Chhattisgarh Infrastructure Report

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2 S.K.N. Nair Adviser, NCAER Saumen Majumdar Senior Economist, NCAER Series Editors: Aasha Kapur Mehta, Pradeep Sharma Sujata Singh, R.K.Tiwari 2006

3 Acknowledgments We express our gratitude to: UNDP for the generous support that enabled us to conduct this study as part of the UNDP funded Economic Reforms programme under which the NCAER Centre for Infrastructure and Regulation has been set up. Shri Shailesh Pathak, I.A.S, former Managing Director, Chhattisgarh Infrastructure Development Corporation (CIDC) for his inputs on the initial work on this report, the facilities extended by CIDC to conduct this study and active support in arranging discussions with important government officials. Shri P.K. Chakravorty for help in arranging meetings with various stakeholders. Shri J.P. Soni and Shri L.C. Dashore for discussions regarding infrastructure plans for the state. The many official as well as non-official stakeholders for their interest and cooperation and for sparing their valuable time for us. Ms. Suparna Das and Ms. Archana Jaba, researchers attached to the Centre for Infrastructure and Regulation who provided excellent research assistance for this report.

4 Table of Contents Introduction 1 Geographical Features 3 Natural Resources 4 Demographic Characteristics 7 The Potential Engines of Growth in Chhattisgarh 8 Growth of Cluster-based Industries 12 Infrastructure - A Prerequisite for Economic Growth in Chhattisgarh 15 Conclusion 18

5 List of Figures 1. District Map of Chhattisgarh 1 2. Per Capita Income of Indian States 2 3. District Map of Chhattisgarh with Artificial Demarcation 3 4. Rainfall and Rainy Days in Chhattisgarh 4 5. Total Forest and Non Forest Area in Chhattisgarh 5 6. Mineral Map of Chhattisgarh 6 7. Total Population and Population Density in Consumption of Crude Steel 8 9. Road and Mineral Map of Chhattisgarh State Ranking in Transport Sector State Ranking in Power Sector State Ranking in Information Technology Sector 17

6 S.K.N. Nair, Adviser, NCAER Saumen Majumdar, Senior Economist, NCAER * 1 Introduction There is wide consensus that infrastructure shortcomings are among the chief obstacles to accelerated economic growth. Driven by this realisation, key infrastructure sectors like power, telecommunications and roads are undergoing reforms at various levels of policy, regulation and governing statutes. Through these reforms, large additional investments are being attracted and economic growth is receiving a fillip. Chhattisgarh is richly endowed with natural resources including minerals, plentiful water and dense forests. Figure 1: District Map of Chhattisgarh This paper tries to assess the status of physical infrastructure in Chhattisgarh and the infrastructure needs that require to be addressed for it to realise its growth potential. The recently constituted state of Chhattisgarh, which is economically backward, but rich in natural resources, was selected for this purpose. The state of Chhattisgarh was carved out of the state of Madhya Pradesh in central India on 1 st November The 135,000 square kilometre geographical area of Chhattisgarh accounts for four percent of the total area of India. It is bounded by Uttar Pradesh and Jharkhand in the north, by Orissa in the east, by Andhra Pradesh in the south and by Madhya Pradesh and Maharashtra in the west (Figure 1). * The views expressed in this paper are those of the authors and do not necessarily reflect the views of GOI, UNDP, IIPA or the collaborating institutions. 1

7 Figure 2: State-wise Per Capita Income of India in (At constant prices of ) States Scheduled Castes and Scheduled Tribes comprise 12 and 32 percent, respectively, of the state s population. Population density is low and the per capita income is well below the national average (Figure 2). Chhattisgarh has tremendous growth opportunities and this paper outlines some growth strategies for the state, which are consistent with its vast endowments. It also delineates the infrastructure requirements needed to enable this. 2

8 2 Geographical Features The state has 16 districts. This paper broadly classifies these districts into three broad categories (Figure 3): 3. South Chhattisgarh including Rajnandgaon, Dhamtari, Kanker, Bastar and Dantewada. 1. North Chhattisgarh comprising Koriya, Surguja, Korba, Jashpur and Raigarh; 2. Central Chhattisgarh comprising Bilaspur, Janjgir, Kawardha, Durg, Raipur and Mahasumund; and Figure 3: District Map of Chhattisgarh with Artificial Demarcation North and south Chhattisgarh have similar characteristics in terms of natural endowments and demographic profile. The demographic profile of central Chhattisgarh is markedly different from the rest of the state. The railway line connecting the eastern and the western part of the country passes through central Chhattisgarh. Laying of the railway line has led to the overall development of the region and enabled the movement of goods and the development of economic centres based on manufacturing and trade. Therefore, central Chhattisgarh is characterised by the presence of industries and more urbanisation than the rest of the state. The central districts of Durg and Raipur constitute the industrial belt of Chhattisgarh and are more densely populated than the northern and southern districts. The mineral-rich tribal communities of Chhattisgarh inhabit the densely forested, mineral-rich districts of the north and south. As will be evident later, this artificial demarcation has implications for the infrastructure requirements of the state. 3

