State of the Economy 2019

Growth Inhibitor

In Ankleshwar, feisty MSMEs that survived the Chinese onslaught say that the fight against red tapism is harder

Photographs by Soumik Kar

In an ideal situation, life ought to have come full circle for Ankleshwar. This industrial town situated between Surat and Vadodara has had a tough period starting 2010 after it earned the dubious distinction of being termed a “critically polluted zone.”

By this time, the effect of Chinese chemical manufacturers was already showing. The spectre of pollution meant sales were declining and that coupled with the Chinese onslaught meant there was little to look forward to. It was only in the end of 2016, a good six years later, when the moratorium on expansion and additional investment was lifted. Suddenly, life was back to normal or so the entrepreneurs here believed.

Today, China does not even find a mention in conversations. Once the government there decided to get tough on pollution norms, Ankleshwar was back on its feet. Chemicals is the biggest story here accounting for 900 of the 1,800 units, with a bulk of that serving industries such as pharmaceuticals, dyes and dye intermediates, pesticides, textiles and plastics. That makes the zone home to companies such as Sun Pharma, Lupin, Glenmark and Asian Paints.

It was at the initiative of the Gujarat Industrial Development Corporation (GIDC) that the industrial estate in Ankleshwar came up in the early 1970s. The 1980s and the subsequent decade was when the biggies started to come in. Though this area was always associated with pollution, it was not till the turn of the century that the voices of protest began to get lounder.   

The positive impact of knocking off the pollution tag is yet to be felt though. Most units are running at optimum capacity, with a worry that more demand cannot be met. That is not a reflection of the competence of the entrepreneur, but of a difficult bureaucracy. Mahesh Patel, president of Ankleshwar Industries Association (AIA), laughs when asked about the challenges he confronts. “Nothing relates to China or the lack of demand. It is all left to the government,” he says. There is a feeling that the joy of getting back to business could be short-lived. The situation from one of worry is turning to frustration.

Slow Moving

There is barely a trace of a smile on Chandu Kothia’s face. It is 10:30 am and he has just walked into his large office in Ankleshwar. A colleague rushes in to animatedly tell him that the first approval for the capacity expansion has come through. “The real battle begins now,” says Kothia. 

He initiated the process of applying for permission in last June and the terms of reference (the first step in the process) has taken a full six months. His company, Shree Ganesh Remedies manufactures active pharmaceutical ingredients (APIs) for anti-allergy formulations, to serve a clientele that includes Dr Reddy’s Laboratories and Zydus Cadila in the domestic market, apart from Sanofi overseas. The unit’s current capacity is five metric tonnes (MT) per month, and the plan is to expand that to 180 MT, by adding 20-30 MT each year. Kothia set up the business in 2004 and today has a turnover of Rs.330 million.

Chandu Kothia Owner, Shree Ganesh RemediesBy his estimate, the environmental clearance (EC) for the expansion will take a year. According to him, he needs to do a survey over a 10 km radius around his factory just to certify the quality of air. “It does not matter that my immediate neighbours have done this recently. Each factory here has to do this on its own,” he says with dismay. 

This really sums up the mood at Ankleshwar, where businessmen, large or small, have nothing to complain about issues such as the implementation of the Goods & Services Tax (GST), availability of power or road or rail connectivity – issues that often are sore points elsewhere. What comes in the way of doing business, it’s only red tapism and the accompanying uncertainty. 

Baldev Prajapati Managing Director, Gopsi PharmaEven by the most conservative estimates, Ankleshwar’s 900 chemical units have a turnover of at least Rs.120 billion. Around 400 of these manufacture dyes and dye intermediates, of which 100 were severely hit by the Chinese onslaught and are just about recovering. On an average turnover of Rs.150 million each, they bring in revenue of Rs.60 billion. Of the balance 500, 200 manufacture APIs, with another 50 making chemicals that go into pesticides. The other 250 units are equally split between general chemicals and inorganic salts. According to Baldev Prajapati, managing director, Gopsi Pharma, a Rs.60 million entity, it is 50 large units with each having a turnover in excess of Rs.1 billion, which control the lion’s share of business. “Obviously, they are not affected by any of the issues that smaller units like ours need to face.” 

To drive home his point, he cites the instance of the effluent treatment plant, which has an installed capacity of 60 million litres per day (MLD). Today, in Ankleshwar, the permissible limit is only 32 MLD, with the request to increase that falling on deaf ears. The rub for smaller businessmen like Prajapati, is that the limit is two MLD for small and medium enterprises (SMEs). “Nothing is worse here than being an SME. There is very little support from the government,” he ruefully says. His company makes oncology and diabetes intermediates for Sun Pharma, Hetero Drugs, Glenmark and Alembic.

Uneasy Contradiction

Road connectivity from Ankleshwar to Bharuch, a major train junction, depends on traffic and on a bad day, it will set you back by 40 minutes. With a new flyover scheduled to come up later this year, driving time could reduce to no more than 15 minutes. From Bharuch, trains at regular intervals make their way to Mumbai and Ahmedabad. 

