notes 1. LSI MSI SSI

r~SI MSI

2 1

8 1 10

3

.10 4 11

Large Scale Industry Medium Scale Industry Small Scale Industry

MSI

3

3 4 2

7

3 4 12

Godhra SSI

2

5

7

14

2. One medium-scale unit in Godhra is included in the 551 category .

295

.................. ......... , ............. ,.. .............. -'.: ..•• ·t .. ···: -., ......•. - .............. - •.. ~"'.~ .• , .... -.~ •. -.

capital employed) between units in the developed and backward area

centres. In·Pune and Vadodara, there were very few large and

medium units in which lcaan capital formed more than half:the total

capital. In Aurangabad and Ankleshwar, most of the units surveyed

had debt ratios exceeding 50 per cent. In Kudal and Godhra, where

small units dominated, the majority of units were in the higher

debt ranges. These results show that industry in the backward

areas, benefiting from subsidies, requires less lown l or equity

capital than units set up in the developed regions.

Even so, there was a mixed response as to whether locational

disadvantages in the backward areas were offset by the subsidies

offered.

TABLE VIII.8 INCENTIVES VERSUS LOCATIONAL DISADVANTAGES OF

BACKWARD AREAS

:<esponses Number of Respondents Located at Favouri ng-Incentives Pune Vadodara Aurangabad Ankl eshwar Kudal Godhra

LSI & MSI 3 5 4 1 1

SSI 2 2 2 8 9

In the two spontaneous growth centres, only one-third of the respon­

dents felt that the incentives provided in the backward areas were

adequate compensat ion for the probl ems faced there. In Pune, one­

third of the larger units and 40 per cent of the s~all-scale units

gave favourable responses in support of the incentives. J,n • ... • .... - .... .., ,;.. ".... I ........ : .""' .... 0"" "Jr~ .. "",,,. ...... ...... .. '.. ...... -t' . • -' •• ". • -.oj. ."

Vadodara, abo.ut half of the respondents from th~ large and medium

units felt this way, but the small-scale respondents were unanimous

in declaring that subsidies could not compensate for the problems

in backward regions.

In the induced growth centres, there was a difference between the

responses from units in the successful and unsuccessful growth

centres, largely due to the dominance of local entrepreneurs in

the latter two centres. Thus, in Aurangabad and Ankleshwar, there

were few responses favouring the incentives whereas the majority of

respondents in Kudal and Godhra felt that the incentives were

adequate compensation for local difficulties.

Induced Industrial Development in the Less Developed Areas

Despite all the problems and drawbacks of backward locations, a

296

297

large number of industrial units are being set up in these areas, and

there is a definite shift of industry from developed to backward

regions.

TABLE VIII.9 DISTRIBUTION OF SURVEYED UNITS WHICH REPRESENTED

EXPANSION/DIVERSIFICATION ACTIVITIES

Parent Company Number of Respondents located at Location

Pune Vadodara Aurangabad Ankleshwar Kudal

LSI '& MSI

Bombay 1 4 5 8 2

Deve loped Area: ~Jithin State ")

'-Outside State 1 3

Same Loca tion 4 Percent of

Godhra

1

, - " • Total Un'; ts . " 50. ')0 ' 45.45 100:00 -ao. 1)0 _.' SCT". 00 . 100 :00'

SSI Bombay ?

Deve loped Area: I~ithin State 1 Outside State

Same Location 1

Percent of Total Un; ts 20.00 20.00 100. ')0 7.69

A major impact of location policy on industrial development of the backward areas has been that companies based in the deyeloped areas

are selecting backward locations for their expansion/diversification

activities. As observed earlier, over 70 per cent of the units

surveyed at Aurangabad and Ankleshwar were branches or subsidiaries

of companies based in developed areas, chiefly in Bombay~ The

majority of these were large or medium scale units,. Since most

units in the unsuccessful growth centres were small-scale units,

these centres had very f.ew units representing expansions of firms

based elsewhere.

This suggests that growth centres in backward areas have b~en

successful in achieving rapid industrial growth only when they have

been able to attract industry away from the developed centres. It

appears that a process of sustained industrial development cannot

be based on local entrepreneurship and small-scale industrial

growth. When large companies set up units in backward areas, they

often purchase large plots of land at the selected location with

a view to expanding their activities at the same location. Ihis

. -'pro'1i"cfes farther' imp'etll~ -to:'i ncWstrfa1"gr'owtti :-i'n the"'region-: .

