Financial Daily from THE HINDU group of publications
Tuesday, Apr 27, 2004
Industry & Economy
Maharashtra: Industrial and financial powerhouse
S. D. Naik
Maharashtra's population crossed the 100-million-mark last year. The State, which accounts for about 9 per cent of the country's population, contributes more than 20 per cent of industrial output and 13 per cent of India's GDP. Its per capita income of Rs 24,736 in 2001-02 at current prices is much higher than the national average of Rs 17,978. It is the third richest State after Punjab and Haryana.
With relatively better infrastructure facilities, conducive investment climate, availability of institutional finance and a skilled labour force, Maharashtra is considered the most favoured destination for industrial investment in India.
The share of Maharashtra in the country's total exports is at present over 30 per cent and expected to increase further over the next few years because of the emphasis on the Special Economic Zone, Agri Processing Zone, Food Park and the ambitious plans drawn up for the information technology and bio-technology sectors.
Despite the growing strain on infrastructure, Maharashtra continues to retain its leadership as the foremost investment destination of India, for both domestic and foreign investors.
As of September 2003, it had outstanding project investments of Rs 2,10,026 crore, accounting for 10.9 per cent of the country's aggregate investment. The State enjoys the project implementation ratio of 48.3 per cent, well above the national average of 37.6 per cent.
To maintain the tempo of industrial development and to encourage tourism development, efforts are being made to improve infrastructure facilities, including roads, telecom and ports. To overcome the power supply constraints, efforts are on to revive the Dabhol power project and to invite more investments in new projects.
What is worrisome for planners in the State, however, is the fact that most of the industrial investment in the State is concentrated in the greater Mumbai, Pune and Nasik belt. Of late, there has been some pick-up in investment activity in Aurangabad, Raigad and Nagpur districts.
Even so, there are wide regional disparities within the State, posing serious challenge to future governments. Among the districts, Brihanmumbai with per capita net district domestic product at Rs 49,906 stood first in 2002 followed by Pune (Rs 31,753), Thane (Rs 29,754), Raigad (Rs 29,620) and Nagpur (Rs 27,759). The lowest was Gadchiroli district (Rs 12,443).
Maharashtra also occupies a leading position in respect of institutional finance with preponderance of term lending institutions, scheduled commercial banks, co-operative banks and non-bank financial institutions (NBFCs).
Maharashtra stands first in the country in respect of both aggregate bank deposits and gross bank credit though the State has a share of only 9.5 per cent in the total number of bank offices in the country.
The per capita deposit of scheduled commercial banks in the State as on June 30, 2002 was Rs 23,667, more than double that for all India (Rs 10,901). The per capita credit of these banks in the State was Rs 22,008, three-and-a-half times that of all India (Rs 6,273).
Agriculture and allied activities
Though Maharashtra is the country's most industrialised State, agriculture and allied activities are still predominant, with 55 per cent of the population depending on it for livelihood as per 2001 Census.
Though the proportion of area under cultivation in the State is as high as 43.4 per cent, agriculture is not as productive as that at the national level because of the quality of soil, topography and climate. The proportion of gross irrigated area to gross cropped area in the State is only 16.4 per cent, against 38.2 per cent at the national level.
Important foodgrain crops are rice, jowar and bajra. The State is also a major producer of oilseeds such as groundnut, sunflower, soyabean, and so on. It also produces cash crops such as cotton, sugarcane, turmeric and fruits and vegetables.
Productivity of cotton and sugarcane, however, is quite low in the State and there is a need to divert the area under these crops to grow some other crops. There is a vast area under horticulture which has received the considerable attention of the State government over the past decade. This has emerged as a promising development.
Mumbai occupies a unique place, not only in Maharashtra but the entire country as the financial and commercial capital. This city of 12 million people continues to grow at an astounding pace.
According to some projections, it will have around 27 million people by 2020, becoming the world's second most populous city after Tokyo.
This will put tremendous strain on the existing transport infrastructure in the city. Hence, efforts are being made to upgrade the transport network, including the suburban railways.
Though Maharashtra stood first in the country in respect of both aggregate bank deposits and gross bank credit in the country as on June 30, 2002, Brihanmumbai alone accounted for 23.2 per cent branches of all scheduled commercial banks in the State and its share in total deposits and credit stood at 77 per cent and 87 per cent respectively.
Offices of most foreign banks as also the newly set up domestic private sector banks such as the ICICI Bank, HDFC Bank, Indus Ind Bank, Kotak Mahindra Bank, and so on, are concentrated in Mumbai city. By offering all kinds of new customer services, they have helped galvanise the city's banking industry.
Globalisation has brought increased business opportunities to Mumbai from foreign companies which want to reap the benefits of India's large labour force, managerial talent, and s well as to access one of the largest ports in Asia.
As large multinational conglomerates continue to move into Mumbai, financial service firms are following, particularly US-based firms such as Merrill Lynch, Goldman Sachs, Orix and J. P. Morgan. This trend supports Mumbai's emergence as a regional financial centre on the global map.
To meet the growing requirement of traffic, modernisation work is going on at the Mumbai port. In addition, Jawaharlal Port Trust (JNPT) has drawn up plans for a mega $1-billion integrated port project at Nhava Sheva.
The mega project combining the fourth container terminal, a marine chemical terminal, back-up yards and approach roads/rails, is expected to become operational in phases starting from 2007-08. The new project would be as big as the existing JN Port.
Some areas of concern
There are, of course, some areas of concern for the State. Since the mid-1990s, Maharashtra's economic growth rate has slowed somewhat, falling from 7.5 per cent per annum between 1985-86 and 1994-95 to 4.2 per cent between 1995-96 and 2001-02. Deceleration in public investment and relative neglect of agriculture are the main reasons for this.
The State's finances are currently in a bad shape because of profligacy. During the first half of the 1990s, Maharashtra had the lowest revenue deficit among the 14 major Indian States.
However, the situation changed during the second half, with the fiscal deficit to GDP ratio rising from 2.0 per cent in 1993-94 to 4.1 per cent in 1999-2000.
There has been only a small improvement since then. The overall State debt has been rising at an alarming rate.
But efforts are on to improve the situation.
A fiscal reform programme has been drawn with a view to achieving fiscal sustainability.
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