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Chhattisgarh Infrastructure ReportChhattisgarh Infrastructure ReportChhattisgarh Infrastructure ReportChhattisgarh Infrastructure ReportChhattisgarh Infrastructure Report

S.K.N. NairAdviser, NCAER

Saumen MajumdarSenior Economist, NCAER

Series Editors:Aasha Kapur Mehta, Pradeep Sharma

Sujata Singh, R.K.Tiwari

2006

Chhattisgarh Infrastructure Report

AcknowledgmentsAcknowledgmentsAcknowledgmentsAcknowledgmentsAcknowledgmentsWe express our gratitude to:

UNDP for the generous support that enabled us to conduct this study as part of the UNDP funded ‘EconomicReforms’ programme under which the NCAER Centre for Infrastructure and Regulation has been set up.

Shri Shailesh Pathak, I.A.S, former Managing Director, Chhattisgarh Infrastructure Development Corporation(CIDC) for his inputs on the initial work on this report, the facilities extended by CIDC to conduct this study andactive support in arranging discussions with important government officials.

Shri P.K. Chakravorty for help in arranging meetings with various stakeholders.

Shri J.P. Soni and Shri L.C. Dashore for discussions regarding infrastructure plans for the state.

The many official as well as non-official stakeholders for their interest and cooperation and for sparing theirvaluable time for us.

Ms. Suparna Das and Ms. Archana Jaba, researchers attached to the Centre for Infrastructure and Regulation whoprovided excellent research assistance for this report.

Introduction 1

Geographical Features 3

Natural Resources 4

Demographic Characteristics 7

The Potential Engines of Growth in Chhattisgarh 8

Growth of Cluster-based Industries 12

Infrastructure - A Prerequisite for Economic Growth in Chhattisgarh 15

Conclusion 18

Table of ContentsTable of ContentsTable of ContentsTable of ContentsTable of Contents

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1. District Map of Chhattisgarh 1

2. Per Capita Income of Indian States 2

3. District Map of Chhattisgarh with Artificial Demarcation 3

4. Rainfall and Rainy Days in Chhattisgarh 4

5. Total Forest and Non Forest Area in Chhattisgarh 5

6. Mineral Map of Chhattisgarh 6

7. Total Population and Population Density in 2001 7

8. Consumption of Crude Steel 8

9. Road and Mineral Map of Chhattisgarh 16

10. State Ranking in Transport Sector 16

11. State Ranking in Power Sector 17

12. State Ranking in Information Technology Sector 17

List of FiguresList of FiguresList of FiguresList of FiguresList of Figures

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IntroductionIntroductionIntroductionIntroductionIntroduction

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Chhattisgarh Infrastructure ReportChhattisgarh Infrastructure ReportChhattisgarh Infrastructure ReportChhattisgarh Infrastructure ReportChhattisgarh Infrastructure ReportS.K.N. Nair, Adviser, NCAER

Saumen Majumdar, Senior Economist, NCAER*

* The views expressed in this paper are those of the authors and do not necessarily reflect the views of GOI, UNDP, IIPA or the collaborating institutions.

There is wide consensus that infrastructure shortcom-ings are among the chief obstacles to accelerated eco-nomic growth. Driven by this realisation, key infra-structure sectors like power, telecommunications androads are undergoing reforms at various levels ofpolicy, regulation and governing statutes. Throughthese reforms, large additional investments are beingattracted and economic growth is receiving a fillip.

This paper tries to assess the status of physical infra-structure in Chhattisgarh and the infrastructure needsthat require to be addressed for it to realise its growthpotential.

The recently constituted state of Chhattisgarh, which iseconomically backward, but rich in natural resources, wasselected for this purpose. The state of Chhattisgarh wascarved out of the state of Madhya Pradesh in central In-dia on 1st November 2000. The 135,000 square kilometregeographical area of Chhattisgarh accounts for four per-cent of the total area of India. It is bounded by UttarPradesh and Jharkhand in the north, by Orissa in the east,by Andhra Pradesh in the south and by Madhya Pradeshand Maharashtra in the west (Figure 1).

Chhattisgarh is richly endowed with natural resourcesincluding minerals, plentiful water and dense forests.

