Asia Times: Body-blow to Gujarat business


	April 23, 2002	atimes.com

India/Pakistan

Body-blow to Gujarat business
By Raju Bist

MUMBAI - Riots that flared up more than a month ago continue to singe Gujarat, India's most industrialized state. Sporadic deaths are still being reported from different parts of the west Indian state, adding to the tally of 900 people, mostly Muslims, killed in one of the worst instances of communal carnage since the state was carved out from the erstwhile Bombay province in 1960.

The matter has snowballed into a major political controversy with parliamentary proceedings being stalled for the sixth consecutive day on Monday following a reported 16 more deaths at the weekend.

Opposition parties are accusing the Hindu Bharatiya Janata Party (BJP), which rules at both the center and state levels, of complicity in the killings and are asking for the removal of Chief Minister Narendra Modi. Even the National Human Rights Commission (NHRC) has pulled up the state government for its failure to control the riots and provide immediate succor to the affected. The BJP is also worried that Gujarat may come up for discussion at a forthcoming meeting of the Human Rights Commission in Geneva.

But what is more galling for the average Gujarati, as the state's native is called, is that his state's - and community's - business future is at stake. The Gujaratis are India's most business-savvy group and some of them, such as the Mafatlals and Sarabhais, were at the forefront of the industrial revolution in India.

More than Rs20 billion (US$409 million) have been lost due to the riots. Already, insurance claims worth Rs1.5 million have trickled in from 150 business units, and insurance companies have stopped underwriting new policies.

Western Railway, which connects Gujarat to other parts of the country, has reported a setback of Rs400 million due to ticket cancellations. Another Rs575 million has been lost on account of the halting of freight movements.

The losses for road transporters have been more long-lasting. Marauding mobs burned up or badly damaged more than 1,200 trucks and several truck terminals were set on fire or looted. According to one estimate, 450,000 truckers have lost about Rs5 million. Truck operators in India run small operations and these destroyed vehicles will not be easy to replace.

It all began on February 27 when 59 people, including 25 women and 15 children, were killed and 43 injured when a mob set afire four coaches of a train carrying Hindu pilgrims. Retribution was swift - and bloody. Rampaging groups of men (and some women), egged on by provocative speeches from leaders of the right-wing Vishwa Hindu Parishad (VHP - World Hindu Forum) and Bajrang Dal organizations, attacked Muslim localities. As the local police looked the other way, entire families were wiped out and even children were either hacked or doused in kerosene flames. In a matter of days, 93,000 Muslims, who had made the state their home for generations, were forced to shift to refugee camps.

Many of the Muslims were owners of small businesses. But so widespread were the riots and so severe their impact that the effect on business soon transgressed all religious boundaries. The worst-hit have been the textile, chemicals and entertainment industries. According to the Textile Labor Association (TLA), the textile sector has lost about Rs6.5 million due to stoppages of production and a halt in the sale of fabric manufactured in the state's textile mills, process houses and powerlooms. Since chemicals were made through batch processes, sudden closure of factories resulted in their getting spoiled, thus rendering them useless. The Basic Chemicals, Pharmaceuticals and Cosmetics Export Promotion Council estimates losses at over Rs550 million. Entertainment has been crippled with cinema halls, multiplexes and restaurants registering as much as a 65 percent loss of occupancy.

The cellular telephone industry registered a 35 percent drop in business. Call volumes picked up immediately after the fights broke out when people frantically started making emergency calls. But these fell down sharply later on with the business community - the bulk of the state's 450,000 cellular subscribers - staying away from business talk of any kind.

Domestic airlines Indian Airlines (IA) and Jet Airways have been badly affected. The riots in Gujarat have also cast their dark shadow on business activities in other states. Tea auctions in south India have been adversely hit by the lack of demand from Gujarat buyers. About 30 percent of the total offerings are going without adequate bids because of the absence of interest from Gujarat buyers. Not only are large tea companies like Hasmukh Tea owned by Gujaratis, the community has a virtual monopoly on the tea vending business in major Indian metros like Mumbai.

