State Of The Economy 2017

Testing Times

Even as Assam woos businesses to set up factories in the state, traditional tea and micro units are finding the going tough

Vishal Koul

SK Barua is in a hurry. He has to catch a flight from Guwahati to Delhi at 5 in the evening. “We have proposed a project to triple our refining capacity from 3.0 MMTPA to 9.0 MMTPA and we plan to source incremental crude oil through imports,” says the director (finance) sitting in the corporate office of Numaligarh Refineries (NRL). The refinery is more than five hours away from Guwahati in upper Assam. Barua plans to meet oil ministry officials the next day to pitch for grants and discuss proposals to keep the refinery going. 

Oil was found way back in 1889 in Assam. Despite the presence of more than 100 big and small oil fields in the state, there is a shortage of crude for refineries. “Oil refineries in the North-East are faced with inadequate availability of crude oil and natural gas. Against the total refining capacity of seven million, crude production is 4.2 million in the region, which meets only 60% of the requirement,” continues Barua. To meet this shortfall, imported crude is transported from Paradip in Odisha via Haldia and Barauni. “Thus all four refineries in the North-East (NRL, Guwahati Refinery, Bongaigaon, and Digboi) are operating below their installed capacity, implying that when compared to other refineries in the country, we incur higher operating cost for processing every barrel of crude,” explains Barua. 

A solution, though, exists. Drawing on a piece of paper, Barua explains how building a pipeline beyond Bongaigaon to bring crude to remaining refineries can give a fresh life. But for now, the central government plans to import crude from Nigeria and West Africa to feed Assam’s refineries. “The crude will be imported via Paradip port and then will be brought to the state via Barauni in Bihar,” union petroleum minister Dharmendra Pradhan was quoted as saying.

In the future, a 5,000 km grid of crude pipeline, product pipeline, LPG pipeline and natural gas pipeline is being proposed to be constructed in North-East India. Of the Rs.130,000 crore allocated for the region under the Hydrocarbon Vision 2030 for North-East, Rs.80,000 crore has been allocated for Assam. The allocation for this fiscal is Rs.6,000 crore, which will be invested for implementing various plans, including setting up new pipelines, expanding capacities and marketing. At present, one-fourth of Assam’s revenue comes from the oil sector and the plan is to double and triple it by 2030 through fresh investment and expansion plans.

Despite limited crude output, NRL is on a sound footing. Net profit has increased from Rs.718 crore in FY14 to Rs.1,222 crore in FY16. Barua attributes the higher profit to the strategic switch to petrol production over the past two years. “We have been a diesel heavy refinery but we increased the petrol production where margins are better,” he says. 

On the other side of Assam’s capital is Abhijit Barooah of Premier Cryogenics, who keeps an eye on the local sector. Barooah is a chemical engineer from IIT Delhi, who set up the company in 1988 to provide oil fill services, predominantly to oil companies in North-East. He has got customers such as ONGC, Oil India and the likes. The other vertical of his business is the production of industrial and medical gases such as oxygen, CO2, nitrogen, acetylene, nitrous oxide etc. “We own equipment like gas compressors, air compressors, oil pumping units and also provide manpower to oil majors for oil fills,” says Barooah.

Given the poor rate of oil exploration in this region in the past, his oil fill business has been stagnant. “15 years back, we projected a doubling of oil production. Not only has that not happened, but the quantum of oil produced is less than what it was 15 years ago,” he says. He feels that there have not been many new finds and several areas have remained untapped because of insurgency in the past. However, Barooah’s Rs.70 crore company is doing good business on the medical gases front. “The business has grown at 20% in the past year,” he says. 

Growth pangs
Interestingly, the Economic Survey of FY15 had placed Assam among states with higher growth rate — both in net state domestic product (NSDP) and growth of per capita NSDP. This was the first time that the state’s NSDP and per capita NSDP growth rates were above the national growth rate for two consecutive years. The survey stated that Assam would be one of the biggest gainers from transfer of central funds in absolute terms under a new formula devised in the 14th Finance Commission recommendations. Thus far, the state has kept its growth momentum. In December 2016, Assam’s finance minister Himanta Biswa Sarma mentioned that the state’s revenue collection had increased by 14% this year compared with the previous year. In fact, tax collection in the state increased by 18% in November and 21% in December — the highest in the entire country.

