Strategy for Developing Industry and Locating Factories in an Economically Backward State of India : Focusing on an 'Industrial Belt' in Uttarakhand

Since the introduction of economic liberalization policies in 1991, Indian manufacturing production has experienced rapid growth due to large-scale of foreign direct investment. Industrial estates developed in the outskirts of first tier cities like Delhi, Mumbai, Chennai, and Bangalore have attracted a lot of investment. However, economically backward states, located along the Himalayan Range, did not experience industrial development. The government of India legislated new industrial policies to promote industry in these backward states early in the twenty first century. These policies included 'generous' financial incentives to new industrial units and to existing units for substantial expansion. Uttarakhand, a newly set up state separated from Uttar Pradesh, has captured a substantial amount of investment through this policy since its establishment in 2000. This article aims to clarify the strategy for industrial development and presents the real situations of factories located in this area. The results are summarized as follows. 93% of Uttarakhand consists of mountainous and hilly areas belonging to the Himalayas, but it has also a plain south of the Shiwalik Hills. The State Infrastructure and Industrial Development Corporation of Uttarakhand (SIDCUL) has build up seven industrial estates thus far, but all of them have been developed only on the plain. An 'industrial belt' has apparently appeared along the foothills of the Himalayas (Fig. 2). The author explained the rational for it from the viewpoint of hypothetical location cost analysis (Fig. 3). According to the analysis, the flat portion between Uttar Pradesh and Uttarakhand Himalayas became an area with low operating costs thanks to the incentives of the central government. It provided a great competitive advantage to the state in the 'bidding war' of industries. IIE Pantnagar, which is the largest industrial estates in Uttarakhand, was developed in the Udam Singh Nagar District by SIDCUL. Approximately 393 companies purchased land there, and 92 of them have started commercial production until May of 2007. Initially, its targets were environmentally friendly industries, but in phase II, three automobile manufactures, namely Tata Motors, Bajaj Auto, and Ashok Leyland, decided to set up assembly units along with their components suppliers. 41% of the total land in IIE Pantnagar were occupied by automotive and its related industries (Fig. 4). The author's hearing survey on some suppliers of Bajaj Auto revealed that a few material vendors are in this area. Therefore, they have purchased raw or semi-processed materials from outside of the state. Second tire suppliers are also insufficient in the state. Most of the employees of the surveyed suppliers are new. Only 14% of the administrative staff and 7% of the floor workers have shifted to IIE Pantnagar from their home factories. The average age of the employees is below thirty, both for the staff and the workers. The surveyed units have enjoyed a series of incentives, but government regulations stipulated that at least 70% of their workforce be local people. The rapid expansion in labor demand plus the '70% rule' has brought about a shortage of skilled laborers in the 'industrial belt'