Figure 1: District Map of Chhattisgarh

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Figure 2: State-wise Per Capita Income of India in 1999-2000(At constant prices of 1993-94)

Scheduled Castes and Scheduled Tribes comprise 12 and32 percent, respectively, of the state’s population. Popu-lation density is low and the per capita income is wellbelow the national average (Figure 2).

Chhattisgarh has tremendous growth opportunities and thispaper outlines some growth strategies for the state, whichare consistent with its vast endowments. It also delineatesthe infrastructure requirements needed to enable this.

States

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Figure 3: District Map of Chhattisgarh with Artificial Demarcation

Geographical FeaturesGeographical FeaturesGeographical FeaturesGeographical FeaturesGeographical Features

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The state has 16 districts. This paper broadly classifiesthese districts into three broad categories (Figure 3):

1. North Chhattisgarh comprising Koriya, Surguja,Korba, Jashpur and Raigarh;

2. Central Chhattisgarh comprising Bilaspur, Janjgir,Kawardha, Durg, Raipur and Mahasumund; and

3. South Chhattisgarh including Rajnandgaon,Dhamtari, Kanker, Bastar and Dantewada.

North and south Chhattisgarh have similar characteris-tics in terms of natural endowments and demographicprofile. The demographic profile of central Chhattisgarhis markedly different from the rest of the state. The rail-

way line connecting the eastern and thewestern part of the country passesthrough central Chhattisgarh. Laying ofthe railway line has led to the overall de-velopment of the region and enabled themovement of goods and the develop-ment of economic centres based onmanufacturing and trade. Therefore, cen-tral Chhattisgarh is characterised by thepresence of industries and moreurbanisation than the rest of the state.

The central districts of Durg and Raipurconstitute the industrial belt ofChhattisgarh and are more densely popu-lated than the northern and southern dis-tricts. The mineral-rich tribal communi-ties of Chhattisgarh inhabit the denselyforested, mineral-rich districts of the northand south.

As will be evident later, this artificial de-marcation has implications for the infra-structure requirements of the state.

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Figure 4: Rainfall and Rainy Days in Chhattisgarh

Natural ResourcesNatural ResourcesNatural ResourcesNatural ResourcesNatural Resources

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The bounty of nature in terms of abundant water, min-eral and forest resources provide the relatively new statewith rare opportunities for development.

3.1 Water3.1 Water3.1 Water3.1 Water3.1 Water

The state of Chhattisgarh receives 1292 mm of rainfallannually, which is higher than the all-India average of580 mm. As can be seen from Figure 4, the northernand southern districts of Chhattisgarh receive more rain-fall than the central districts (except Durg).

Five major rivers flow through Chhattisgarh. Theseare Hasdeo and Gej in the north, Mahanadi and Seonathin the central region and Indrawati in the south.

Although the state has abundant water resources, it lacksthe necessary infrastructure to use them efficiently. Theutilisation of irrigation potential is significantly belowthe national rate. Budgetary allocation for the develop-ment of irrigation needs to be increased. This will helpthe farmers to increase the cropping intensity. The gov-ernment has recently launched the “Indira Gaon Ganga

Yojana”, which will ensure the pro-vision of at least one dependableand environmentally sustainablewater source in every electrified vil-lage in the state.

As can be seen from Figure 5, cor-responding to the differences in lev-els of average rainfall, the northernand southern districts ofChhattisgarh have a higher forest tonon-forest land ratio than the cen-tral districts. This is also corrobo-rated by the fact that the central dis-tricts are more developed with alarge number of industries, whilethe northern and southern districtsare predominantly underdeveloped.

Some of the important trees foundin the state are sal, teak, shisham,

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Natural Resources

bamboo, tendu and saj. Some of Chhattisgarh’s impor-tant forest products are - timber, resin, gum, tendu and avariety of medicinal plants such as amla, brahmi, lemongrass, khus grass and kali haldi. The state’s forest-basedproducts can contribute significantly towards the genera-tion of employment opportunities and provide raw ma-terials to small scale industries like saw-mills, furnitureunits, the bidi industry, the silk industry, solvent plantsand tanning and dyeing units. Currently there are aboutten thousand industrial units that depend on forest pro-duce in the state. During the period 1999-2000, the totalrevenue from forest produce was Rs. 104 crores.

Chhattisgarh has a variety of wildlife including animalssuch as tiger, leopard, bear, lemur, deer, wild boar andpython. There are three national parks and 11 sanctuar-ies in the state.

