Why India’s Industrial Parks Underperform
The Indian Cabinet recently cleared BHAVYA, a scheme to set up one hundred industrial parks across the country, and it reminded me of a story from the Mahabharata. Dronacharya, the teacher of princes, asks his students to shoot a clay bird perched on a tree. As the princes come up one by one, bow in hand, he asks them, “What do you see?” One says he sees the bird sitting on the branch. Another notices the river in the background. A third sees his fellow students standing nearby. Dronacharya does not allow them to take the shot.
Then Arjuna steps forward. Asked the same question, he replies that he can see only the eye of the bird. Dronacharya allows him to shoot and the rest as they say, is Itihaas.
I hope our policymakers keep the lesson of this story in mind. Too often, decision-makers and implementers lose sight of the real objective and end up focusing on a proxy instead. The goal of industrial policy is more factories that are actually up and running, not more land sold in the name of future factories.
A few years ago, I travelled across the country speaking to factory owners, and there were some depressingly common themes in both their stories and what I could see for myself. In many parts of India, the approach roads to industrial areas were among the worst in the vicinity. I call this “rolling the mud carpet for industry.”
This visible sign of neglect was reinforced by what factory owners told me. Owners in well-established industrial parks said that when they began thinking about expanding their businesses, they were not met with support, but with hostility — or at best, indifference. This was from park authorities and other relevant officials. For example, a factory owner told me that the electricity distribution company officer would not even provide the form needed to apply for a new power connection for expansion.
Some of these problems may well be reduced if the promised “plug-and-play” model and single-window clearances are genuinely implemented in BHAVYA parks. But even then, the core problem will remain unless it is addressed explicitly. Too often, the real target of those in charge is the sale (or long-term lease) of land, not whether factories actually begin production. The problem can get compounded if the park is supposed to sell the land at a ‘cost plus’ model which can make this land much more expensive than that in surrounding areas.
This focus on land disposal is reinforced by the incentives of many buyers. A significant share of industrial land is bought not for immediate production, but for speculation. Entrepreneurs and other buyers may acquire plots in the hope that, if the park develops well, they will later be able to sell the land at a profit. Manufacturers have an additional incentive: banks often prefer promoter-owned land as collateral when lending to them.
Of course, not every vacant plot in an industrial park is vacant because the business had no intention of producing. An entrepreneur may buy land with the intention to set up a factory and then face a reversal of fortune that forces him to put those plans on hold. Or, a business may purchase two adjacent plots even though it intends to build immediately on only one of them, keeping the second for a future expansion.
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While it may not always be obvious why a particular plot in an industrial park remains vacant, one thing is clear: incentives matter. Mumbai readers can see this for themselves with a visit to Millennium Business Park (MBP). MBP is a software park rather than an industrial park, but it suffers from some of the same underlying problems that plague industrial estates.
MBP has large vacant plots — an especially striking sight in a city famous for land scarcity and at a time when demand for office space should, in principle, be supported by the growth of Global Capability Centres (GCCs). More tellingly, even many of the built-up offices and galas remain locked. Decades after launch, the underutilisation of such prime real estate is hard to miss. It is accompanied by an environment that sends a simple message: you are not welcome here.
In many buildings, even basic infrastructure is unreliable — lifts often do not work. MBP’s website does not appear in the first few pages of a Google search, and it is not clear whether it has a functional online presence at all. Conversations with companies operating within the park reveal deeper, more serious shortcomings. For instance, for many years, the park lacked even basic essentials such as reliable backup power and high-capacity internet.
So how can the government ensure that most of the BHAVYA parks do not become like MBP or worse? It should make sure that success, for all those involved, is not measured by land sales but by the beginning of production in a factory. The latter could be measured by proxies such as electricity consumption. Capable and empowered officers would then make sure that they remove all obstacles in the way of setting up factories and that they do not attract speculators in the first place.
Let Dronacharya specify what the target is. Arjuns will do the rest.
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This post is part of a series on Make in India. The story How did China become a manufacturing superpower in this series has got a lot of attention.
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