Location Preference for Expansion Activities Though all the

units in the two spontaneous growth centres preferred their present

locations, most of the large and medium units, and some small units,

had expanded or planned to expand in the less developed regions.

This decision was influenced by the restrictions placed on

industrial expansion at their present locations and by the

relatively high costs of land, or the non-3vailability of land,

there. Even so, the majority of respondents sel ected such backward

areas as were near their present locations (preferably within

commutable distance) or which provided oood access to other

developed centres. Pune firms 0enerally oDted for expansion in the

Group 'e l and IDI talukas of the neighbouring districts, especially

Satara and Ahmednagar. Vadodara firms preferred the neighbouring

293

TABLE VIII.l0(a) LOCATION PREFERENCE FOR EXPANSION SPONTANEOUS

GROVTH CENTRES

Location Preference for Expansion

Location Preferred

Present Location

Total

Locatio.n Selected

Present Location

. Backward Area . . Nearby Near Other Developed

Area

. Other.~~Jsward Ar~a.

Total

Number of Respondents Located at

Pune Vadodara

LSI & MSI SSI LSI & M~I SSI

10 5 11 5

10 5 11 . 5

4 2 2 4

3 3 1

1

t .. '" .;,. 1 .. t."t •

10 5 11 5

backward districts of Bharuch and Pancl1nahal s (which had a dual

advantage of being eligible for subsidies and being near a developed

area). There were very few firms which were planning to locate

their future activities in relatively remote areas, and all these

were large companies with assets exceeding Rs. 10 crores.

Many of the units surveyed in the four induced growth centres

located in the backward districts planned to expand at the'ir

present locations. This was because, since the company had already

expanded at the present backward location, it was more economical

299

TABLE VIII.10(b) LOCATION PREFERENCE FOR EXPANSION INDUCED

GROWTH CENTRES

Loca t ion Preference Number of ResfX)ndents Located at for Expansion

Aurangabad Ankleshwar Kuda1

LSI & SSI LSI IX SSI LSI & SSI MSI MSI MSI

location Preferred

Present Location 3 4: t 2 9

Developed Area Within State 3 3 1 1 3

Any 4 6 2

Total 10 4 11 3 4 12

Location Selected . . -...... .... ' .

Present Loca tion 8 4 10 2 3 10

Deve loped Area 1 2

Backward Area: :~ear ueveloped

Area 2 1

Other

Tota I 10 4 11 3 4 12

Godhra ,

SSI

8

2

4

14

" i>". ".-12

1

1

14

to "locate future activities at the same locatlon, rather than

selecting an9ther backward region. \lJhile roost of the units surveyed

in Aurangabad and Ank1eshwar would have preferred being located in

or around developed centres, few entrepreneurs at Kudal and Godhra

regretted their present choice of location.

300

This induced industrial development in the less developed regions has

benefited the local population by providing greater employment oppor­

tunities and by promoting the development of entrepreneurial skills.

Employment Genera ti on Over 75 per cent of the labour used in all

the survey centres was local. Public transport in the backward are~s

being poor, workers who stay within cycling or walking distance of

the factory are given preference in employment, so that the unit does

not have to provide transport. ~~oreover, it is more economical for

the units to import a few skilled workers and train the local labour

as required, rather than to import all the skilled labour. Therefore,

the non-local element of labour in all the centres was usually

labour with some specialized skills which were not locally available.

The difference between the growth centres in developed and backward " '

301

". ';' So.... '.' _'. ~ ". ,,"

areas is clearly brought out in the urban-rural composition of the

workers. In Pune, nearly all the units surveyed had wholly urban

labour. In Vadodara, too, 60 per cent of units employed only urban

labour and some units reported a small percentage of semi-urban and

rural workers. In the, four backward area centres, on the other hand,

nearly all the unfts employed wholly rural labour from the surrounding

villages. In most cases, the few urban-based \'X)rkers were non-local

and had been transferred to the unit from the parent company.