The northern and southern districts have many tourist spots,which are open throughout the year. With proper trans-port links, these tourist spots will become more accessible.

3.2 Mineral Wealth3.2 Mineral Wealth3.2 Mineral Wealth3.2 Mineral Wealth3.2 Mineral Wealth

Chhattisgarh is richly endowed witharound 28 varieties of minerals. Theseinclude coal, iron ore, dolomite, baux-ite, limestone and cassiterite used inheavy metallurgical and chemical in-dustries. These minerals are requiredby critical basic industries that can beestablished in the state.

Reserves of precious metals andstones such as gold, diamond,garnet, corundum and quartzitehave also been discovered inChhattisgarh. This could make thestate an important industrial centreby making possible the agglomera-tion of metallurgical, power, infra-structure and gem and jewellery in-dustries in the state.

The northern districts ofChhattisgarh have rich coal and bauxite reserves (Figure 6).Limestone is predominantly found in the central districts.The southern districts have abundant iron ore reserves. Asthe mineral endowments of Chhattisgarh are distributedover the different regions of the state, the development ofmineral-based industries requires good transport links,which are presently lacking.

Chhattisgarh is an important producer of minerals inIndia. In 2001, the state accounted for 25.2 percent ofthe total iron ore production in India, making it the larg-est producer of iron ore in the country. Bastar district isthe sole producer of the tin ore called casseterite in In-dia. In 2001, Chhattisgarh accounted for 23 percent, 15percent and 9.5 percent of the all-India production ofdolomite, coal and bauxite respectively. Korba,Dantewada, Durg and Raipur are the major mineral pro-ducing districts of Chhattisgarh.

The existence of rich mineral deposits makes infrastruc-ture development in the state imperative for further sus-

Figure 5: Total Forest and Non-forest Area in Chhattisgarh

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Figure 6: Mineral Map of Chhattisgarh

tainable economic development. This can be illustratedby the example of the famous Bhilai steel plant. So farthis plant has depended on the supply of iron ore fromthe Dalli Rajhara mines in nearby Durg district. This en-abled it to save on transport costs, making it the only profitmaking steel unit of SAIL. Over the next five years theseiron ore reserves may get exhausted and force the closureof the Bhilai plant. For the plant to remain in operation, arailway line linking Durg to Jagdhalpur via Raughat andDalli Rajhara must be constructed as proposed, as this

will enable the transportation of the bulky mineral orefrom the mines in the southern districts of Chhattisgarh.

There is need for creating north-south corridors either bylaying railway lines or by laying roads. Since, Chhattisgarh’sinfrastructure development is centred around transporta-tion of bulk commodities, it is imperative that railway net-works are developed, as these are more cost effective intransporting bulk quantities of heavy commodities. Theserailway lines may later be connected with roads for com-prehensive railroad connectivity.

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Demographic CharacteristicsDemographic CharacteristicsDemographic CharacteristicsDemographic CharacteristicsDemographic Characteristics

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Figure 7: Total Population and Population Density in 2001

In 2001, Chhattisgarh had a population of 20 million,which was 2 percent of India’ s population, making itthe seventeenth most populous state of India. 1.46 per-cent of the total urban population of India resided inChhattisgarh in 2001.

The regions near the industrial belt of Chhattisgarh aremore populated than the districts in the north and thesouth, which are further away from the industrial zone

(Figure 7). Thus, the central districts of Bilaspur, Janjgir-Champa, Durg and Raipur have a higher populationdensity than the other districts of Chhattisgarh.

The state has a large tribal population, which accountsfor a little over one third of the total population of thestate. This has significant implications for the task ofdevelopment planning, as the tribals reside in widely dis-persed habitations and have a unique way of life.

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The Potential Engines of GrowthThe Potential Engines of GrowthThe Potential Engines of GrowthThe Potential Engines of GrowthThe Potential Engines of Growthin Chhattisgarhin Chhattisgarhin Chhattisgarhin Chhattisgarhin Chhattisgarh

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Figure 8: Consumption of Crude Steel

Given the huge natural resources available inChhattisgarh, there are many possible opportunities ofgrowth. As pointed out earlier, it is the sole producer ofcasseterite in India, which is concentrated in the Bastarand Dantewara districts. The total reserves are estimatedto be around 30 million tonnes. Casseterite is used forthe production of tin. Estimates also suggest that around25 tonnes of corundum is available in Dantewara dis-trict, five tonnes of gold is available in the Raipur, Jashpurand Mahasammund districts and gemstones in the Raipurand Bastar districts. These are potential inputs for thegem and jewellery industry.

