Maharashtra’s comeback bid as India’s major business destination

Fast losing ground to other states as an investment destination, the home state of Mumbai is rolling out business-friendly reforms. But it will not be easy – welcome to India’s ‘era of competitive federalism'.

Maharashtra’s chief minister, Devendra Fadnavis has pledged to improve the business climate in his state by measures that include fast-tracking infrastructure projects. Vipin Kumar / Hindustan Times via Getty Images
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Some of the biggest names in the Indian business world, including the billionaires Mukesh Ambani and his brother Anil, gathered at a conference at a plush hotel in Mumbai on a Friday morning last month.

They were eager to hear the state government’s ambitious plans to transform Mumbai into a global financial and commercial hub.

The government pledged to fast-track major infrastructure projects including a new coastal road and to build more financial districts.

For state authorities, the need to radically improve infrastructure and the business climate to firmly position Mumbai – the largest city in the state of Maharashtra – as a leading financial and commercial destination has never been more pressing. Other states are fiercely competing to become business hubs and grab a bigger share of domestic and foreign investment.

Maharashtra, meanwhile, has been losing some of its shine as a business destination because of the challenges of insufficient infrastructure and cumbersome bureaucratic processes which companies face.

“I am extremely delighted that Mumbai and Maharashtra has joined this big renewed race for inviting investment into the state and for marketing the state as a major investment destination of India,” said Arun Jaitley, India’s finance minister, who was speaking at the event by a video link from New Delhi.

In recent months, there have been similar pushes from Madhya Pradesh, Gujarat, West Bengal, and Rajasthan, holding major conventions to pitch to attract investors, he said.

“I was recently myself a witness to how the chief minister [of Maharashtra] Devendra Fadnavis and also the Andhra Pradesh chief minister Chandrababu Naidu were aggressively marketing their states in Davos,” Mr Jaitley said, referring to the World Economic Forum meeting held at the Swiss ski resort in January.

“We have entered the era of competitive federalism. He who reforms, he who has an ability to attract greater investment will eventually be able to take the state forward.”

At Davos, Mr Fadnavis secured deals with multinational companies including General Electric, Cognizant and Microsoft.

Mr Fadnavis, who was appointed chief minister of Maharashtra in October, believes there is an urgent need to overhaul the investment climate in the state.

The state government is working to reduce the number of licences and permissions needed for companies to operate and to cut the time it takes to secure construction approvals.

“Now the states are competing,” said Mr Fadnavis at the Maharashtra Economic Summit in Mumbai in January. “States are trying to bring their policies to attract more investment. If we lack the flexibility in tweaking and adjusting our policies, I think we’ll lag behind. That is why our government has started many initiatives so that we again make Maharashtra the most preferred destination in all the sectors.”

Among these initiatives, the state government wants to encourage more manufacturing activity to take place in Maharashtra and reduce the bureaucratic process that businesses face.

“Cities in other parts of our country used to look at Mumbai and used to envy it,” Mr Fadnavis said. “In the last 15 years, Mumbai is looking towards many cities in India and saying, ‘Let me match these cities, which are moving ahead of me’.”

Not too far away, in the state of Gujarat, work is under way on a new 800 billion rupee (Dh46.8bn) financial centre, called Gujarat International Finance Tec-City (Gift).

Spread over more than 350 hectares near the state capital, Gandhinagar, it is being touted as India’s first international financial services centre along the lines of the Dubai International Financial Centre and La Défense in Paris.

The development is planned to include a world trade centre, shopping malls and hotels. The first phase is nearing completion and several private and public sector banks have already started operations there. The entire project is slated to be completed by 2024.

“People shouldn’t really look at this as competition,” says Ramakant Jha, the managing director and group chief executive at Gift. “India is a large country. In fact it’s a very complementary centre to Mumbai. Complementary centres should come up in the various parts of India.”

This is a flagship project of the Indian prime minister, Narendra Modi, who was formerly the chief minister of Gujarat. Part of his victory in last year’s election was credited to his transformation of Gujarat into a business-friendly destination, which raised hopes that he would be able to do for the country what he did for the state.

There has been a strong focus on infrastructure development in the state, including new roads, airports and ports. Gujarat also has a surplus of electricity generation, in contrast to many other states where power cuts are frequent.

Tata Motors in 2008 moved its Nano car plant from West Bengal to Gujarat and Ford is launching a US$1bn plant in the state. Gujarat’s economy in recent years has grown at rates substantially higher than that of the overall country, with the state averaging 10 per cent expansion between 2004 and 2012.

The Bombay Stock Exchange (BSE) plans to set up an international exchange in Gujarat’s new financial centre.

“States competing to attract businesses is a very healthy thing,” says Ashish Chauhan, the managing director and chief executive of BSE.

“It was always there. Every state tried to get the industries and services sector to the region. Earlier Bangalore became an IT hub and so Hyderabad wanted to take up that challenge and they set up an electronic city.”

He adds, however, that the exchange “will remain in Mumbai forever … and that there is nothing that will take away the BSE from Mumbai”.

The government of Madhya Pradesh, in central India, is among the other states that have been striving to attract more businesses and foreign and Indian investment, investing in infrastructure and making processes easier for companies to set up operations there.

Chadrakant Salunkhe, the founder and president of the Maharashtra Industrial and Economic Development Association, says that many other states are doing things better in their efforts to attract industry and investment.

“Other states are taking initiatives for more investment and showcasing potential [internationally],” he says.

“Why is Maharashtra lagging behind in branding?”

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