9 3 Natural Resources The bounty of nature in terms of abundant water, mineral and forest resources provide the relatively new state with rare opportunities for development. Five major rivers flow through Chhattisgarh. These are Hasdeo and Gej in the north, Mahanadi and Seonath in the central region and Indrawati in the south. 3.1 Water The state of Chhattisgarh receives 1292 mm of rainfall annually, which is higher than the all-india average of 580 mm. As can be seen from Figure 4, the northern and southern districts of Chhattisgarh receive more rainfall than the central districts (except Durg). Figure 4: Rainfall and Rainy Days in Chhattisgarh Although the state has abundant water resources, it lacks the necessary infrastructure to use them efficiently. The utilisation of irrigation potential is significantly below the national rate. Budgetary allocation for the development of irrigation needs to be increased. This will help the farmers to increase the cropping intensity. The government has recently launched the Indira Gaon Ganga Yojana, which will ensure the provision of at least one dependable and environmentally sustainable water source in every electrified village in the state. As can be seen from Figure 5, corresponding to the differences in levels of average rainfall, the northern and southern districts of Chhattisgarh have a higher forest to non-forest land ratio than the central districts. This is also corroborated by the fact that the central districts are more developed with a large number of industries, while the northern and southern districts are predominantly underdeveloped. Some of the important trees found in the state are sal, teak, shisham, 4

10 Natural Resources Figure 5: Total Forest and Non-forest Area in Chhattisgarh 3.2 Mineral Wealth Chhattisgarh is richly endowed with around 28 varieties of minerals. These include coal, iron ore, dolomite, bauxite, limestone and cassiterite used in heavy metallurgical and chemical industries. These minerals are required by critical basic industries that can be established in the state. Reserves of precious metals and stones such as gold, diamond, garnet, corundum and quartzite have also been discovered in Chhattisgarh. This could make the state an important industrial centre by making possible the agglomeration of metallurgical, power, infrastructure and gem and jewellery industries in the state. bamboo, tendu and saj. Some of Chhattisgarh s important forest products are - timber, resin, gum, tendu and a variety of medicinal plants such as amla, brahmi, lemon grass, khus grass and kali haldi. The state s forest-based products can contribute significantly towards the generation of employment opportunities and provide raw materials to small scale industries like saw-mills, furniture units, the bidi industry, the silk industry, solvent plants and tanning and dyeing units. Currently there are about ten thousand industrial units that depend on forest produce in the state. During the period , the total revenue from forest produce was Rs. 104 crores. Chhattisgarh has a variety of wildlife including animals such as tiger, leopard, bear, lemur, deer, wild boar and python. There are three national parks and 11 sanctuaries in the state. The northern and southern districts have many tourist spots, which are open throughout the year. With proper transport links, these tourist spots will become more accessible. The northern districts of Chhattisgarh have rich coal and bauxite reserves (Figure 6). Limestone is predominantly found in the central districts. The southern districts have abundant iron ore reserves. As the mineral endowments of Chhattisgarh are distributed over the different regions of the state, the development of mineral-based industries requires good transport links, which are presently lacking. Chhattisgarh is an important producer of minerals in India. In 2001, the state accounted for 25.2 percent of the total iron ore production in India, making it the largest producer of iron ore in the country. Bastar district is the sole producer of the tin ore called casseterite in India. In 2001, Chhattisgarh accounted for 23 percent, 15 percent and 9.5 percent of the all-india production of dolomite, coal and bauxite respectively. Korba, Dantewada, Durg and Raipur are the major mineral producing districts of Chhattisgarh. The existence of rich mineral deposits makes infrastructure development in the state imperative for further sus- 5

11 Figure 6: Mineral Map of Chhattisgarh tainable economic development. This can be illustrated by the example of the famous Bhilai steel plant. So far this plant has depended on the supply of iron ore from the Dalli Rajhara mines in nearby Durg district. This enabled it to save on transport costs, making it the only profit making steel unit of SAIL. Over the next five years these iron ore reserves may get exhausted and force the closure of the Bhilai plant. For the plant to remain in operation, a railway line linking Durg to Jagdhalpur via Raughat and Dalli Rajhara must be constructed as proposed, as this will enable the transportation of the bulky mineral ore from the mines in the southern districts of Chhattisgarh. There is need for creating north-south corridors either by laying railway lines or by laying roads. Since, Chhattisgarh s infrastructure development is centred around transportation of bulk commodities, it is imperative that railway networks are developed, as these are more cost effective in transporting bulk quantities of heavy commodities. These railway lines may later be connected with roads for comprehensive railroad connectivity. 6