Mahesh Patel President, Ankleshwar Industries AssociationWith infrastructure having improved over the past decade, entrepreneurs have now built their own homes here instead of earlier living in Vadodara. Tushar Patel, a 36-year old second-generation entrepreneur, speaks of good schools and a high quality of life here. “There is no doubt it is a much better place to live in than it ever was.” 

On the face of it, factories here run on high capacity utilisation levels, with the recent past seeing revenue too taking off. Patel’s Prayosha Health Care has grown from Rs.60 million in 2010 to Rs.360 million now. By being among the handful of folks in India manufacturing the APIs for amisulpride, an anti-psychotic medication, he ensures that his profit margin is at least 15%. The rub is the inability to do a lot more, even though there is willingness.

When the moratorium was lifted in late 2016, one of the first promises was that a No Objection Certificate (NOC) for any project (fresh or expansion) was as good as a consent to go ahead. “This has been implemented in Rajasthan and Maharashtra but not in Gujarat,” he explains. As a consequence, it takes 4-6 months to obtain the consent after the NOC. The government had earlier assured industry that the environmental clearance (EC) would be granted in six months, but it takes at least a year. Though no entrepreneur will openly speak of corruption, they do privately admit that it is rampant. On paper, it costs Rs.200,000 to get the EC, but on payment of Rs.700,000-800,000, it comes through in almost real-time. “Government officials can drop in anytime for a routine check and that means trouble for us,” says one. 

In many ways, Ankleshwar presents a bundle of contradictions. Kothia makes it a point to highlight how GST has simplified things from an era where one had to pay both excise and value added tax. “The tax rate remains at 18% but the process is smoother,” he says. According to him, the issue is all about decisions taken at the centre being far-reaching but often stymied by the local bureaucracy. Time taken for approvals is a case in point. AIA’s Patel echoes the sentiment and questions why applying for an EC is required, when Ankleshwar has been declared a commercial industrial zone. “Single window clearance is only on paper. We have to reach out to the state government for everything.”

Fighting Back

The number of large companies setting up base inAnkleshwar  has only been on the rise. A drive through GIDC’s vast 1,600 hectares presents an industrial zone with good roads, ample water supply and the existence of a large workforce. In the midst of all this business prosperity, land prices have gone through the roof, with GIDC determined to make the most of this scenario. The changing composition of Ankleshwar’s industrial story is best described by its own entrepreneurs.

Ramesh Patel Techical Director, Dynemic ProductsRamesh Patel, technical director, Dynemic Products, says there is a greater level of awareness on environmental hazards. “In the past, we did not invest time or money and the government was not very strict,” he says. His Rs.2 billion company makes food colour and dye intermediaries, with 90% exported to the US, UK and the Far East. Prod him on what the big issue here is and he immediately speaks of space constraint. 

While he has two units in Ankleshwar working at full capacity (450 MT per month), he has been forced to look at Dahej, 60 km away to add another 500 MT of capacity. According to Patel, buying land at prevailing prices could render the business unviable. “There are issues relating to quality of labour and infrastructure in Dahej but I am left with no option,” he says. His EC for Dahej was obtained in 2018, three years after applying. The rulebook says production should start four years after the purchase of land. In his case, that was concluded in 2014, and a penalty of Rs.10 million has already been coughed up. “I am hoping to start production by mid-2020,” he says. 

Sensing the opportunity to rake in the moolah, GIDC has taken the auction route for sale of land. Those like Subhash Patel, who owns Sunbeam Photochem that supplies chemicals to X-ray companies and APIs for the pharma industry, have been fortunate. In 1987, he bought a 1,000 square metre plot for Rs.65,000, on which he built a factory. Pointing to a plot that was recently sold in the vicinity, he says the base price fixed by GIDC was Rs.2,700 per square metre (in comparison land sells at Rs.1,200 per square metre (sq mtr)  in Dahej). “They took the auction route and sold it at Rs.27,000 per sq mtr. I needed land to expand capacity but this was way beyond my budget,” he exclaims. While he concedes that the limit on effluent discharge for SMEs at 2 MLD is way too low, he thinks the government should allow for changing the product if the discharge level is the same. Patel, who makes revenue of Rs.80 million, elaborates on his own case in the recent past when he decided to manufacture acetamide. “By the time production started, the product was no longer relevant. We cannot afford delays where things are so dynamic,” he says. Patel, meanwhile, is still clueless about how and where to expand.

Ankleshwar is a case of feisty businessmen who have huge growth ambition. Haresh Patel, director, Microtech, that makes disperse dyes intermediates, maintains the problems are manmade. “If we could deal with the Chinese challenge nothing is impossible,” he says. At his Rs.100 million company, around Rs.15 million of equipment is lying unused, awaiting the green signal to start production. “The demand is huge and we are willing to invest. All we need is a bureaucracy that understands this,” he laments. By any token, that is not asking for the moon. In reality, this is the least they ought to expect.