State Of The Economy 2015

Diminishing charm

The zing is missing from the SME clusters of Noida and Faridabad

It’s not impossible for Noida to follow the footsteps of China’s first — and most successful — special economic zone (SEZ), Shenzhen,” Akhilesh Yadav, chief minister of Uttar Pradesh, said in the e-Uttar Pradesh IT conclave in Lucknow in January 2015. Referring to the industrial powerhouse that Shenzhen is, Yadav was pitching Noida as the next Shenzhen of the world. Though often criticised, he expressed willingness to go the extra mile to facilitate industries in UP. And Yadav is not the only one in this pursuit. BL Naraoji, general manager, industrial infrastructure development corporation (IIDC) in Madhya Pradesh too, has in the past offered to relocate units to MP.

“We have already had meetings with representatives from MP (GM of IIDC) eight months ago. They are offering 24x7 power and sales tax rebate amongst other things,” says Vipin Malhan, president, Noida Entrepreneurs Association (NEA). This body was formed in 1978 and has 7,000 Noida-based industrialists — both big and small — as members. But NEA hasn’t accepted MP’s offer yet, as Malhan reasons, “we can’t buy land, we want it on lease instead.” However, the idea does seem to enjoy some resonance with the small and medium sized industrialists. While at the NEA’s office, a businesswoman even jokes, “we should have gone to Madhya Pradesh, they even offer good houses.” 

Even though SMEs — fed up with age-old issues such as erratic power, pathetic law and order and bureaucratic hassles — do not find MP’s offer attractive enough, the very fact that other governments are trying hard to poach industries from Noida is something that Yadav needs to worry about. And this is not the first time something like this has happened with SMEs, who happen to be the unhappiest lot among the units of the Noida cluster.

Two years ago, the NEA wrote to the then Gujarat chief minister, Narendra Modi, asking for plots to be allotted in Mehsana because they had given up on Noida. “Around 50 units have relocated to Gujarat in the past three years,” informs Malhan. It is not surprising that an industrial magnet like Gujarat has been the choice of investors. 

Moving on

Barely 50 kms away, Raj Bhatia and his son Saket Bhatia happily share their expansion plans, seated at their factory in Faridabad. Raj founded Bony Polymer, a supplier of plastic parts to auto OEMs, in 1981. Today, this company not only supplies to the who’s who of the auto sector in India but also exports 5% of its output. They have three plants in Faridabad, one in Manesar and one coming up in — not surprisingly — Gujarat.

“The prime advantage that Faridabad had was that it was an OEM hub, but the perspective has now become global,” says Raj. In the same breath he adds, “Maruti and Honda are also building factories in Gujarat.” So choice of location is logical for a parts supplier like them. 

Navdeep Chawla is the head of Faridabad industries association (FIA), a 66-year-old trade body previously headed by KP Singh of DLF and Rajan Nanda of the Escorts group. Chawla adds a historical perspective to industrialisation in Faridabad. “Escorts group was the first to move to Faridabad followed by JCB, Maruti and then Hero Honda. So there is a very large vendor base here. But as the OEMs moved out, vendors also moved with them.”

He blames lack of connectivity, even with Delhi, for this. New businesses don’t really come to Faridabad. Though the construction of flyovers has improved Faridabad-Delhi connectivity, they are counting on the Kundli-Manesar-Palwal (KMP) expressway to connect Delhi’s three industrial outliers (all in Haryana), bypassing the need to touch Delhi’s traffic each time. 

But Saket Bhatia, director, Bony Polymers feels, “you don’t see that hunger for industries in Haryana anymore. That makes all the difference.” Having first hand experience of setting up a plant in Gujarat, he says, “it’s more structured in Gujarat and there is a clear demarcation of industrial land. Even a collector will give you a solution. At least you see light at the end of the tunnel.” No wonder, then, that most OEMs have not built their new factories in Faridabad — or anywhere in Haryana — in the last decade. 

Volume growth for a parts suppliers like them is specific to OEMs, segments, and even models. For example, if a Honda Activa does well, then there is a good pickup in parts. They admit to a 20% spare capacity and employ 1,000 workers. But a threat is looming above parts suppliers like them. “Auto parts MNCs are setting up shop in India. Being global, they tend to get preference,” says Raj. The father-son duo knows that to survive in the future, they really have to be innovative.

 Mixed bag

Back in Noida, Sunil Sikka, CEO of electricals giant Havells is being cautious about the growth sentiment. Though the arrival of Modi government was welcomed by the industry, the initial optimism has just settled. “First quarter growth was 20% and second quarter growth is 16%, but nothing much has changed in following quarters. The market sentiment has to improve,” says Sikka. Being a large company with plants in multiple locations in the country, power supply or dealing with governments is not a major issue for them. “Erratic power in Noida is not a new thing,” reminds Sikka. Big units like his have the means to generate their own power. 

Vipin Malhan, NEARaj Bhatia, Bony PolymersArun Gupta, MD of NTL electronics, which is another major player from the region, echoes Sikka on the business environment in Noida. This ₹750-crore company has three units in the area — that employ 1,500 workers — and three more units elsewhere. They manufacture lights for almost all the big fish of India’s lighting industry and have their own brand as well. “Noida is a good place to work though power is erratic,” says Gupta. They are in the middle of a transition as the lighting industry is moving from CFL to LED. However, CFL continues to be their mainstay for now. “The overall CFL industry has degrown. There have been no major infrastructure projects in the last three to four years and real estate has also been sluggish.” Gupta admits that sales are under stress and he is waiting for infra projects to pick up.