It appears that the development of industry has generated considerable

direct employment 1.n the backward areas. \·!hile the absence of an

industrial culture has resulted in several problems relating to the

use of local rural labour as discussed earlier, it must be remembered

that this labour r~presents only the first generation of industrial

. ~ . I

302

TABLE VII I. 11 DISTRIBUTION OF UNITS BY RACE OF ORIGIN OF HORKERS

Place of Origin Number of Respondents Located at

Pune Vadodara Aurangabad Ankleshwar Kuda1 Godhra

Loca 1 Labour

100 % 14 14 6 2 12 11

75 % to 100 % 1 1 8 9 4 3

Less than 75 % 1 3

"lota1 15 16 14 14 16 14

Urban-Based

100 % 13 9

75 % to 100 % 2 4

Less than 75 % 3 14 14 16" 14

Tota I 15 16 14 14 16 14

-4', "' •••• :~ • ~. .':.~ .. ¥." . ," - .. ,- ., "TABLE VIII.12 DISTRIBUTION OF UNITS ~Y PLACE OF URIGIN OF ENTREPRENEUR

Place of Origin Number of Res pmdent s Located at

Pune Vadodara Aurangabad Ankleshwar Kudal Godhra

Local 11 5 5 1 14 10

Within State 2 3 6 1 2 ') ~

Outside State 2 8 3 12 ?

Total 15 i6 14 14 16 14

labbur in these areas. One of the features of industrial development

is that labour becomes wholly dependent on its industrial income

because ties with land are more or less severed. This is one of the

303

characteristics of labour in relatively established industrial centres

which is absent in newly developing areas. Here, many workers have

their own farms, so that their industrial earnings only supplement

their income from agricultural sources.

Entrepreneurship Development The pattern of the place of origin Qf

the entrepreneurs was quite different in each of the centres. In Pune,

60 per cent of the entrepreneurs of the surveyed units were from Pune

itself. riany represented a second generation of entrepreneurs; the

first generation had migrated from other parts of the State and had

settled down with Pune as the operational base. In "Vadodara, only

about 30 per cent of the entrepreneurs were local (mainly of the

small "units) whereas the majority were from places outside "Gujarat;

about half of them had subsequently settled in Vadodara.

• ..... . ~, ... " ... I . ..... <1; •• #0 •• ' • • '- .&, •

In the backward area centres, there was a sharp difference in the

place of origin of entrepreneurs between large and small units. The

former were usually established by non-local entrepreneurs whereas

the latter were set up by local entrepreneurs using the advantage

provided by the government subsidies. Therefore, most of the

induced industrial development in Aurangabad and Anklesh~r was

characterized by non-local entrepreneurship. In Kudal and Godhra·,

due to the dominance of small-scale units, most of the units surveyed

had been promoted by local entrepreneurs. :1anyof these entrepreneurs

had served in companies in the developed areas, mainly in Bombay and

Vadodara (for the Kudal and Godhra units respectively), and returned

to their home towns to establish their own concerns when the subSidies

were made available. As observed earlier, many of them may not have

become entrepreneurs without the incentives.

r

Thus, the provision of financial incentives is promoting industrial

growth and entrepreneurshi p develo(l11ent in the 1 ess developed areas.

This induced develoJ?lT1ent has, in turn, resulted in the provision of

greater employment opportunities and incomes to the local population

and has, therefore, helped in stemming the out-migration of labour

(especially skilled manpower) from the backward regions to the

metropo1ises. 9 ,

There is, ho~ver. another not-so-bright side to the picture. Increased

incomes are restricted to a small fraction of the ·1 oca 1 popul ation

whereas the greater demand for items of daily consumption has

escalated prices and rents. Iherefore, the standards of living of the

local 'popu1ation as a whole have not necessarily improved. Though

transport and communication facilities have deve1o~ed, the availability

"of amentti e-s, 'such 'as"'sChools; medical fad 1 tti es and recreati0l1a-1- ~ ..

facilities, is largely unchanged as far as the local people are

concerned. The larger companies provide such amenities only for

their own staff, and most public amenities are developed for the

industrial estates. On the whole, however, as industrialization

gathers momentum and becomes a' sustained process, it is expected to

bring about overall development of the region.

An Appraisal of Industrial Location Policies

The view of the majority of respondents at all the centres surveyed

9. For example, some entrepreneurs in Kudal had set up units using their technical qualifications instead of migrating to Bombay in search of suitable employment. The Konkan region has been the main source of industrial labour in Bombav for a lona time. Thouqh, even now, a part of regional income is derived from remittances," the proportion of locally generated income has increased.

