The edge of a plank | Outlook Business
Home  /  Specials  /  The State of Business 2013  / The edge of a plank | MAR 26 , 2013

Amit Kumar

The State of Business 2013

The edge of a plank
Units in Pantnagar are grappling with erratic power and poor infrastructure, but businessmen are still optimistic

Himanshu Kakkar

Wood masters: Greenply Industries’ plant employs over 1,500 workers

This is Tiwariji’s baby. We are grateful to him,” gushes a businessman in Rudrapur. As we do a double take, he quickly clarifies, “When ND Tiwari was chief minister, his government conceived this industrial area in Terai.” Having reassured us that no paternity war looms here, he continues the spiel about the Pantnagar Industrial Estate, the 3,332-acre planned industrial tax holiday zone that completes a decade this year. Officially, in Uttarakhand’s Pantnagar city, the zone is actually closer to Rudrapur town, he tells us before sharing its longwinded official name — State Infrastructure & Industrial Development Corporation of Uttaranchal (Sidcul) Integrated Industrial Estate.

Even if the paternity of this industrial zone isn’t in question, it still invites its share of controversy and criticism. The day’s Nainital edition of Amar Ujala has a telling headline Pagdandiyan sadkon mein tabdeel, kheton mein ug aaye flat (Alleys turn into roads, flats grow out of farms). In 2001, there were 12 census towns in the state (a census town has a minimum population of 5,000 with at least 75% of the male working population engaged in non-agricultural activities); a decade later, there are 42. The inside pages carry numerous stories on the state-builder nexus. After the reorganisation of state boundaries in 2000, the new Uttarakhand government decided to convert this Terai belt into an industrial zone and the farms became factories.

The inevitable rush of “development” followed — builders, hotels, malls… Needless to say, industry and the state government think this is an achievement. It’s the largest industrial area in the state, with high-revenue industries such as auto and pharma. “In nine years, we have developed a great industrial area that is an example for others. There are 450 factories and roughly 60,000-70,000 people working here,” says HR Nautiyal, regional manager, Sidcul, Pantnagar. 

An unbalanced act

The big daddy of the industrial zone reflects India Inc’s pecking order — the Tatas are top of the heap. Tata Motors, along with some 350 vendors, occupies a third of the industrial estate, that is, 1,000 acres. Unless you’re in the mood for a hike, don’t think about walking across from the plant’s entry point to the administrative blocks — you’ll be exhausted before you get half way. There are huge open spaces everywhere with small commercial vehicles (SCVs) like Ace and Magic lined up on one side. Interestingly, in the interim between Singur and Sanand, Tata made its Nanos at this plant. The company’s not doing too well right now — on a standalone basis, Tata Motors registered a net loss of ₹458 crore in Q3FY13 due to lower demand and sharp increases in operating cost.

But Nitin Tilak, deputy general manager at the Pantnagar facility, is unconcerned. “I keep hearing of poor demand from others, but what we make here has been seeing a 20% growth every year,” he says. The plant makes 1,250 SCVs every day against a capacity of 1,500. Tata’s vendors in the estate vouch for increased orders from the company, confirming that the SCV segment hasn’t followed the decline in the auto sector. “Initially, the project was to supply 30,000 parts a year; today we supply 300,000,” says an official at Delphi-TVS, which supplies fuel injection systems to Tata Motors.  

The other auto majors at the industrial estate — Bajaj Auto, Ashok Leyland, Mahindra & Mahindra — haven’t been as lucky in their segments. That’s impacted their vendors as well. The ₹600-crore Varroc Engineers, for instance, supplies parts for Bajaj Auto’s Platina and Discover motorcycles. From 115,000 components every month a year ago, its orders are now down to 85,000-90,000. “The market is tight and we are working on cost reductions,” says PS Khurana, deputy general manager, Varroc Engineers. “We are also seeking other OEMs as customers.” Tata aside, all auto industry companies in the estate are operating at under 70% of their capacity. But there is more to Pantnagar than auto and not all of them are in the same boat.

A few kilometers away from the auto cluster is Greenply Industries’ plant. About 200 tonnes of wood sourced mainly from Myanmar is processed at this 25-acre plant every day. The adhesive fumes are strong enough to burn your eyes and throat as you pick your way across the shopfloor where the wood is cut, peeled, heated, glued, pressed and shaped for five to six hours. The 1,500 workers who work here in three shifts, though, hardly seem to notice and continue heaving and processing without a pause. At the boardroom, though, it’s the economy that’s causing the irritation. 

The ₹1,706 crore company posted a net profit of ₹29.37 crore in Q3FY13, which is double what it made in the same quarter last year, but less than Q2. “As the nature of our business is aspirational, the weak sentiments ensured that consumers held back purchases,” defends Atul Dixit, vice-president, sales and marketing, ply and board division. Even the B2B segment has been an uphill battle, with projects getting stalled or scrapped. “We pushed hard in the trade and business came, but not without a struggle,” he adds. 