SP Barua, Director, (finance) Numaligarh RefineriesHowever, economic growth is also coming with its set of challenges. “Availability of quality power is a major problem in and around Guwahati,” says Barooah. Others in the cluster only go on to mark this as an issue. Barua of NRL says, “With increased development and economic activities over the past few years, Assam’s peak demand for power has reached 1,400 MW, which is approximately twice of what it was five years ago.” Assam depends on hydel sources for 60% of its power supply and projects are dependent on rainfall which can be erratic. Assam has started getting 200 MW from recently commissioned 726 MW Palatana plant of OTPC in Tripura. “But it needs to invest in solar power and smaller hydel projects to fill the gap of 100-150 MW,” feels Barua. 

The other issue is labour. “Whenever we have worked outside of North-East, we find qualitative differences in labour. Here, there is a pressure to give employment to local people. Similar pressure does not in most other states,” says Barooah. 

With 200 hands working for him, his existing business cannot be called labour-intensive, but at the other end of the spectrum lies another industry, which is an epitome of labour intensity, and also of Assam. 

Abhijit Barooah, Managing director, Premier CryogenicsTea blues
Assam tea estates are not only popular on tourism posters, but also in shipping-out high quality tea across the country and globe. According to estimates, there are around 5 lakh permanent workers and an equal number of temporary workers associated with the industry. “Wages constitute 60% of our costs,” says Bidyananda Barkakoty, vice-chairman, Tea Board of India and advisor North Eastern Tea Association. He also owns Mahalaxmi Tea Estate. 

With a staggering number of hands plucking, and processing tea leaves, demonetisation should have wrecked havoc in Assam. But Barkakoty thinks they managed to avoid it. “There was a delay of only five days in paying workers’ dues in Assam, whereas in West Bengal, workers had to wait three weeks to be paid,” claims Barkakoty. He shares that Assam government asked every district magistrate to open a special account with SBI. All tea estates transferred wages to that account. The magistrate then verified the transfers, withdrew cash and handed over to estates to disburse to workers. 

While the industry may have avoided a major crisis, workers on the estate find it hard to appreciate how cash-less economy would help them. These are not seasonal production months and, hence, there are very few workers on estates. Puran Panika is busy trimming and watering tea bushes in a estate near Kaziranga National Park in upper Assam. “I am one of the very few males here,” laughs Panika pointing that estates are a female bastion. “From January my salary, which is Rs.126 per day, will be credited to the bank account. But it’s not relevant for low income earners like us. If I earn Rs.100 a day, it’s a hassle to go to the bank to withdraw cash,” he says. A fellow female worker nods in agreement. “It’s hard for us to survive with such wages in an environment where everything is getting privatised. If I take my child to a private school for admission, they want Rs.4,000, which is more than my monthly pay,” she says. Despite the grouse, over 6.42 lakh of the 7.79 lakh tea labourers across Assam have opened bank accounts. 

Bidyananda Barkakoty, Vice-chairman, Tea Board of India

Currently, India produces 1,200 million kg of tea every year, of which 620 million is produced from Assam. But tea producers are facing a challenge. “Tea industry hasn’t done well over the past two years. Price realisation is not enough to make up for the increasing cost of production,” mentions Barkakoty. The gap between high quality and medium quality tea has narrowed down to Rs.50 per kg from Rs.100 over the past two years. Typically, margins are higher on high quality teas. “According to some packers, tea consumption is increasing for low-priced tea,” reveals Barkakoty. 

The two major challenges that tea makers face are: shortage of workers and, climate change. Tea industry is seasonal in nature. July-October is the peak yield duration when industry needs more hands. “These are the months when we face shortage of manpower. Though there are plucking/pruning machines available, people feel that human plucking helps in producing good tea,” he mentions. In recent years, the uneven distribution of rainfall has been threatening tea cropping too. “The changing intra-season rainfall patterns are wreaking havoc in Assam. There is flood like situation some weeks and drought in others. Tea bushes cannot survive water logging,” says Barkakoty. 

