State Of The Economy 2014

Path to progress

Overcapacity in cement and a crash in dal prices bring the slowdown home to Gulbarga

Meet Padam Bajaj. He’s quite a sight, covered in mud from head to toe and wearing a pair of battered, dirty Adidas sneakers — not your average businessman, certainly. But the 33-year-old entrepreneur is unfazed by our startled looks and obvious hesitation before shaking hands. “This is my business and this is how I look at work,” he says easily. Mud is obviously good business — Bajaj is clocking a turnover of ₹12 crore a year, after just six years. 

Bajaj Earth, the company he and his brother Shyam founded in 2006, doesn’t exactly deal in mud, although that’s what they call it in Gulbarga. Rather, the brothers are in the business of bentonite, a clay that is formed when volcanic ash decomposes. Available largely in lump and powder form, it can absorb water in large quantities, which leads to it expanding several times in volume. Bentonite is used in industries such as agro and edible oils and more prominently, as a beauty treatment in face packs.

Bentonite is readily available in Gulbarga, north Karnataka. It’s also a growing business opportunity — from barely two or three factories a couple of years ago, there are now as many as 10 in the region. Bajaj, who produces about 2,000 tonne of the clay a month employing 50 people at his Uplaon factory, is understandably peeved. “Growth has flattened over the last year. We sell the final product at ₹3-4 per kg with a manufacturing cost of ₹2.50,” he says. For a region better known for its 6,445 million tonne of limestone deposits and the resultant cement plants, this is a new chapter in its growth story. 

And growth is much needed. Though the area is flush with funds, paradoxically, it has not seen industrial development. There are 400,000 cars in Gulbarga and the figure is growing at 20% yearly, but the region has little to show in terms of production beyond cement and tur dal. Now, the state is keen to bring in new industries and change the complexion of the region. But for that it will need much more than bentonite.

Lentil effect

You don’t see too many happy faces in Gulbarga these days. Take Sampat Loya. A qualified doctor, he runs one of the biggest dal mills in the city, at Kapnoor Industrial Estate, by day and practises medicine every evening, charging ₹10 consultation fee from his patients.

Of the 200 dal manufacturing facilities in the district, over 130 are housed in Gulbarga city. The peak season, says Loya, lasts for three months between December 15 and March 15. The market here is about 1 million quintal each year and Gulbarga is often described as the tur bowl of Karnataka. “About 300,000-400,000 quintal are sent to Tamil Nadu and Madhya Pradesh, while another 100,000 go to places such as Latur and Solapur in Maharashtra. These are our biggest markets,” says Loya, whose factory clocks a turnover of about ₹20 crore a year. The bad news is that number hasn’t changed in the past two years.

That’s because the lentil is being liberally imported from countries such as Kenya and Myanmar — imports started in a small way about a decade ago and picked up after the surge in tur dal prices after 2008. Local businessmen such as Loya have suggested a ban on imports since prices have now crashed following a glut in the market. “Today, a retail chain like Big Bazaar pays ₹5,950 for a quintal against ₹6,200 two months ago. At least 50% of the dal mills have shut shop in Gulbarga,” he says helplessly. Of course, the price that the consumer pays has not dropped and retailers have quietly made a killing. This is a far cry from the heady days of 2010, when margins were a healthy 25-30%. “It is barely 4% today. I have not seen a more terrible situation for the industry,” says the 57-year-old Loya. 

At the same time, while smaller players have been wiped out, Loya confesses that larger players like him are relatively unaffected because of economies of scale and conservative business practices. That’s the story with other industries in Gulbarga, too — small players are downing shutters and that’s having a domino effect. 