305

was that incentives and subsidies need to be supplemented by infra­

structural facilities in order to promote industry in the less developed

areas. The consensus was that infrastructure in the backward areas

should be developed before attempts were mad~ to. induce industry there.

Without this prior development, entrepreneurs are reluctant to set un

units in the backward areas. Another general opinion of the res!19n-

dents was that only very large firms could be successful in these

areas. The argument was based on the concept of economies of scale

and may be summed up as follows.

,

Since external economies are not available in the less developed areas,

only large firms whose size would permit I internal ization of externa-

l ities·' are 1 ikely to be successful in such areas. These firms can

provide their own support infrastructure, if the necessary facilities

are 1nadequate:; 'and can'butl'd' other 'amentt'ies as·'reqtJiretl.- 'They face

fewer problems in obtaining skilled people, even in the backward

areas. They a~e also capable of genuinely assisting the development of

these areas by inducing ancillary growth of intermediate, consumer

and service industries. For instance, in the hope of inducing a

'snowballing' effect, SICOM persuaded two Bombay-based comnanies to

set up units at Kudal. These two units were not directly helnful for

industrial growth in the region because they did not require ancilla~

rization. Indirectly, however, they had a beneficial effect on

Kudal IS development. The establishment of these large units led to

an improvement in the availability of transportation; some transport

carriers set up local Qffices. The telephone system improved and a

telex facility was promised. There was an improvement in the local

availability of schooling and medical facilities, as well as of

306

consumer goods. All this development was mainly due to the demand

generated by the two large units, combined with their ability to apply

sufficient pressure on the local and State Governments to pUSh

through the demands.

On the other hand, attempts to induce small-scale industrial growth:

in very remote and backward areas have only resulted in a large number

of 'sick' units. The unsuccessful growth centres of Kudal and Godhra

have failed to attract industries away from the developed areas and

are characterized by high mortality rates among the small-scale units.

Such units cannot compensate for the lack of agglomeration economies

in backward areas by generating internal economies of scale. Therefore,

in the case of small units, the only feasible back\~rd area locations

are those which have easy access to i ndustri al centres .. 1.\.1 terna tivel v,

"'small ~scal--e' un·its tn .... the backward 'areas"should be set un as ancillarles

to large-scale units, so that they have an assured market nearby.

On the wnole, Aurangabad and Ankleshwar have been successful largely

because they have easy access to raw materials, markets and other

developed facilities. Kydal and Godhra, on the other hand, are

examples of the failure of a location policy which attempts to induce

industrial development in remote, backward areas without taking the

practical problems and diseconomies into account.

At both the latter two centres, more than half of the units were

either closed or on the verge of closure. When the incentive schemes

were provided, many local people decided to avail of this opportunity

to set up their own business. There was little financial planning

undertaken to assess the feasibility of the nroject, either by the

entrepreneur or by the State Government promotional agency. The

government institutions, in their enthusiasm to promote industry in

these backward areas, and perhaps to satisfy certain targets,

sanctioned the term loan assistance. The commercial banks were more

cautious, and disbursements of the working capital loan took more

time. In some cases, the bank considered the project unviahle and

the loan was not sanctioned. Many units, therefore, became 'sick'

even before (or soon after) they started production.

This represents a major lacuna in the currently operative incentive

schemes; there is little point in providing subsidies for fixed

capital with no provision for meeting working capital requirements.

In fact, there are several drawbacks in the implementation of the

location policy for industrial development of the backward areas,

'manY'of'which prove especially fatal fot" small.;.scale'uriits: ··For"·

instance, the Capital Investment Subsidy is provided to the entre­

preneur in the form. of a loan by the State Government institutions

until it is reimbursed by the Central Government. After six

months, interest is charged, which effectively reduces the quantum

of subsidy if the reimbursement is delayed. Apart from such

problems, which relate to procedural delays, and the absence of

working capital subsidies, there is li:ttle real assistance provided

for procuring raw materials, or for marketing, and there is

inadequate provision for technical and financial guidance.