12 4 Demographic Characteristics In 2001, Chhattisgarh had a population of 20 million, which was 2 percent of India s population, making it the seventeenth most populous state of India percent of the total urban population of India resided in Chhattisgarh in The regions near the industrial belt of Chhattisgarh are more populated than the districts in the north and the south, which are further away from the industrial zone (Figure 7). Thus, the central districts of Bilaspur, Janjgir- Champa, Durg and Raipur have a higher population density than the other districts of Chhattisgarh. The state has a large tribal population, which accounts for a little over one third of the total population of the state. This has significant implications for the task of development planning, as the tribals reside in widely dispersed habitations and have a unique way of life. Figure 7: Total Population and Population Density in

13 5 The Potential Engines of Growth in Chhattisgarh Given the huge natural resources available in Chhattisgarh, there are many possible opportunities of growth. As pointed out earlier, it is the sole producer of casseterite in India, which is concentrated in the Bastar and Dantewara districts. The total reserves are estimated to be around 30 million tonnes. Casseterite is used for the production of tin. Estimates also suggest that around 25 tonnes of corundum is available in Dantewara district, five tonnes of gold is available in the Raipur, Jashpur and Mahasammund districts and gemstones in the Raipur and Bastar districts. These are potential inputs for the gem and jewellery industry. In view of the availability of limestone, iron ore and coal for the iron and steel industry and limestone and silica for the cement industry, there will be a corresponding increase in the mining of these minerals as the demand for them increases. Therefore, it may be argued that mining based industries will grow and consequently generate more employment opportunities. Chhattisgarh has abundant coal reserves. One estimate suggests that there is potential for 30,000 MW of thermal power generation. For a power deficient country like India, Chhattisgarh has the potential to sell excess power and earn revenue. Recent deregulations in the Figure 8: Consumption of Crude Steel 8

14 The Potential Engines of Growth in Chhattisgarh electricity sector have made it easier to set up generating units and buy power from the lowest priced seller. Chhattisgarh is also endowed with fertile land and adequate rainfall and water resources required for the production of rice and pulses. Consequently, it is also suggested that Chhattisgarh may also turn out to be a potential rice bowl. Providing irrigation facilities can create rural employment opportunities. Approximately 50 percent of Chhattisgarh is under forest cover in the predominantly tribal northern and southern districts of the state. To generate gainful opportunities for these backward districts, it is suggested that opportunities for value addition be identified and industries using local forest produce as inputs be set up. After careful consideration of various growth opportunities, it is our view that mineral-based and forest-based industries are two potential engines of economic growth in Chhattisgarh. A carefully considered land use policy would have to be put in place to enable an optimum level of forest conservation. It is evident from the figure given above that mineral based industries are the key to Chhattisgarh s development. In 2000, the per capita consumption of crude steel was 846 kilograms in South Korea and 128 kilograms in China. In comparison, India s per capita steel consumption was around 31 kilograms in the year If our level of per capita consumption catches up with that of China, India will require around 100 million tonnes more of crude steel. This will lead to a huge demand for the domestic crude steel industry. Chhattisgarh, being one of the largest producers of iron and steel in the country, will profit by way of royalty. In this regard, the state has requested the centre to fix the royalty at a certain percentage of the market price of the minerals. Since the market price of minerals increases over the years, the royalty arising out of the export of the minerals from the state will also increase over time. The setting up of value added industries based on iron and steel production, means more employment opportunities for Chhattisgarh. As discussed later in this report (Chapter 6), one way to make this happen is to develop cluster-based industries. Realising the huge potential of this sector, the state has set itself a target of doubling the contribution of minerals to the net state domestic product and ensuring occupation and shelter to all tribals affected by mineral exploring activities. 5.1 The Mining Industry: Implications for Chhattisgarh In tune with the economic reforms underway, important amendments have been made to the Mines and Minerals Regulation and Development Act, The amendments including the renaming the Act as the Mines and Minerals Development and Regulation (MMDR) Act - are aimed at attracting private investment including foreign direct investment (FDI) into the sector. The Government of India has allowed up to 100 percent foreign equity participation through the automatic route in the case of exploration and mining of all minerals, except diamonds and precious stones where only 74 percent FDI is permissible via this route. More powers have been delegated to the state governments. A new clause relating to reconnaissance permit has been added in the Act, as a stage distinct from, and prior to, actual prospecting operations, in order to make investment in the state-of-the art technologies in mineral exploration more attractive. Consequent to amendments to other Acts, under the present dispensation, the power of approving mining plans for 29 non-metallic and industrial minerals in respect of open cast mines has been given to the state governments. The state governments have been given a time frame for the disposal of mineral concession applications and for the approval of mining plans. In this regard, the state of Chhattisgarh has to create efficient institutions to deal with these matters in a time-bound manner. The non-ferrous metals and mining sector have been opened up to the private sector. Consequently, the government of Chhattisgarh can think of granting mining concessions for profitable mineral sites to private players through competitive bidding or some form of auctioning, so that the state can maximise revenue. 9

