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Can the Automobile Industry Retain its Lead Position in Haryana?

Can the Automobile Industry Retain its Lead Position in Haryana?, naya haryana, नया हरियाणा

25th September 2014

Naya Haryana

Ever since Maruti made its debut in Gurgaon in the early 80s, the automobile industry has grown into a world class hub for cars, two wheelers and auto components. The Gurgaon-Manesar-Faridabad region is a dynamic area that is buzzing with auto component activity, supplying to the ever growing demand of the car and two wheeler industries.

It's because of the intense local competition amongst auto companies that has forced the auto component manufacturers to meet the intense pressure of cost, quality and timely supply demands of the auto majors. This has resulted in a down-the-chain push for efficiency and cost competitive manufacturing practices. This along with a pro-active and relatively low cost labour, gave this region a  preferred  hub status over traditional regions like Jamshedpur, Pune and Chennai.

Three auto majors who set shop in this region have been Maruti Suzuki, Hero MotoCorp and Honda Motorcycle and Scooter India (HMSI) and they have all expanded their production by setting up additional factories. Maruti has set up their second plant in Manesar.

Hero MotoCorp has two factories operating here, while HMSI has a factory located in Manesar. Yamaha has its factory in Faridabad, while Harley Davidson India has chosen Gurgaon for its factory. Suzuki too has its two wheeler plant here.

The big three companies (Maruti, Hero & Honda) have acted as anchors for the auto component suppliers and with scaling up of their production, the auto component majors too are now graduating to expand in locations other than in this region, as also exploring overseas markets.

Over 220 small to mid-size companies have collectively invested over $4 billion in the region. The component industry has grown to over $15 billion and employs directly and indirectly, over 800,000 workers. The industry has emerged as a globally competitive one with a reputation for cost and quality.

Auto majors locating new plants outside Haryana

Almost all major auto companies have decided to locate their new factories outside Haryana.

Maruti Suzuki, by far the largest Indian car manufacturer, has grown and expanded in Haryana and now it is in the process of locating two new plants in Gujarat.

Hero MotoCorp has set up its third plant in Haridwar, while its fourth plant is being planned at Neemrana in Rajasthan and the fifth is being planned for Halol in Gujarat, primarily to cater to the export market. It has just announced Rs 1,600 crore investment to locate its sixth factory in Madannapadu in Satyavedu Mandal in Andhra Pradesh (Seemandhra), where the state government has offered land  free of cost . It is expected that the company will offer direct employment to 3000 persons and an active ancillary industry is expected to come up in the region with a projected investment of over Rs 1,700 crore.

HMSI has three factories located at Manesar in Haryana, Narsapura in Karnataka, and Tapukara in Rajasthan, respectively. Its fourth factory is planned to come up in Gujarat in 2016.

So what is driving out these majors from Haryana?

It is obvious that in the last ten years the Hooda government had become complacent in its attitude towards industry in general and auto industry in particular. It took the industry for granted and assumed that the corporates will continue to prefer Haryana over other states.

However, the facts in the last four years alone have shown that the  honeymoon  with Haryana is clearly over. The industry means business and will move to whichever state offers it the best commercial proposition.

So how did the Hooda administration allow Maruti to look at other alternative locations despite the company being well entrenched here for over three decades? Similarly, why did the administration not engage proactively with Hero MotoCorp and offer a competitive proposition to expand within the state.

The opportunity cost of losing business is massive and the blame of losing the advantage it has had all these years over other states, lies solely with this administration.

The Hooda government completely failed to proactively engage with the trade unions in their dispute with various managements. The reason was political and the unions have been allowed to have a free run with their agenda of disruptive agitation.

Haryana was never known for a culture of violent labour but now almost all auto majors and component manufacturers have been facing aggressive trade union activity that is bent upon increasing wages, without taking responsibility for productivity.

As a result, manufacturers have now decided to de-risk their businesses by investing in alternate locations outside the state. This along with friendlier industrial policies and commercial terms offered by other states, is pulling these companies out of Haryana.

The cost? Haryana has lost desperately needed jobs to other states along with significant investment that would have spurred the local economy further. While, Haryana was able to snatch the mantle of India's leading auto hub from Jamshedpur, Pune and Chennai, it is now beginning to lose the same to Chennai and Gujarat, which are now viewed as more attractive emerging destinations for industry.

Haryana losing out

Haryana is losing its overall cost competitiveness with rising wages, cost of living and price of land rising to prohibitive levels. All of these are pushing Haryana further down the preferred location list. The problem is that the state government has done very little towards addressing any of these over the years and was happy to sit by and watch industry come to Haryana, without much effort on part of the government. Those days are now gone. Haryana has to wake up and do more if it wants to continue to attract industry to the state.

Haryana needs to draw a leaf out of Andhra Pradesh (Seemandhra) which offered free land to Hero MotoCorp. While this may be hard to match, more industry friendly policies and proactive engagement to reign in the trade unions, may have helped retain some of the auto majors.

Maruti has incurred major losses along with several other companies, on account of trade union activism. Besides a senior executive losing his life, Maruti is said to have incurred a production loss in the region of Rs 5,000 crore. Same with HMSI which was at the receiving end of prolonged trade union activity and incurred major losses.

When a state government loses sight of long term benefits and works for short term political gains, it's the people of the state that pays for the opportunity cost. Bengal learnt this the hard way with Tata Motors moving out of the state.

The present administration has already demonstrated its inability to improve the business environment in Haryana and it is now for the people to take charge by voting out this complacent, corrupt and ineffectual government. The time has come for a Naya Haryana to take shape and take charge. It's time for a Nayi Soch.

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