These problems need to be resolved in vi ew of the stress 1 aid on the

role of the small-scale sector in India's development. The idea

should be to promote successful units in areas other than the

existing industrial agglomerations, and not to pay lip-service to

307

308

the objective of regional development by merely providing subsidies

and ignoring other requirements. It appears that political consider­

ations have been allowed to over-ride economic criteria too often;

Kudal and Godhra are examples of the undesirable consequences. The

industrial potential of each location should be assessed before

promoting industrial growth; this is rarely the procedure fonoweo

in practice. In fact, a major drawback of industrial location pol icy

is that there have been few attempts to attract such industries to

the less developed areas as are capable of inducing ancillary

growth. Such a policy is supported by a case such as Ankleshwar

which, to a large extent,hasbeen"successful because of its develop­

ment as an industrial complex, and inspite of local inadequacies in

infrastructural facilities.

"'Definite' regional"patterns of industrial fbcation< a're "eMerging both'

in Maharashtra and in Gujarat. Industry is developing along

corridors provided by the major roads and railway lines, and radhting

outwards from Bombay. Thus, the mai.n industrial belts emerging are:

(i) Bombay-Pune-Ahmednagar-Aurangabad, (ii) Bombay-Nasik-Aurangabad,

and (iii) Bombay-Pune-Satara, in Maharashtra and, in GujaY'at,

Bombay-Vadodara-Ahmedabad. Other than this overall 'corridor'

development, industry is developing in a concentric or radial pattern

around smaller nodes or foci provided by other industrial agglomera­

tions. Thus, while industry continues to develop around Bombay, as

far as permitted, industry is also developing in the hinterlands of

Pune and Vadodara, as well as around Surat, Nasik and Nagpur. It

appears that, as industrial development proceeds in the ne\,,rer

industrial centres, such as Aurangabad and Anklesh~mr, these rylaces,

309

in turn, would act as foci for industrial.growth.10

Lessons may be drawn~from these experiences of Maharashtra and

Gujarat, regarding the regional pattern of induced industrial

development, and these may be incorrorated into industr-ial location

pol icy.

Concluding Remarks

The field survey identified the major factors motivating industrial

locatfon in the developed and backward areas and provided insights

relating to the role of government policy and policy instrtJllents in

the spread of industry away from industrial agglomerations.

It may be concluded that much of the industrial development taking

place i:1 hitherto industrially back\'Iard areas \\Ould not have occurred . . ~ ... - . ~,.... ..... '. . +, . . ..•. . ".'! . .. .

without active government intervention. Though natural deg10merating

focces, such as exorbitant land prices in the developed areas, have

induced industry to seek alternative locations, the negative and

positive industrial location JDlicies of the Central and State

Governments have catalysed the- process of industrial dispersal.

It is clear, however, that while subsidi'es are necessary for attract-

ing industry to the less developed regions, they are not sufficient.

The district-l evel causal analysis had shown that industrial develop­

ment in a region is influenced by a combination of factors including

the prior existence of industry in the region, the availability of

transport, power and social amenities, financial incentives and

10. The regional patterns of industrial development emerglng in Maharashtra and Gujarat may be observed from Map VIII.l.

industrial credit. The results of the field study corroborate these

findings.

Incentives have proved successful in attracting industry only where

they have been available in conjunction with the facilities required

by industry, such as transport and communications, access to rav.J

materials and markets, and adequate skilled and technical manpower.

Since developed areas provide all these fac i1 iti es, the backwarrl

locations which are emerging as new industrial regions are those

which are relatively near developed centres, or have easy access to

such areas. As long as such locations are 'available to industry,

and are eligible for subsidies, regions which are relatively remote

from industrial agglomerations are unlikely to attract industry. In

fact, attempts to induce industrial growth in very backward areas

- have often resulted in' a large number 'of sick or closed- units. This"

represe~t.s a loss to the national treasury, because the majorit'y of

industrial investments in the less developed areas are based on

public funds, in the form of subsidies or subsidized loans.

310

Thus, in order to optimize resource-use ,over time and space, industrial

location. pol icy should envisage a gradual spread of development from

the existing industrial concentrations to areas of intermedi3te levels

of development. At the present time, in the very remote and bachJard

regions, efforts should primarily be directed towards the development

of ,basic economic and social amenities, rather than towards the

development of industrial agglomerations.