15 5.2 Government Revenues The mining and mineral industry contributes revenues to the central and state governments through payments of royalty, dead rent, cess, sales tax, excise duties and custom duties. Royalty and dead rent As per Section 9 of the MMDR Act, the holder of a mining lease is required to pay royalty to the state government in respect of any mineral removed or consumed at the rate specified in the Second Schedule of the Act. The central government, by a notification in the official gazette, may amend the royalty rates specified in the Second Schedule of the Act once in three years. For 30 minerals, the royalty is based on sale price on ad valorem basis and for metals like copper, lead, tin, zinc it is based on the London Metal Exchange prices. For gold it is based on the London Bullion Market Association price. For 18 minerals, including coal and lignite, it is a fixed amount per tonne of despatch. Excise duty In addition to royalty, excise duty (@ Rs.3.50 Rs.4.25/ tonne) on coal production is levied by the central government. The purpose of this excise duty is to carry out protective works and developmental activities in the coal mines. The excise duty on mineral based manufactured products is levied and collected by the central government. Cess Cess is collected on some minerals (mica, limestone and dolomite, iron-ore and chromite) to set up welfare funds to provide housing, medical care, social security, education and recreation facilities for workers employed in these mines. Cess is collected by the central government, and the Ministry of Labour is responsible for the administration of these funds. Sales tax Sales tax is levied by the central or the state government and is subsequently collected by the state government. Customs duty The customs duty on imports of minerals and mineral products is levied and collected by the central government. Royalty is imposed on the mining industry to generate revenue and the funds collected go to the general pool of the state government. These funds should be transferred to the local authorities for the overall development of the mining areas, which are generally located in remote, forest or tribal areas and that require funds for development. The tribal areas in general are the most backward in the state of Chhattisgarh. There is need for increasing health facilities and imparting education for developing skills that can enable gainful employment in the tribal regions of the state. For example, the government of Maharashtra has taken a policy decision to allocate a part of the royalty collected on mineral production in the state, for the development of mineral producing areas. The state government has set up a Mineral Development Fund and 10 percent of the royalty collected is transferred to this. This Fund is to be spent on the development of infrastructure in districts having mining activities and also in the development of mines in the ratio of 2:1 respectively. With huge reserves of coal, Chhattisgarh would like to see the central government also revise the royalty rates of coal. The frequency of revision and the rates themselves are in need of review. These rates need to be based on ad valorem rates. With about 15 percent of the total coal production in the country coming from Chhattisgarh, the state stands to gain if the royalty rates on coal are pegged on an ad valorem basis. As per the current practice of fixing rates by the central government, it seems that the real rates of coal have fallen over time implying that there is a loss of revenue for states over time in real terms. 5.3 Institutional and Legal Reforms Presently, one cannot mine a deposit which lies in a declared forest area. There are many excellent mineral 10