Changing times

The drive to Nandur industrial area, on the outskirts of Gulbarga, is barely 12 km but feels 10 times as long — it’s a backbreaking journey, jostling on non-existent roads and braving the relentless heat and dust of summer, Central India style. Madhusudan R Malu, though, has much more to complain about than just his twice-daily commute on the stretch. The director of the ₹10-crore RG Malu group of companies makes eco-friendly fly ash brick at Nandur, using raw materials such as crusher dust, fly ash and cement. “Gulbarga has about 150 units manufacturing crusher dust. Only 25 are in operation today,” he says. The rest have been declared polluting units and have been asked to stop production. In the process, the cost of crusher dust has increased from ₹200 per kg last year to a whopping ₹2,000 now. “As a result, our manufacturing cost has increased from ₹3.50 per unit to ₹5 per unit. But our selling price remains ₹5,” says the 35-year-old. This business earns only about ₹2 crore a year and he says the rising input cost will play havoc with his numbers this year. “We do not expect any increase in turnover. In fact, the rising cost of crusher dust may leave us with no profit.” He is trying to convince his customers, including the Central University in neighbouring Kadaganchi, to pay more, but “It has not been easy since the overall business environment is not very good,” he admits. 

With raw material prices rising rapidly, Malu is now focusing on improving productivity to protect his margins. His solution: hiring migrant labour. Most businessmen in the region complain about the local labour pool, who resist working for more than six hours a day, five days a week. Migrant workers, by contrast, are much more flexible, they say. Malu’s 12 employees are all from Bihar and have been working with him for over five years. “Yes, they cost more and we pay them by the piece and a good worker could make as much as ₹600 per day. Although local workers are cheaper at ₹250 a day, they are unwilling to work beyond five or six hours,” he says. 

At Loya’s dal unit, the story is similar. Like Malu, he’s moved to a contract system for his 15 Bihari workers. Daily wages can now go up to ₹500 per worker compared with ₹200 for local workers, but the contract employees are willing to put in as much as 12 hours a day, so he’s still better off, says Loya.

If labour is an issue, at least basic industrial requirements such as water and electricity are not serious worries. M Mahadev, director (technical), Gulbarga Electricity Supply Co, a state government undertaking, emphasises it is critical to ensure that industry does not face any issue related to power. “This becomes even more important given the new cement companies that will come in. During the next fiscal [FY15], we will be investing in areas such as high voltage distribution system, smart meters and distribution automation system,” he says. It is expected that the unannounced power cuts that still prevail will largely be controlled by then.

Speaking of cement, existing cement players such as Vasavadatta Cement, which has been in Gulbarga since 1986, have quietly grown over the years. Of late, though, like its competitors, it has had to contend with rising raw material prices and a serious slowdown in the construction sector. Part of Kesoram Industries’ ₹2,140-crore cement business, Vasavadatta currently sells in Maharashtra, Karnataka, Andhra Pradesh, Goa and Tamil Nadu. The company has a manufacturing capacity of 6.2 million tonne per annum and given the oversupply in the industry, is estimated to be operating at 60% capacity. “The scenario in Gulbarga has changed with more players coming in. Given the proximity to limestone deposits, it is only natural that more companies will invest here,” says PVN Malleswara Rao, assistant vice-president of the company. And at least some businessmen are counting on that to give a fillip to their initiatives. 

A town in business

Affan M Ali turns on the TV in his compact 200 sq ft office in the heart of Gulbarga’s Supermarket Road. He switches off the lights and requests to you to watch the audio-visual of his new project very closely. “It will be the first mall here when it is ready by the end of this year. Even this office will look very different,” he says in Hindi with a pronounced Hyderabadi accent. The Andhra capital is just a three-hour drive and many people find flying into Hyderabad and commuting by road to be the quickest route into Gulbarga.