In view of the availability of limestone, iron ore andcoal for the iron and steel industry and limestone andsilica for the cement industry, there will be a correspond-ing increase in the mining of these minerals as the de-mand for them increases. Therefore, it may be arguedthat mining based industries will grow and consequentlygenerate more employment opportunities.

Chhattisgarh has abundant coal reserves. One estimatesuggests that there is potential for 30,000 MW of ther-mal power generation. For a power deficient countrylike India, Chhattisgarh has the potential to sell excesspower and earn revenue. Recent deregulations in the

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The Potential Engines of Growth in Chhattisgarh

electricity sector have made it easier to set up generatingunits and buy power from the lowest priced seller.

Chhattisgarh is also endowed with fertile land and ad-equate rainfall and water resources required for the pro-duction of rice and pulses. Consequently, it is also sug-gested that Chhattisgarh may also turn out to be a po-tential rice bowl. Providing irrigation facilities can cre-ate rural employment opportunities.

Approximately 50 percent of Chhattisgarh is under for-est cover in the predominantly tribal northern and south-ern districts of the state. To generate gainful opportuni-ties for these backward districts, it is suggested that op-portunities for value addition be identified and indus-tries using local forest produce as inputs be set up.

After careful consideration of various growth opportu-nities, it is our view that mineral-based and forest-basedindustries are two potential engines of economic growthin Chhattisgarh. A carefully considered land use policywould have to be put in place to enable an optimumlevel of forest conservation.

It is evident from the figure given above that mineralbased industries are the key to Chhattisgarh’s develop-ment. In 2000, the per capita consumption of crude steelwas 846 kilograms in South Korea and 128 kilograms inChina. In comparison, India’s per capita steel consump-tion was around 31 kilograms in the year 2000. If ourlevel of per capita consumption catches up with that ofChina, India will require around 100 million tonnes moreof crude steel. This will lead to a huge demand for thedomestic crude steel industry. Chhattisgarh, being oneof the largest producers of iron and steel in the country,will profit by way of royalty. In this regard, the state hasrequested the centre to fix the royalty at a certain per-centage of the market price of the minerals. Since themarket price of minerals increases over the years, theroyalty arising out of the export of the minerals fromthe state will also increase over time. The setting up ofvalue added industries based on iron and steel produc-tion, means more employment opportunities forChhattisgarh. As discussed later in this report(Chapter 6), one way to make this happen is to develop

cluster-based industries. Realising the huge potential ofthis sector, the state has set itself a target of doublingthe contribution of minerals to the net state domesticproduct and ensuring occupation and shelter to all tribalsaffected by mineral exploring activities.

5.1 The Mining Industry: Implications5.1 The Mining Industry: Implications5.1 The Mining Industry: Implications5.1 The Mining Industry: Implications5.1 The Mining Industry: Implicationsfor Chhattisgarhfor Chhattisgarhfor Chhattisgarhfor Chhattisgarhfor Chhattisgarh

In tune with the economic reforms underway, impor-tant amendments have been made to the Mines andMinerals Regulation and Development Act, 1957. Theamendments – including the renaming the Act as theMines and Minerals Development and Regulation(MMDR) Act - are aimed at attracting private invest-ment including foreign direct investment (FDI) into thesector. The Government of India has allowed up to 100percent foreign equity participation through the auto-matic route in the case of exploration and mining of allminerals, except diamonds and precious stones whereonly 74 percent FDI is permissible via this route. Morepowers have been delegated to the state governments.A new clause relating to reconnaissance permit has beenadded in the Act, as a stage distinct from, and prior to,actual prospecting operations, in order to make invest-ment in the state-of-the art technologies in mineral ex-ploration more attractive.

Consequent to amendments to other Acts, under thepresent dispensation, the power of approving miningplans for 29 non-metallic and industrial minerals in re-spect of open cast mines has been given to the stategovernments. The state governments have been given atime frame for the disposal of mineral concession ap-plications and for the approval of mining plans. In thisregard, the state of Chhattisgarh has to create efficientinstitutions to deal with these matters in a time-boundmanner. The non-ferrous metals and mining sector havebeen opened up to the private sector. Consequently, thegovernment of Chhattisgarh can think of granting min-ing concessions for profitable mineral sites to privateplayers through competitive bidding or some form ofauctioning, so that the state can maximise revenue.