16 The Potential Engines of Growth in Chhattisgarh deposits available in such forest areas in Chhattisgarh. A way out must be found for commercially exploiting such deposits for the benefit of the economy, even while maintaining the requisite forest cover and eco-balance. There is multiplicity of legislation: laws related to forests, environment, mining and labour. All these have a bearing on mining operations in the state. To encourage speedier growth of the private sector investment in the sector, there is a need to streamline the legislation according to the requirements of the day. Despite being among the few mineral-rich countries in the world, our expenditure on exploration, on an average, is less than one percent of global spending. For a mineral-rich state like Chhattisgarh this implies low utilisation of potential reserves. Deeper probing of known deposits, intensive and extensive belt-wise mineral exploration, including covering areas out of the traditional mineral belts and even basement rocks will have to be undertaken. To do this effectively and to acquire higher capability in all fields of mineral exploration and development, there is a need for concerted action plans to be drawn up by the concerned organisations of Chhattisgarh in collaboration with central government agencies. This will call for technology upgradation for field data acquisition, state-of-the art laboratory back up and development of expertise. Focus areas will include air-borne surveys; ground geo-physical surveys, exploratory drilling, marine survey, use of digital equipment for surveys, etc. 5.4 Environmental Damage due to Mining The impact of mining activities on the pollution of air, water, land, soil quality, vegetation including forest ecosystems, and on human health and habitation will become a matter of concern for the state of Chhattisgarh in the near future. Any deterioration in the physical, chemical, and biological quality of the environment affects human health as well as flora and fauna. The magnitude and significance of the impact of mining activities on the environment varies from mineral to mineral and also on the potential of the surrounding environment to absorb the negative effects of mining due to the character of mineral deposits and the size of mining operations. Mineral production generates enormous quantities of waste/overburden and tailings/slime. Some of the environmental damage that can be caused by the minerals found in Chhattisgarh is given below. Limestone mines are categorised as shallow operations and are generally confined to a depth of metres. Currently, the overburden and waste being generated is used to refill the abandoned pits to up to one third of the mined out areas. In case of iron ore, washing plants are installed at the sites where the ore is mined. Slime is generated as a result of washing. In order to check the flow of slime to watercourses and agricultural land, it is necessary to construct garland drains, check dams, contour drainage and plantations. Water treatment is also necessary before it is released into the river system. The main pollution consequent to bauxite mining is because of red mud. Making barriers or dams in lowlying areas generally confines the red mud. Water is recirculated to the process plant. Red mud is also used in making bricks. The environmental damage caused by the mining of minerals affects the livelihood of tribals. Therefore, revenues collected by the government should be spent on social welfare schemes that benefit tribals. Environmental damage may also affect tourism, which is one of the drivers of growth in Chhattisgarh. It has the potential of generating employment and showcasing the rich tribal culture of the state. It is therefore imperative that the government minimise environmental damage without compromising the mineral development of the state. 11

17 6 Growth of Cluster-based Industries As emphasised earlier, one of the key facilitators of economic growth in the state of Chhattisgarh is building successful cluster-based industries. This will not only help to create jobs, but will also generate incomes through value addition to the abundant minerals found in the state. To do so, the state needs to know what the sources of agglomeration are, which factors are responsible for agglomeration of industries and which industries are most likely to agglomerate. Lall et al, (2001), cite three sources of agglomeration economies: (1) at the firm level from improved access to market centres, (2) at the industry level enhanced intra industry linkages and (3) at the regional level inter-industry urbanisation economies. The authors use a combination of plant level and disaggregate physio-geographic data to examine the contribution of agglomeration economies to economic productivity. Their results show that there is considerable variation in the sources and magnitudes of agglomeration economies between industrial sectors. In particular, results indicate that access to markets through improvements in inter-regional infrastructure is an important determinant of firm level productivity, whereas the benefits of locating in dense urban areas do not appear to offset associated costs. Therefore, an option for improving efficiency in industry location decisions is to improve the availability and quality of inter-regional transport infrastructure linking smaller urban areas to the rest of the network. This would enhance market access for manufacturing plants and also provide opportunities for standardised manufacturing activities to move out of high cost large urban centres to relatively lower cost secondary centres. In this context, Chhattisgarh s emphasis on building roads is well placed and will definitely pay rich dividends in the future. Results from the same paper show that there is considerable heterogeneity in the sources and magnitudes of agglomeration economies between industry sectors. For example, market accessibility (MA) has the strongest effect for the leather products industry. The coefficient of 0.66 implies that a 10 percent change in MA would lead plants to increase output by 6.6 percent or that a doubling of MA would increase plant output by 66 percent with no additional plant level production inputs. Similarly, positive and significant effects of 0.09 for MA are found for SIC 36 (electronics and computer equipment). However, the net effects of improving MA are not always positive. While improved market access potentially increases the demand for a firm s products and enables investment in cost saving technologies, it also opens avenues for competition with other domestic firms as well as with products made internationally. For SIC 32 (non-metallic mineral products) and 35 (machinery and equipment), the coefficients for MA are and respectively. For SIC 35 this would mean that the net effect of doubling MA would reduce plant level output by 10 percent. In addition to MA, the authors used travel time to transshipment hubs (DHUBS) as a measure of scale economies from improved market access. It is expected that increase in travel time to DHUBS would have a negative 12