APPENDIX VIII.1 INFORMATION RE0UIRED FROM THE UNITS SURVEYED

1. Background of the Firm:

a. General history of the project

b. Date of commencement of production

c. Type of ownership

d. (ype of product and broad industry group

2. Financial data relating to investment, loans, cost (expenditure),

turnover and profits.

311

3. Employment data relating to employees in different skill categories

and average wages/salaries in each cate,9ory.

4. Place of origin of entrepreneurs and employees.

5. Hhether the unit was a branch/subsidiary; if so, where the parent

company was located.

.. "'6.' Resource""Jrientation ·of·the firm:" .' ..

7.' :larket-orientation and market areas of the firm.

8. Motivating factors influencing choice of location, classified as

'Most Important', 'Very Important', 'Imoortant J and 'Not Imoortant I.

9. Probl ems faced at .present location, classified into theatxwe

four categories.

10. Location preferred, and expansion plans.

11. Utilization of incentives, and importance of incentives in choice

of location.

12. !"hether incentives compensate for disadvantages.

13. Opinions regarding government policy for developing backward areas

and the impact of induced industrial gro\'1th on the development of

backward.areas.

312

APPENDIX VIII.2 CRITERIA FOR SELECTION OF THE UNITS SURVEYED

Location of the Surveyed Units In all the selected centres, the

greatest industrial concentrations are in the industrial estates set

up outside city limits by the State Industrial Development Coroorations.

Thus, the majority of units surveyed were located in these estates. ;

In Pune, 75 per ~ent of units were in the' Pimpri-Chinchwad-Bhosari

estates. In Vadodara, 30 per cent of the surveyed units were located

in the Makarpura and Nandesari industrial estates. In Aurangabad

and Ankles~wart all the units surveyed were lpcated in the industrial

estates. In Kudal and Godhra, many of the larger units were located

outside the estates. This was especially so in Godhra, where the

industrial estate catered only to the requirements of small units.

All the larger units outside the estates were covered,but the

" . majority of -surveyed' units were in -ttTt~'estates in both th~se'centres-'

as well.

Size The selected units were to cover large, medium and small

scale sectors in order to ascertain whether there was a significant

difference with regard to employment, motivating factors, and so on,

depending on the size of the unit. Since large industry was

considered to be a better catalyst for industrial development of

backward areas than small-scal'e i ndustr,\I, the sel ection \A./as biased

to~erds relatively large units. Although the attempt was to select

an equal number of units in each size category, this was not possible

at all the centres. In three centres -- Pune, Vadodara and Anklesh-

war -- nearly an equal number of units were covered in each size

category. In Aurangabad, only two large units could be surveyed, but

the large and medium units together accounted for two-thirds of the

313

total units surveyed. There were very few large and medium units in

Kuda 1 and Godhra •. ,Though a 11 these un its were covered, the majority

of units surveyed belonged to the small-scale sector.

Age In attempting to include the relatively larger units at each

centre, it was not always possible to satisfy the lage l criteria. Th~re

were two criteria relating to the age of the unit. Firstly, since the

Central Government identified backward districts/areas in 1970-71, the

units selected were to be those which commenced production after

1970-71. Secondly, it was felt that the units selected should have

been in production for at least five years prior to the survey period

(1985), so that initial Iteething l troubles had been resolved. n was found, however, that most of the larger units at Ankleshwar, Kudal

and Godhra had been established less than five years earlier because

,'~ these three -growth centres "were ·rela ~i vely n-ew~' -, In the -developed _. "

I~ontrol I centres the majority of large and medium units had been set

up in the 1960s and early 1970s. Therefore, most of the units

surveyed at Pune and Vadodara were over ten years old.

Type of Industry lhe survey attempted to cover units belonging to

similar industry groups at all the Centres, but the selection of

units was biased towards the dominant industrial categories at each

centre. Pune1s industrial structure was dominated by the machinery

and components industries, and especially by the automobile industry.

Vadodara had'a mix of engineering and chemicals industries; Makarpura

is an engineering industrial complex and Nandesari is a chemical s

complex, as is Ankleshwar. Aurangabad1s industrial comoosition ~as

dominated by the machinery industry and, in Kudal and Godhra, a wide

range of goods was produced due to the dominance of small units.