The riots are a big blot on the business-savvy image of a state which has spared no efforts in wooing industrialists. In the past two-and-half years, Gujarat has attracted fresh investments totaling Rs120 billion. Projects worth Rs847 billion are in various stages of implementation. Two-thirds of these are infrastructure projects and one-third in manufacturing.

Gujarat is the only Indian state that has a mechanism in place (through the State Industries Commissionerate) to monitor the progress of projects under implementation. It is now all set to introduce a coordination mechanism between the state and central governments to address any adverse impact of central policies on the state's industrial growth.

According to the state's industrial policy announced last year, Gujarat is going all out to "achieve sustainable industrial development". The policy includes objectives such as making the state more attractive to improve the flow of investment in the industrial sector; promoting information technology (IT), high-tech and knowledge-based industries; improving exports from industrial units of the state; encouraging the development of small scale industries and service sector industries; environmental protection; and promoting industries in backward areas.

The state takes a pro-active role in market promotion activities, such as buyer-seller meets and trade fairs. Gujarat is now setting up two large readymade garment parks in Ahmedabad and Surat to add value to the existing textile industry framework. There is also a proposal to allow the setting up of captive power plants to energize clusters of small-scale industries.

Some industrialists are also attracted to Gujarat for its propensity to turn a blind eye to activities that would attract the stick in other states. For instance, Gujarat is notorious for its lax pollution control laws. So much so, that chemical units, mainly dye manufacturers from other parts of the country, have set up base in Vapi in south Gujarat, and have leashed environmental havoc on the place. Not only is the water and air polluted there, even the land surface is botched with colored dyes for miles.

In its zeal to emerge as the most industrialized state, Gujarat has followed only a single-point formula: keep industrialists happy. Now, its munificence is coming under the glare of higher authorities. According to the Comptroller and Auditor General (CAG), a watchdog body set up by the Indian parliament, last year the Gujarat government had the dubious distinction of allowing sales tax waiver of Rs41 billion. Industry watchers say Gujarat has often been found bending backward to accommodate big industrial houses under the guise of tax exemptions.

This business-friendly spirit of the Gujarat government has caught the fancy of big Indian business houses that have started operations there. India's biggest private sector company, Reliance Industries Ltd (RIL), has the bulk of its operations in the state's Ahmedabad and Hazira localities.

Other major groups to set up base include Essar Steel, Grasim Industries, Cadila Pharmaceuticals, Apollo Tires, Cromptom Greaves, General Motors India Ltd, Saurashtra Cement and Asian Paints. Even public sector enterprises have not lagged behind and have established impressive plants churning out cement, chemicals, minerals, telephone cables and textiles, among other products.

Now, however, prospective investment into the state is on hold. Investors have adopted a "wait and watch" approach. "There seems to be anxiety in businesses' mind because of the state government's perceived inaction in curbing the riots," says a Mumbai-based banker. "The riots have had a major impact on individuals and the livelihood of many people has been destroyed."

"Business sentiment has been adversely affected. It may take three to four months for complete normalcy to return. Investors are keenly watching the steps that the central and state government will be taking," says F B Virani, chairman of the Gujarat chapter of the Confederation of Indian Industries (CII), a premier industry association.

"There is no doubt that the violence will eventually abate one day. What is more worrying is the negative signals it has already send to potential investors," says an official at the Gujarat Chamber of Commerce. "Who would like to come to a state where 80 brand new Opel Corsas were torched at the General Motors plant and three new supermarkets, four warehouses, a large textile retail showroom and Bata's shoe showroom were burnt to the ground?" he asks.

Adds an industry expert, "Experience shows that very few investors are prepared to set up projects in communally volatile environs and Gujarat tops the charts for being a communal hotbed these days. No hurdle is most difficult to remove than the problem of communalism. It becomes very difficult when your workers are identified by their religion and not [by] what they do and how much they contribute."

One big danger for the country is the fear that fundamentalist elements, encouraged by the Gujarat government's laxity in controlling the riots, may repeat the carnage in other places. Gujarat, therefore, could serve as a sad example of things to come if communal violence erupts in other Indian states.

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