City Centre, as Ali’s mall will be called, will have a parking area of an impressive 43,000 sq ft, while the total mall will cover 128,000 sq ft across eight floors. “Around a third of the area will be the parking area. Our idea is to lease out half the area and sell the rest,” explains Ali. It’s an idea backed by pretty sound logic. Over the past three or four years, land prices in and around Gulbarga have shot up from an affordable ₹40,000 per acre to a steep ₹14 lakh today — for his part, Ali bought the 20,000 sq ft plot in 2011. Much of that has been attributed to the proposed entry of new cement companies such as Lafarge India, India Cements, Chettinad Cements and Shree Cements in the Sedam region of the district. This is in addition to expansion of existing cement players such as Vasavadatta Cement, Rajashree Cement and Zawar Cement.

The city already has one mall — Asian Mall — but Ali says it is really a commercial complex, rather than a proper mall. “Our project will be no different from what one sees in Delhi or Mumbai,” he says with a wide smile. Apart from Ali’s real estate interests, his other businesses include garments, lodging, travels and transport. “Rentals in this area are about ₹150 per square foot and that is an increase of four times in the last three years. We want to have popular brands such as Metro, Max and KFC in this mall,” he says. According to him, as much as 35% of Gulbarga’s population is the youth brigade. “This mall is targeted at them and we expect them to spend a lot of money here,” says the burly man who prefers wearing leather slippers and rides a scooter.

He isn’t the only one enthused about the region’s prospects. Bureaucrats in Gulbarga are very upbeat following the commerce ministry’s announcement in late December that the city will get a 5,000-hectare National Investment and Manufacturing Zone (NIMZ). Doddabasavaraj, joint director, District Industries Centre, thinks this could well be a turning point in the region. “We will be able to attract a lot of big names. In the next four years, we expect Gulbarga to do well in businesses such as textiles since there is access to cotton,” he says. On the anvil are a new airport, a 50-acre textile park and a 105-acre food park. The projects together will involve investment of around ₹500 crore. “The objective is to create basic infrastructure, which will help business grow in the region,” adds Doddabasavaraj.

Those who have been here for years concede that things are changing for the better. Shankarlal Gilada, for instance, started the ₹800-crore Gita Group’s cement pipes business in 1964 and now has interests in real estate and railways sleepers as well. A recent foray into real estate — residential plots in an 80-acre acre called Gita Nagar — has gone off well. “It was sold out in six months. There is a serious land boom here and that has helped,” says Gilada. But he has some serious concerns, too: the Central government, a key client, has virtually stopped placing orders and payments are getting delayed. “Money used to come in every alternate month earlier. Today, it can take as much as six months,” laments the 74-year-old.

Waiting for money is a common problem. RS Vijaylaxmi, who runs Sri Shakti Mahila Abhivridhi Samsthi, a food processing cluster, which has 50 women self-help groups and 30 women entrepreneurs contributing directly, is visibly worried. This cluster, which was sanctioned by the Central government under the Micro and Small Enterprises Cultural Development Programme in 2008, is still to receive the final tranche of ₹2.3 lakh of the sanctioned ₹23 lakh. “We work under very tight budgets and we need the money to invest in new machinery,” says the 50-year-old, sitting amidst packs of food products such as biscuits and snacks, ready for sale. “Since the cluster was formed in 2011, we’ve been able to provide employment for 100 women. This can increase to at least 200,” adds Vijaylaxmi.

Other initiatives such as the Apparel Training and Production Centre (ATPC), promoted by the Gulbarga Industrial Estate Manufacturers’ Association in 2011, are also helping locals find employment. “We have managed to place 500 people, largely women, in the garment industry. Many of them have also started their own businesses,” claims Suresh Nandyal, secretary, ATPC. Every batch has 30 students and courses such as apparel production, embroidery and surface ornamentation are offered. One hurdle: local qualified/ semi-skilled people aren’t seeking employment here; they prefer moving to larger centres such as Bengaluru. 

That will change as Gulbarga sheds its image of a backward district. Development will depend greatly on the kind of investments made by the cement biggies who have a stake in the area and the ability to complete key projects, such as the new airport, quickly. The critical thing is to match enthusiasm with actual deliverables. That will form the next round of the industrial story in Gulbarga.