chapter viii industrial location at selected...
TRANSCRIPT
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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