But not everybody’s sales are under stress. Yogesh Anand, at 60, is a jolly man. “My orders are more than I can meet,” he says. Anand is the co-founder and director of MM fans, a fan-making company, which makes fans for all major brands in the country and has its own brand MMI as well. Anand’s turnover last year was ₹237 crore but he is looking to close at ₹320 crore this financial year. In summers, the production peaks to 450,000 units per month and average production per month is 250,000 units. Anand shifted his business from Delhi to Noida in 1985. 

However, a closer look reveals that Noida isn’t the biggest contributor to Anand’s kitty. MM fans has two units in Noida and three outside, which contribute the most to production. Having produced in Noida for almost two decades, it expanded outside to Haridwar in 2003 during a tax holiday. “In Noida, land prices are prohibitive. The price range here is ₹11,000 to ₹30,000 per sq meter. In new industrial areas it’s ₹2,500 to ₹10,000 per sq meter.” Anand has two more factories in Greater Noida, which have currently been rented out to others. Once the goods and service tax (GST) is introduced and there is a level-playing field between industrial areas, he plans to start producing from those two factories again. 

Arun Gupta, NTL ElectronicsNavdeep Chawla, FIATrouble at the helm

For most businessmen in Noida, getting plots from Noida Authority is an almost impossible task with the process not being transparent either. “In last ten years, I have left no scheme and even appeared for an interview with the Authority. But I haven’t been able to get a plot at a reasonable rate to expand,” says Atul Verma, proprietor, Elegant Engineers, makers of packaging machines. For plots greater than 2,000 sq meters in size, Noida Authority interviews the prospective buyer. Verma, who has three units and ₹8 crore worth of sales, complains about a tax disadvantage in UP. “We pay 13% extra tax compared with Haryana and Punjab, which is a cost disadvantage for us.”  

Bureaucratic hassles and even harassment is a common complaint when it comes to small and medium sized units in Noida. In 2001, Neeru Sharma came to Noida because land was cheap and sales tax was exempt at the time. Her single unit company, Harsh Enterprise, manufactures continuous stationery. “One can’t work here in Noida with peace of mind. There are 16-17 departments to deal with and too many problems. Renting off my factory seems like a better proposition at times”. And it is also said that one cannot get a power connection in Noida independently, unless the request is channeled through NEA. Not surprising, then, so many factories proudly display the fact that they are members of NEA. 

Vijay Jindal, Shivalik PrintsBetter off

Faridabad fares better than Noida in two areas — Power supply and law and order. Most entrepreneurs attest that. And unlike the common perception, Faridabad is more than just an auto parts hub. “We have robust pharma units and a textile industry, which is exporting ₹12,000 crore each year,” says FIA’s Chawla. There are also garment exporters like Vijay Jindal, who unlike others, have never ventured outside Faridabad. “We earlier had a steel business here following which we started fabric processing in 1991 and making garments in 1994,” says Jindal. His company, Shivalik Prints, has six units employing 7,000 workers directly and indirectly. It supplies T-shirts to the big clothing brands and stores such as Wal-Mart, Kohls, Max, Gap, H&M and many others, and is expected to export garments worth ₹800 crore this year. 

But Jindal has other reasons for staying put in Faridabad. “Labour is easily available here. The garment industry is labour intensive and it requires personalised control. So, we cannot move out,” he says. India, according to Jindal, has a lot to learn from Bangladesh. “While this small and impoverished country may be way behind India in most areas, Bangladesh exports $30 billion worth of garments each year, which is double of India’s $15 billion. We mostly get orders that Bangladesh and Pakistan fail to fulfill.”

Adds Jindal, “The garment industry is a special category industry in Bangladesh. Inspectors cannot enter units, there is a separate minimum wage slab for the industry and there are no bandhs (strikes) affecting work. India must have the same.” Bangladesh thrives because of an FTA with Europe, while India pays Europe a 13% import duty, and labour costs are lower in Bangladesh. 

What is surprising is that despite fairly decent law and order in Faridabad and close proximity to Delhi, the IT industry is absent here. “But now that the Metro network is reaching deeper into Faridabad, IT firms will eventually come here,” says Chawla, who also runs a ₹200-crore pharma company, Psychotropics India. It has two units in Faridabad and two in Uttarakhand and exports generics to Africa and West Asia.  

However, most of his production now happens outside Faridabad. Though he is a beneficiary of tax holiday as an entrepreneur, as an industry association head, he has a different opinion. “I think tax holidays have distorted localisation of businesses in India. I am waiting for GST, which will bring in fair play.” Even that may, however, not resolve all issues.

Slack demand has caused most small businesses in Noida to operate well below their capacity. Atul Verma, whose business does ₹8-crore worth of packaging each year, is operating at 50% capacity and has very low expectations. Rajan Khurana, who deals in steel fabrication recalls, “four years ago my sales were ₹2.5 crore. Today it’s ₹1.5 crore.” Most industrialists, who buy cheaper diesel from Delhi to cope with power outages, end up paying an entry tax on it and want the UP government to withdraw the entry tax.”

Faridabad, on the other hand, doesn’t face power outages as much. But with the Haryana government proposing a hike in power tariffs, they remain uncertain about the future as well. Also, RBI has tightened the screw on lending by adding more conditions, irking entrepreneurs. 

However, the sluggish market hasn’t restrained big players such as Havells and NTL from expanding their capacities for the future. “Our margins are currently under pressure but we expect our profitability to significantly improve by 2017. The current investment in creating LED capacity will surely pay off in the future,” says NTL’s Gupta. 

Despite the positivity because of an improvement in business climate, Noida and Faridabad have an uphill challenge in keeping the cluster vibrant, especially as firms are being lured by states hungry for investment and growth. 


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