APPENDIX VII 1.3 DATA RELATING TO THE SUKVEYED UNITS

TABLE A.vIII.3(a) DISTRIBUTION OF SURVEYED UNITS BY SIZE

Size of Units Numb~r of Units Located at

Pune Aurangabad Kuda 1 Vadodara Ankl eshwar Godhra.

Large 5 2 1 6 5

Medi urn 5 3 3 5 6 1

Snall 5 4 12 5 3 13

Total 15 14 16 16 14 14

Note : A Large Scale unit is defined as one in which gross investment in fixed assets exceeds Rs. 5 crores ..

A Small Scale unit is defined as one in which investment in plant and machinery is less than Rs. 25 lakhs •

.. _ A Med.ium.Scale..,unit is -defin.ed a.s.one.which ,ooes not fit.in· .' ei ther of the aoove two categori'es.

TABLE A.VIII.3(b) DISTRIBUTION OF UNITS BY NUMBER OF YEARS OF

PRODUCTION lAS IN 1985)

Number of years Number of Units Located at since production commenced Pune Aurangabad Kudal . Vadodara Ankl eshwar Godhra

Less than 5 2 4 8 11 9

5 - 10 3 3 7 4 2 5

More than lC 10 2 ~ 12 1

Total 15 14 16 16 14 14

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310

TABLE A.VIII.3lC) DISTRIBUTION OF UNITS BY BKOAD INDUSTRY GROUP

Industry Group Number of uni ts Located at

Pune Aurangabad Kudal Vadodara Ank1eshwar Godhra

:1achinery,machine . too 1 s & parts 7 8 3 6 2.

Drugs & medicines, pesticides .- 7 3

Other chemicals & chemical products - 3 1 4 1

Plastics & rubber 2 2 5 6 2

Synthetic fibres 2 1 2

Electrical & elec-tronic equiJlTlent 1 1 2

:1eta 1 s & metal products 2 1 5

Non-!:leta 11 ic mi ne-ral products 2 1

Mi scen aneous 1 1

Total 15 14 16 16 14 14

TABLE A.VIII.3(d) DISTRIBUTION OF Ur~ITS BY TYPE OF PRODUCT

Type of Product Number of Units Located at Pune Auranqabad Kuda1 Vadodara Ankleshwar r,odhra

Intermediates 8 6 4 7 4 4

Secondary product 1 1 2

Capita 1 goods 3 4 2.

Consumer goods/ end products 3 4 11 7 3 3

Total 15 14 16 16 14 14

Note: Intermediates are defined as goods which form components of the end product. Secondary.products ar~ defined as those which need further processing.

316

TABLE A.VIII.3(e) DISTRIBUTION uF UNITS ~Y.TYPE OF OWNERSHIP

Type of Ownershtp Number of Uni ts Located at

Pune Aurangabad Kuda1 Vadodara Ankleshwar Godhra

Pub1 ic Limited 7 8 3 8 8

Private Limited 6 2 2 3 5 4

Partnersh ip 1 3 6· 5 6

Pro pre i tor shi p 1 5 1 4

Total 15 14 16 16 14 14

TABLE A.VIII.3(f) DISTRIBUTION OF UNITS BY INVESTMENT RANGE

Gross Investment Number of Uni ts Loca ted at in Fixed Assets (Rs.lakhs) Pune Aurangabad Kuda1 Vadodara Ankleshwar Godhra

Less than 10 2 11 1 1 7

10 - 25 2 2 1 3 1 3

25 - 50 1 1 1 1

50 - 100 3 2 1 1 2 100 - SvLi 4 7 1 4 ::> 1 fure than 500 5 2 1 6 5

Total 15 14 16 16 14 14

TABLE A.vIII.3(g) DISTRIBUTION OF UNITS ~Y·TURNOVER RANGE

Turnover Number of Units Located at (Rs.1 akhs) Pune Aurangabad Kuda1 Vadodara Ank1eshwar Godhra

Less than 10 7 ~

10 - 30 1 4 6 1 2 3 30 - 50 1 1 1 . 1 50 - 100 1 1 '3 100 - 500 5 5 1 2 1 3

More than SOD 7 3 1 9 11

Total ]5 14 16 16 14 14

317

TABLE A.VIII.3(h) DISTRIBUTION OF UNITS BY DEBT RANGE

Ratio of Loan Cap- j~umber of Units Located at ita 1 to Total Cap-ital Employed (%) Pune Aurangabad Kuda1 Vadodara Ank1eshwar Godhra