Amidst the clutter

Outside Sidcul’s well-planned industrial estate lies Rudrapur. A city of some 150,000 people, it’s a place obviously confused by the sudden industrial development. There are no underground sewage lines, but there is a five-star hotel and a mall under construction. Huge hoardings of real estate projects with names such as Kingston Estate, Metropolis City and Riviera overlook the old haphazard city. But Rudrapur isn’t new to industry. Even before the state-led planned industrial development, there existed industries here that were interlinked with agriculture locally. The ₹220-crore KLA Rice Mill is one such entity. Situated a little outside town, its plant is quite different from the shiny new shopfloors inside Sidcul.

Towering pyramids of paddy and removed husk dot the courtyard and workers move the grain with huge spades. The rustic impression is dispelled once you spot the optic sorting machine, which picks out the most minute unsuitable rice grain from the massive piles. The 43-year-old company exports ₹150 crore of rice to 24 countries, including South Africa, UAE, Mexico and Australia. “We have linked local farmers with customers in 24 countries,” beams Ashok Agarwal, director, KLA Foods India. Export dependency can be tricky. From 2008 to 2011, the government had banned export of non-basmati rice. About 80% of KLA’s rice exports are non-basmati and so, “we had to diversify into frozen vegetables,” says Agarwal. Now, the company processes 3,000 tonnes of peas, corn and mushroom every year and believes there’s potential for multiple times that quantity.

Already an approved supplier to Walmart Bharti, Agarwal is waiting for the retail FDI opportunity to fructify. “If Walmart sees merit in Doon Basmati, it can be sent across the world, wherever it is present,” he declares  (the retailer is present in only around 15 countries). Business is clearly booming — KLA recently set up an office in South Africa, its biggest overseas market. “We send ₹100 crore worth of rice there every year. Now we want to get closer to the market,” says Agarwal. Incidentally, he’s one of the critics of the industrial estate. “It’s not doing enough for the locals,” he says. 

Troubles ahead

Sidcul’s Nautiyal points out that the agreement with industries is they must employ 70% workforce locally. Most companies claim to be following that, barring the skilled workers who come from outside. But there are many in the nearby areas who dispute those claims. Regardless of where the truth lies, there’s one striking feature of the workforce at the Sidcul estate — their youth. “The average age at the Tata plant, including managers who are in their 40s and 50s, is just 26,” points out Tilak. 

Such an age profile comes with its own challenges. “We have to keep them engaged at all times. They are immature and vulnerable,” says Ritesh Singh, deputy general manager, Dabur, and also general secretary of the Sidcul Entrepreneur Welfare Association. Certainly, there have been numerous spells of strikes — companies such as Nestlé, Britannia and Bajaj have all experienced their share of labour unrest. Companies are trying to ease the situation by interacting with workers after office hours and engaging trainers and so on. It’s been slow to pick up but more are turning up now, says Singh. 

Itchy feet are apparent, though. Saeed Farhan Raza is a 24-year-old pharmacy graduate from Faizabad who’s been with Penam Pharmaceuticals for six months. “I will change my job as soon as I get one with better pay and facilities,” he declares openly. And it’s not unionism. “Currently, these young lads are more career oriented and just want better jobs. The unrest and unionism will probably become a major issue after 10 years, when workforce matures,” says a pragmatic Ashok Aggarwal, director, Penam Pharmaceuticals. 

Instead, Aggarwal is more concerned about the power situation at Pantnagar. A decade ago, the government dangled a surplus-power carrot to lure industry here. Now, six-seven hour unscheduled power cuts a day have become the norm. The ₹5-crore pharma company is an SME that mostly does third-party manufacturing for the big players. “My machine has to run a full cycle uninterrupted for production of tablets. Sudden power cuts mean we need to run the entire cycle again for two hours on generators. That adds 20-30% to our costs,” he says. Other SME pharma and cosmetics companies in the estate (there are about 45) are suffering as well, and operating at 50-60% capacity. “It’s easier for the biggies to manage power, but for SMEs it’s a pain,” agrees Singh.

That’s not the only trouble at Pantnagar. Just reaching this cluster is an exercise in endurance. Especially, the last 40 km stretch from Rampur in UP to Rudrapur. It’s a narrow strip of road riddled with potholes and frequented by heavy vehicles. There was an easier way — flight — but only Kingfisher flew between Delhi and Pantnagar and it’s been grounded. Nautiyal remains optimistic, pointing to proposals such as the four-lane highway from Rampur to Rudrapur when asked about connectivity. He also mentions the proposed multimodal terminal, which locals say has been in the offing for three years now. The infrastructure inside the estate is impressive but that’s not enough, says Singh. “We would like to benchmark with the best, that is, what Sidcul has done in the Haridwar Industrial Estate. Here, we face jams and waterlogging during monsoons.” 

Industry came to Pantnagar wooed by promises of power and tax holiday. The power situation mirrors the rest of India while the tax holiday for the first companies that set up shop here will end next year. What happens now? “The major companies are not here for tax benefits. They got good land for cheap,” says Singh. “They and their numerous vendors will stay here.” Tata Motors’ Tilak echoes that thought, “This is for the long term. We will absorb the costs when the tax holiday ends.” Looks like Tiwari’s baby is still being doted on. For now, at least.

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