18 Growth of Cluster-based Industries effect on output as firms would incur higher costs and reduced profitability. The coefficients for DHUBS are negative for six of the nine sectors and statistically significant for four sectors. The strongest effects are for cotton textiles and leather products, where the coefficient of means that a 10 percent increase in travel time to the nearest port would reduce plant output by 2.3 percent. Conversely, reduction in travel time by improving transport links would increase plant level output. In general, the authors find that urban density has a negative effect on plant level output. The coefficient of urban density is negative for six of the nine sectors. However, the coefficients are significant in two sectors beverages and tobacco (SIC 22) and cotton textiles (SIC 23). The coefficient of 0.20 for beverages and tobacco means that a 10 percent increase in a district s urban population density would reduce plant level output by two percent. Similarly, for cotton textiles, the coefficient of 0.14 means that a doubling of urban population density would reduce plant level output by 14 percent. Even though the negative coefficients for the other four sectors are not significant, the results point to a trend that the economies of urban concentration arising from factors such as access to specialised financial and professional services and inter industry information transfers do not offset the high costs of locating in dense urban areas. These results are not unexpected as Indian industry in general is inefficient and uses standardised processes and product designs without much innovation. As a result, firms in these industries cannot afford the relatively high wages and rents in dense urban areas and prefer to locate in smaller/secondary centres. The authors also contend that firms in the sample that they analysed tend to benefit from internal scale economies driven by market accessibility. Estimates for two indicators market access and proximity to DHUBS indicate that improved market access is likely to provide incentives for increasing the scale of production. It also allows firms to invest in cost reducing technologies. It is difficult to make generalisations about the effects of localisation economies, though the net gains from intraindustry transfers are not likely to be very high in the generally inefficient Indian industry. Even between sectors, the benefits of localisation are higher in the machine tools (SIC 35) and electronics (SIC 36) sectors, which have relatively higher levels of technology embodied in production processes. 6.1 Favourable Cluster-based Industries It may be pertinent to point out that the Chhattisgarh Government s Industrial Policy ( ) outlines agro-based, forest-based and mineral-based industries as important growth areas. The aim is to build industry clustering around these industries. Arguably, it is a very difficult task and the only way to make it succeed is for both the government and industry associations to take joint initiatives to make it successful. This requires identification of the factors leading to the success of cluster-based industries like the bicycle industry in Ludhiana, the fan industry in Hoogly, or the textile industry in Tiruppur. Valuable lessons may be learnt from these case studies. Although they may not be replicable, they may throw important light on the setting up of cluster-based industries in the state. Apart from this measure, the government should work to develop networks among the key players in individual clusters and help form alliances among firms, technical institutes and business support institutions. The government will focus on attracting external investments by forging partnerships with the private sector and working closely with the relevant industry/ associations for manpower needs. The importance of the agro-based and forest-based industry lies in its significant contribution to the state gross domestic product and in the provision of employment opportunities to 80 percent of the state s rural population. The following categories of industrial units are earmarked for development: Industries involved in the processing of food grains, fruits, vegetables, herbal and medicinal plants. 13

19 Industries based on livestock processing and fisheries. Development of specialised industrial estates with provision for infrastructure facilities like cold storage, post harvest storage and air freighting of fruits, vegetables and other perishables. Making available wasteland or degraded land on long-term lease for plantation purposes, to encourage forest-based industries. In order to promote integrated agro industrial complexes, the state government will allot wasteland up to 500 hectares (in exceptional cases up to 1000 hectares) for such projects, based upon the technical and financial viability of such schemes. Incorporating special provisions in the Agriculture Land Ceiling Act to encourage corporate farming and integrated processing and value addition units. Developing agro processing information and technology centres in collaboration with international institutes. Proactively liaising with financial institutions to facilitate funding of value addition centres for grading, packaging, distribution, storage, etc. Predictably, the Industrial Policy also points out that as far as mineral-based industries are concerned, it is beneficial for the government of Chhattisgarh to concentrate on processing the minerals to maximise value addition in the state. Due to abundant mineral resources, this sector has immense potential for attracting large investments and generating employment. As the sole producer of casseterite, Chhattisgarh may also attempt to develop value added industries based on tin. Clusterbased industries specialising in aluminium and allied products may also be developed because of the availability of large amounts of bauxite. Accordingly, the government will need to take steps to: Undertake modern methods of exploration like remote sensing and arrow magnetic surveys to prepare the resource inventory of various minerals across the state. Prepare zoning atlases of all districts to identify special mining zones for optimum and streamlined mining activities with least disturbance to the ecological balance. An appropriate system will be formulated for obtaining clearances through a nodal agency under a time bound schedule for undertaking mining activity in these special mining zones. Forge partnerships with other nations/states for exploration of minerals. Promote mineral-based industries including beneficiation and enrichment of low-grade minerals. Special focus would be to develop industrial clusters based on the following industries: iron and steel, cement, aluminium, chemicals and granite. Establish a gems and jewellery park to create jobs and add value to raw stones. This will result in higher royalty/excise collections as applicable. 14