LSI & MSI· Less than 25 2 1 1

25 - 50 6 3 1 6 3 1

50 - 75 2 6 2 3 7 More than 75 1 1 1

Total 10 10 4 11 11 1 S5I Less than 25 25 - 50 1 1 1 3

50 - 75 2 2 r- 2 2 6 ;)

More than 75 2 1 b 3 1 4

Total 5 4 12 5 3 13

, . "

TABLE A.VIII.3(i) DISTRIBUTION OF UNITS BY EMPLOYMENT RANGE

Employment (No.) Number of 'Units Located at Pune Aurangabad Kudal Vadodara Ank1eshwar Godhra

Less than 10 3 1 1 7 10 - 20 1 5 1 20 - ';,0 1 2 4 3 3 3

50 - 1 ~)0 !:> 3 2 a 1 J

100 - bull 9 5 1 7 1 2 More than 500 4 1 3

Total 15 14 16 16 14 14

TABLE A.VIII.1(j) AVERAGE DAILY EMPLOYMENT IN LSI, MSI AND S5I UNITS

.1\verage Number Emrl0,ved Pune Aurangabad Kudal Vado'dara Ankl eshwar Godhra

LSI & MSI 579 160 163 423 99 100

SSI 114 30 23 40 30 24

Total 424 123 69 303 34 29

TABLE A.VIII.3(k) AVERAGE WAGES PER EMPLOYEE IN LSI, M51 AND

SSI UNITS

Average Hages per Employee (Rs. per month) Pune Aurangabad Kudal Vadodara Ankleshwar Godhra

LSI & MSI 1400 944 739 783 785 761

SS I , , 1267 .• 650, -- .4] 0 _. 70l 688 .579

Total 1369 363 476 757 764 592

TABLE A.VIII.3(1) AVERAGE INVESTMENT PER EMPLOYEE IN LSI, MSI AND

SS I UNITS

Average Investment per Employee (Rs. 1:)00)

Pune Aurangabad Kuda I Vadodara Ankleshwar Godhra

LSI & MSI 197 201 149 214 372 450

SSI 23 43 33 75 120 55

Total 149 152 56 171 313 33

318

319

TABLE A. VII I. 3 (m) DISTRIBUTION OF UNITS BY RAt~ MATERIAL SOURCE

Ra w Ma ter i a 1 Number of Units Located at Source Pune Aurangabad Kuda1 Vadodara Ank1eshwar Godhra

~SI & MSI

Local 2 ? 5

Bombay 5 3 2 4 6

Vadodara 2 3

Other areas Within State 1 1 1 1 Outside State 1 1 1 1

Total 10 10 4 11 11 1

SSI

Local 5 2 4 4 3

Bombay 2 7 1 1

Vadodara 1 7

Other areas l~ithi n Sta te 1 1 Outside State 2

- .' . ~'- " ... ..... ~ . '.

Total 5 4 12 5 3 13

TABLE A.VIII.3{n) DISTRIBUTION OF UNITS BY MARKET AREA

'1arket Area Number of Units Located at

Pune Aura nga ba d Kuda 1 Vadodara Ankleshwar Godhra

LSI & MSI

Local 5 1 1 Neignbouring

districts 1

Bombay 1 1 1 1 Other areas :

Hi thi n State 2 2 All-India 5 7 1 9 7

SSI

Local 3 1 3 4 1

Neighbouring districts 1 4 ~

Bombay 3 1 3

contd.

TABLE A.VIII.3(n) •.. contd.

Other area s : 1.lithin State 1 1 2 4 All-India 1 2 2 1

Total 15 14 16 16 14 14

Note: Units were classified on the basis of the area from which they obtained the bulk of their·raw materials, i.e., 75 per cent or more, and the area in which they marketed the bulk of their output.

320

-::::== CORRIDOO ... 1 / DEVE LOPMENT -.~ RADIAL DEVELOPMENT (\'

MAP VIII.1

REGIONAL PATTERNS OF INDUSTRIAL LOCATION IN

MAHARASHTRA AND GUJRAT

321

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KOLHAPut.", ~.,-.f

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.......

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