Change in order
Assam is largely peaceful today, but decades of insurgency and its remoteness has meant that it has a lot of catching up to do with other states. The Bharatiya Janata Party won the assembly elections, dislodging Congress’ Tarun Gogoi from power who ruled for 15 years. The new government is trying to woo fresh investments into the state by offering conducive policies and sops. 

Ronn Pakrashi, CCO, North East Mega Food Park

From massive oil refiners to micro enterprises, entrepreneurs are seeking government support at every a level, in some form to create a level playing field with manufacturers in rest of the country. Arup Dutta, president, All Assam Small Scale Industries Association (AASSIA), runs a micro unit to manufacture furniture. “Manufacturers from micro sector in Delhi/Gujarat etc can make same products at 20-30% lower cost. Power, transportation, raw material costs make our end products uncompetitive,” says Dutta. 

He demands that government should subsidise micro units in terms of raw material, power etc. “There was a preferential store purchases law which was scrapped by the previous government. Micro units like ours were supplying bedding furniture, and almirahs to hospitals. Now they are buying directly from companies such as Godrej,” says Dutta. He estimates that there could be 50,000 micro units (under Rs.25 lakh investment in plant and machinery) in Assam. The new government has introduced a price preference policy, which Dutta feels is not practical. 

A lot more needs to be done to improve ease of doing business in Guwahati, and overall Assam. While the state is connected to all major cities of the country through the east-west corridor, air and rail network, the World Bank is investing Rs.1,000 crore in the age-old inland water transport system. Besides, the proposed Trans-Asian Railway and Trans-Asian Highway are also expected to further improve connectivity. The central government’s tax holiday policy has catalysed the industrial development to some extent.

Arup Dutta, President, AASSIA

“Over the past five years, there have been several success stories. Godrej came here and today they have six plants, Emami has set up three major plants in Assam and it is their major production base. ITC, Britannia, Dabur, Patanjali, and many other companies have set up units. There are six daily flights between Delhi and Guwahati today,” says Ronn Pakrashi, chief coordinating officer, North East Mega Food Park. Under the central food park scheme, a food park has been set up over 50 acres of land, of which 27 acres is leasable. “The idea is to develop infrastructure to facilitate food processing industry, so that their capex can be brought down by having common facilities like dry warehouse, cold storage, and waste water treatment plant,” says Pakrashi. 

Assam Agrotech, a state government PSU, was the first company to operationalise their vegetable dehydration unit inside the park. “We have several units including Dukes Products (a Hyderabad-based food company), a sister concern of Ravi Foods, and one more company from Haridwar (Patanjali) setting up here. They will have to operationalise before 31st March 2017 to attain excise and income tax benefits,” informs Pakrashi. The state government recently said over 25 companies have committed cumulative investment of about Rs.5,000 crore which will generate 44,000 jobs in the state. 

Though the state had proposed the privatisation of 12 oil fields in Assam in July 2016, it was met with opposition from some groups. Barua of NRL feels that the opposition was limited and emotional. “Response to the auction was good. We also participated, but weren’t successful. We need to bring private sector in this state as they have shied away from Assam for long due to security concerns,” he says. 

The logical ancillarisation to oil refineries is the development of a plastic industry. Gujarat is a shining example, which Guwahati wants emulate — to turn into a plastic hub. “There is a Assam gas cracker project. They will take naphtha from us and gas from Oil India to make ethylene and propylene which are the raw materials for plastic,” mentions Barua. NRL on its part diversified into making paraffin wax last year. “We are the biggest manufacturers of wax in the country now. We exported 20 TMT to Nicaragua recently. We will enter the US market too,” reveals Barua.

Going ahead, the state proposes to develop Guwahati as a business hub and construct a World Trade Centre to project Assam as a world-class business location. Besides, the North East Industrial and Investment Promotion Policy, which is expected to be announced in April, 2017, too, is supposed to act as a catalyst to spur growth in the region. How much of it translates on the ground, only time will tell.