20 7 Infrastructure: A Prerequisite for Economic Growth in Chhattisgarh Given the natural endowments of Chhattisgarh, infrastructure development is extremely critical for enabling the state to exploit its potential for rapid economic growth. Currently, the northern and the southern districts of Chhattisgarh, blessed with abundant reserves of mineral and non-mineral resources and dense forests, are largely cut off from the industrial belt in the central part due to the lack of road and railway connections. This means a loss of potential addition to the wealth of Chhattisgarh due to sub-optimal industrial development in the central region. Thus, there is an urgent need to ensure the connectivity of the northern and southern districts with the industrial central districts. The PWD road policy of Chhattisgarh has outlined, among others, the promotion of two north-south and four east-west high-speed access corridors to develop Chhattisgarh into a regional logistics and transshipment hub. The Chhattisgarh government s road policy outlines four strategies: 1. Integration of road development and management 2. Participation of private sector 3. Dedicated funding and 4. Capacity building of state institutions. Of these four strategies, the first strategy is extremely relevant and consistent with infrastructure development as outlined in this report. This strategy is based on clusterbased development as envisaged by the Chhattisgarh government for the overall economic and social development of the state. The government therefore plans to promote and improve the road network with the objectives of: Developing high speed access corridors Linking economic clusters i.e., industrial areas, commercial centres and agricultural mandis, and Integrating Pradhan Mantri Gram Sadak Yojna (PMGSY) with the overall road development programme. While the first two objectives will ensure comprehensive road connectivity of the important economic centres, the last objective will ensure that this connectivity is also linked to the rural network which, though now largely absent, is taking shape through the PMGSY. The other strategies of Chhattisgarh s road policy revolve around methods to finance road projects and the augmentation of managerial capacity for expediting roadbuilding projects. These include strategies for private sector participation. Private sector participation will need to increase manifold to meet overall funding needs. To achieve this, the government will, among other things: Formulate guidelines to support private sector participation; 15

21 Figure 9: Road Map of Chhattisgarh with regard to transport vis-à-vis other states. Figure 10 shows the ranks of the states on the basis of rail route per nonforest area, road length per non-forest area, percentage of villages connected by roads, percentage of total roads surfaced and percentage of urban roads surfaced. Road length and rail route length per non-forest area will determine the density of the transit in the state, while the percentage of villages connected will determine the connectivity and accessibility of the state. The percentage of total roads and total urban roads surfaced indicates the quality of the roads. As evident from the ranking of the states, Chhattisgarh ranks very low on this indicator and there is urgent need to enhance road connectivity across the state. The state s performance in the power sector and information technology is also shown in Figures 11 and 12 respectively. The Ensure transparency in bidding and selection criteria; and Figure 10: State Ranking in Transport Sector Provide fiscal support to private sector initiatives. The government will take steps to ensure a dedicated funding mechanism for the development of roads in the state. This will ensure not only systematic maintenance of roads but also timely completion of projects. The government seeks to strengthen its institutions to enhance project preparation, contract and project management skills. The government will progressively focus on playing a more broad-based role in road management, with greater emphasis on planning and project management. Having outlined the state s transport policy, it is imperative to know how the state fares 16

22 Infrastructure: A Prerequisite for Economic Growth in Chhattisgarh Figure 11: State Ranking in Power Sector For this to happen, the state has to offer incentives to private firms. With only 28 per cent of the Indian population having access to improved sanitation facilities, it is imperative that the state has an investment plan for urban infrastructure in place. Raipur, the capital of Chhattisgarh, has no underground drainage facilities and the situation in other cities is worse. Thus, investment in urban infrastructure is needed on a priority basis in Chhattisgarh. If urban cities are upgraded, then with the consequent improvement in the quality of life, there will be an incentive for industries to set up factories, as it will be easier for them to attract skilled labour. This is especially true for sectors like information technology. Figure 12: States Ranking in Information Technology Sector power sector is ranked based on electrical energy consumed per sq. kilometre, per capita electrical energy consumed and percentage of villages electrified. Chhattisgarh has surplus generating capacity in power. More significantly, with the availability of large reserves of coal, its potential to generate more power is very high. This power generation can sustain the industrial clusters that are envisaged for the state. The ranking in information technology is based on telephone density, percentage of villages connected by phones and Internet subscribers per 1000 people. Chhattisgarh s rank in the information technology sector is very low and capacity has to be developed in this area. 17

