September 5, 2024
📰 FEATURE STORY
Will the government’s industrial smart cities plan work?
Over the past decade, the government has been pushing to make India a manufacturing hub. In many ways, it has been successful thanks to its vast population, skilled workforce, and business-friendly policies. It has emerged as an integral pillar of the country’s economic journey, and the government isn’t done yet.
Recently, the Union Cabinet approved 12 industrial smart cities spread across 10 states. They’ll be set up along the golden quadrilateral highway to form a ‘grand necklace of Industrial smart cities’ with an investment of over ₹28,000 crore. While the proposal is ambitious and understandable, would such a plan work well?
Context
In recent decades, the manufacturing sector hasn’t been a major contributor to the Indian economy. It’s only been about 15%. While countries like China and other emerging countries developed their economies by putting millions to work to make cheap goods, India concentrated on export services like IT.
India needs to become a manufacturing hub for several reasons. Perhaps the biggest is providing enough jobs for hundreds of millions, particularly youngsters. That population dividend will yield benefits.
It’s why the government has been focusing on incentivising manufacturing growth, which has borne fruit in recent years. Take 2023, for example. India’s Industrial Production Index ranks second amongst all G20 economies, and its Purchasing Managers’ Index has consistently been in the high 50s.
A report by the World Economic Forum (WEF) from a few years back showed that India can contribute over $500 billion to the global economy by 2030. The most critical building block per this report is a thriving manufacturing sector.
India has a few things going for it. One of the most important is that companies are looking beyond China. Post-pandemic, they’ve realised the need to diversify their supply chains. Apple is perhaps the best example here. They’re gradually shifting iPhone manufacturing to India.
Many of these factories are located in industrial hubs or clusters. States like Maharashtra, Tamil Nadu, and Karnataka have attracted dozens of companies to set up their factories thanks to Special Economic Zones (SEZs), which offer tax breaks and other incentives.
The government wants to build on this with industrial smart cities in Uttarakhand, Punjab, Kerala, Telangana, Maharashtra, Uttar Pradesh, Bihar, Andhra Pradesh, and Rajasthan. They’ll be developed as greenfield smart cities. The vision is for these industrial clusters to be anchors around which hundreds of medium and small industries take root and create lakhs of jobs.
This is perhaps the first big proactive policy decision by the Modi 3.0 government since the Budget. So, a lot is riding on it.
VIEW: Set up for success
This plan is important for a few reasons. For starters, it reinforces the government’s unwavering faith in rapid domestic industrialisation as a means for accelerated economic growth. These industrial smart cities also address the issue of rural-to-urban migration with employment opportunities at alternate locations without increased congestion in large cities. Perhaps one of its features, walk-to-work, will encourage town planning instead of the persistent haphazard and unorganised growth of urban infrastructure.
We’ve seen how such industrial cities have been a success. Jamshedpur was perhaps India’s first industrial smart city. Then townships like Bokaro and Bhilai sprang up around large Public Sector Units (PSUs). What sets the Industrial Smart Cities plan apart is their location along arterial highways. The importance of logistics linkages in industrial development can’t be overstated. Especially if India wants to become a manufacturing powerhouse.
By looking to the private for investments, a single industry or PSU doesn’t have to bear the weight. The result will be a snowballing effect. Multiple units will come up and have a multiplier effect on employment. It will encourage multi-skilling and the development of ancillary service industries for indirect employment opportunities. In Kerala, for example, the government’s plan to develop Palakkad as an industrial smart city could help attract investments worth ₹10,000 crore and create over 55,000 jobs. Something similar could happen in other states.
COUNTERVIEW: Roadblocks ahead
The announcement is splashy and ambitious, but implementation will be key, and herein lies the challenges. The government has set a target of 1 million direct and 3 million indirect jobs. To even come close to those numbers, building these clusters fast will be important in realising the scheme’s economic and political dividend. However, such large projects are often subject to political conflicts and bureaucracy. Unless there’s a political consensus among parties, this plan won’t work.
There has been some success with industrial cities in the past, but the overall track record is less than stellar. Industrial corridors, like the Delhi-Mumbai Industrial Corridor (DMIC), announced in 2009, have seen shoddy implementation. Fifteen years on, several projects under it have yet to see the light of day. There were concerns about their environmental impact, livelihoods, and land acquisition.
One reason China zoomed ahead and became a global manufacturing hub is industrial cities like Shenzhen were developed alongside the entire city’s growth, not just the industrial area. Another question is whether the expectations of companies investing will be fully realised. Unless everything is top-notch and world-class, the answer might be no. We’ve seen similar industrial city announcements, or even SEZs, which held a lot of promise. But their operationalisation has been unimpressive. Industrial smart cities could follow suit.
Reference Links:
- Manufacturing Sector in India – IBEF
- India’s Opportunity to Become a Global Manufacturing Hub – World Economic Forum
- Cabinet greenlights 12 industrial smart cities; which stocks should you keep on your radar? – Moneycontrol
- Centre’s nod to develop Palakkad as industrial smart city provides a boost for Kochi-Bengaluru industrial corridor – Deccan Herald
- Can Industrial Corridors Balance Growth with Urban Challenges? – The Wire
- Industrial Smart Cities ticks all boxes. Challenge is in its timely execution – Deccan Herald
What is your opinion on this?
(Only subscribers can participate in polls)
a) The government’s industrial smart cities plan will work.
b) The government’s industrial smart cities plan won’t work.
Previous poll’s results:
- The Unified Lending Interface (ULI) will be a game changer: 55.6% 🏆
- The Unified Lending Interface (ULI) won’t be a game changer: 44.4%
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