Export zones: Need new forms of partnership

With 18 industrial parks, Kinfra still believes that Kerala’s best strengths are not fully harnessed. S Ramnath says that facilitation, rather than incentivisation, will be the strategy to attract investment in the export zones.

What are the industrial activities that can be promoted in Kerala? The evident answer is the ones that are export-oriented. Kerala is the pioneer of export trading in India, as the state traditionally is the most intensively in touch with the overseas world. The second obvious answer is services. In that manner, we are similar to the much smaller city-state of Singapore, whose mainstay is services and exports. With a 590 km coastline, I think this state is ideally suited for promoting services and exports, and although we have been pioneers, we still need to build on the advantage that we have held—as against Gujarat, which has taken advantage of those strengths.

High density of population and limited land resource prevent us from any large scale intervention. I think the interventions that are required are more on the development of basic infrastructure supports that are needed from all these small conclaves that are already working as centres of export excellence. One of the main functions of Kinfra has been to provide infrastructure to the existing active industrial activity as well as creating it and trying to bring these industries into one single conclave. The last function is not easy because people don’t normally move out from an existing zone to another. However, it was catalysed by a few industries such as coir and textiles, which were languishing and moved into our Parks, where we supported them with infrastructure and clearances.

Like Singapore, we have begun to invest in industries that do not require too much land, and the next step would be tier industries in order to build vertical structures and not occupy too much land.

Moving away from incentives

In our experience, tax incentives are on their way out. Industrialists are seeking to be in a zone where they can work without interference from statutes, get their clearances speedily and have an investor-friendly environment. Our strength is that clearance is easily available and customs clearance is obtained faster. With the introduction of VAT and (soon) GST, this will be the way to go.

Power infra

There are regions in this state that have inadequate power distribution systems—overloaded and sometimes underloaded. While deliberating on the power issues we decided to take up electricity distribution ourselves for our industrial areas. Now we are a licensee for power distribution. So in a way we’re acting like a Discom—sometimes to the discomfiture of the electricity board. We sometimes face difficulties with PWD while building roads. Sometimes while piping water through agricultural land, we do get questioned. These reactions are common and surmountable. Once the job is done, though, nobody says “No, you shouldn’t have done that.” It is a worthwhile effort to service the industry with the necessary facilities.

PPP or no PPP

In the evolution of these SEZs, and more recently in infrastructure development, the government has come up with the idea of PPP, which is not always suitable for all sectors. We are finding it to be a difficult choice because you don’t get the right number of promoters who can run that PPP well. This may be a Kerala phenomenon. In many other states, industries vie for similar opportunities. Perhaps this is because we do not have that big a clustering. We’re often not big ticket enough. Homegrown industries have traditionally not eyed big ticket projects—such as ports—but that may change in the future.

Also, industries often have not experienced the strength of getting together and doing something—they strive to do something on their own. I think over time, we will evolve those partnerships. Our PPP projects have traditionally been heavier on the government investment side—take the Cochin International Airport (with a government holding of 74 per cent). We’re now looking at 50:50 holdings with companies.

So we’re pioneers in ideas. But what next?

We also believe we can develop land around ports, as it is synergestic for exporters. The FTWZ near Cochin International Airport is an example. Vallarpadam is a Central SEZ, under the Port Trust, and ancillary units such as the (upcoming) LNG terminal are also treated as under the SEZ. Although economics have now changed, we were toying (in 2000) with the idea of setting up a power plant in that vicinity. The 2008 downturn made us step back, but the idea of generating gas-based power through a JV with a private company is still valid. However, a JV development or a co-development doesn’t seem to be working well in this place because the private sector is not very keen to invest much in the development of infrastructure. So we have to look at totally different models. Of course the quickest one was that rather than asking private parties to invest upfront, we go at it alone, and later bring in the private sector for O&M.

The author is Managing Director, Kinfra. In conversation with Shashidhar Nanjundaiah.