23 8 Conclusion As mentioned in previous sections, the state of Chhattisgarh is well endowed with mineral deposits and there is potential for forest-based industries. Industrial development is mostly confined to the main east-west rail route line. For the state to develop further, it is essential that landlocked areas are made accessible. Therefore this paper envisages that an infrastructure based development plan is essential for the state. The growth strategies for the state revolve around its ability to stimulate industrial clusters based on abundant mineral endowments. Another growth strategy is to foster the development of forest-based industries. This will help to generate employment opportunities for the state s backward communities. The third growth strategy is to develop the mining based industries. This will help the state to earn royalty from the extraction of minerals, which is of critical importance to finance various sociowelfare policies of the state. It is evident that for these growth strategies to succeed it is important to improve the availability and quality of inter-regional transport infrastructure, linking smaller urban and rural areas to the rest of the network. This would enhance market access for manufacturing plants and also provide opportunities for standardised manufacturing activities to move out of high cost large urban centres to relatively lower cost secondary centres. Expansion of this network will also improve the transshipment of raw or semi processed minerals to industrial clusters located inside the state for further value addition or to other states for export. The success of these growth strategies will require an abundant supply of electricity. The state has huge resources of coal. More generating capacity based on coal will need to be created in the future. In this respect, the state can encourage independent power producers to set up power projects in the state. For this to happen, the state has to initiate enabling institutional reforms in the power sector. An unintended fall-out of these strategies is environmental degradation. The state needs to develop a well-intentioned environmental plan for sustainable growth as also to maximise its revenue from royalty. Therefore, it is also important to formulate a revolving plan to rationalise the royalty rates over time for the benefit of the state of Chhattisgarh, without compromising national interest. As outlined in the paper, the state has to invest heavily in correcting the existing imbalances in infrastructure requirements. The government has estimated the funds required for this purpose. However, this can lead to problems of fiscal deficit. So it needs to ensure that investment in infrastructure is sustainable. Despite this, it is estimated that the state of Chhattisgarh could perhaps have invested Rs. 350 crores more. In the long run, a sustainable solution is to create an enabling framework for private sector participation in diverse forms. It also includes reforms towards recovery of user charges, so that private investors are able to recover their investments. 18

24 Conclusion End Notes This report seeks to identify unique growth opportunities for the state of Chhattisgarh and profess a broad infrastructure plan to maximise the growth potential of those opportunities. The report does not purport to outline a detailed plan for the state. A detailed plan is outlined in the study Infrastructure Development Action Plan for Chhattisgarh Final Report available at the official web site of the government of Chhattisgarh: Data for all the graphs and in the text are from government publications as mentioned in the data sources below. The data used to generate the ranking in transport, power and information technology are collected from various Infrastructure issues published by Centre for Monitoring Indian Economy (CMIE). Some of the data on the power sector are also collected from the website of Central Electrical Authority and for the telecom sector from Indian Telecom Statistics,

25 Data Sources Chhattisgarh in charts and graphs, Directorate of Economics and Statistics, Government of Chhattisgarh, Chhattisgarh at a glance, Directorate of Economics and Statistics. Government of Chhattisgarh, Chhattisgarh Industrial Investment Promotion Act, 2002, Government of Chhatisgarh. Lall, Somik; Shalizi, Zmarak and Deichmann, Uwe Agglomeration Economies and Productivity in Indian Industry, The World Bank, Washington DC. 20

26 About the Series Editors Aasha Kapur Mehta is Professor of Economics at the Indian Institute of Public Administration, New Delhi and leads the Chronic Poverty Research Centre s work in India. She has a Masters from Delhi School of Economics, an M.Phil from Jawaharlal Nehru University and a PhD from Iowa State University, USA. She has been teaching since 1975, initially at a college of Delhi University and then at IIPA since She is a Fulbright scholar and a McNamara fellow. Her area of research is now entirely focused on poverty reduction and equity related issues. Pradeep Sharma is an Assistant Resident Representative and heads the Public Policy and Local Governance Unit in the India Country Office of United Nations Development Programme (UNDP). A post-graduate from University of East Anglia (UK) and Doctorate from Jawaharlal Nehru University, he has held several advisory positions in the Government of India and has taught economic policy at LBS National Academy of Administration, Mussoorie. He has several publications to his credit. Sujata Singh is an Associate Professor at the Indian Institute of Public Administration. She completed her doctoral studies in Public Administration and Public Policy at Auburn University, USA. Her primary research interests are in the area of Comparative and Development Administration, Public Policy Analysis, Organizational Theory and Evaluation of Rural Development Programmes. R.K. Tiwari is Senior Consultant, Centre for Public Policy and Governance, Institute of Applied Manpower Research, Delhi. He was formerly Professor of Public Administration at the Indian Institute of Public Administration (IIPA), New Delhi. He received his education at Gwalior, Allahabad and Delhi. He has undertaken a number of research studies in Development Administration, Rural Development, Personnel Administration, Tribal Development, Human Rights and Public Policy. He has conducted consultancy assignments for the Department of Posts and in the Ministry of Rural Development, Government of India; and for the Government of Orissa and the Narmada Planning Agency, Government of Madhya Pradesh. He has published several books.

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