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5.2 Government Revenues5.2 Government Revenues5.2 Government Revenues5.2 Government Revenues5.2 Government Revenues

The mining and mineral industry contributes revenuesto the central and state governments through paymentsof royalty, dead rent, cess, sales tax, excise duties andcustom duties.

Royalty and dead rent

As per Section 9 of the MMDR Act, the holder of amining lease is required to pay royalty to the state gov-ernment in respect of any mineral removed or consumedat the rate specified in the Second Schedule of the Act.The central government, by a notification in the officialgazette, may amend the royalty rates specified in the Sec-ond Schedule of the Act once in three years. For 30 min-erals, the royalty is based on sale price on ad valorembasis and for metals like copper, lead, tin, zinc it is basedon the London Metal Exchange prices. For gold it isbased on the London Bullion Market Association price.For 18 minerals, including coal and lignite, it is a fixedamount per tonne of despatch.

Excise duty

In addition to royalty, excise duty (@ Rs.3.50 – Rs.4.25/tonne) on coal production is levied by the central govern-ment. The purpose of this excise duty is to carry out pro-tective works and developmental activities in the coal mines.The excise duty on mineral based manufactured productsis levied and collected by the central government.

Cess

Cess is collected on some minerals (mica, limestone anddolomite, iron-ore and chromite) to set up welfare fundsto provide housing, medical care, social security, educa-tion and recreation facilities for workers employed inthese mines. Cess is collected by the central government,and the Ministry of Labour is responsible for the ad-ministration of these funds.

Sales tax

Sales tax is levied by the central or the state governmentand is subsequently collected by the state government.

Customs duty

The customs duty on imports of minerals and mineral prod-ucts is levied and collected by the central government.

Royalty is imposed on the mining industry to generaterevenue and the funds collected go to the general poolof the state government. These funds should be trans-ferred to the local authorities for the overall develop-ment of the mining areas, which are generally located inremote, forest or tribal areas and that require funds fordevelopment. The tribal areas in general are the mostbackward in the state of Chhattisgarh. There is need forincreasing health facilities and imparting education fordeveloping skills that can enable gainful employment inthe tribal regions of the state.

For example, the government of Maharashtra has taken apolicy decision to allocate a part of the royalty collectedon mineral production in the state, for the developmentof mineral producing areas. The state government has setup a Mineral Development Fund and 10 percent of theroyalty collected is transferred to this. This Fund is to bespent on the development of infrastructure in districtshaving mining activities and also in the development ofmines in the ratio of 2:1 respectively.

With huge reserves of coal, Chhattisgarh would like tosee the central government also revise the royalty ratesof coal. The frequency of revision and the rates them-selves are in need of review. These rates need to be basedon ad valorem rates. With about 15 percent of the totalcoal production in the country coming fromChhattisgarh, the state stands to gain if the royalty rateson coal are pegged on an ad valorem basis. As per thecurrent practice of fixing rates by the central govern-ment, it seems that the real rates of coal have fallen overtime – implying that there is a loss of revenue for statesover time in real terms.

5.3 Institutional and Legal Reforms5.3 Institutional and Legal Reforms5.3 Institutional and Legal Reforms5.3 Institutional and Legal Reforms5.3 Institutional and Legal Reforms

Presently, one cannot mine a deposit which lies in a de-clared forest area. There are many excellent mineral

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The Potential Engines of Growth in Chhattisgarh

deposits available in such forest areas in Chhattisgarh.A way out must be found for commercially exploitingsuch deposits for the benefit of the economy, even whilemaintaining the requisite forest cover and eco-balance.

There is multiplicity of legislation: laws related to for-ests, environment, mining and labour. All these have abearing on mining operations in the state. To encouragespeedier growth of the private sector investment in thesector, there is a need to streamline the legislation ac-cording to the requirements of the day.

Despite being among the few mineral-rich countries inthe world, our expenditure on exploration, on an aver-age, is less than one percent of global spending. For amineral-rich state like Chhattisgarh this implies lowutilisation of potential reserves. Deeper probing ofknown deposits, intensive and extensive belt-wise min-eral exploration, including covering areas out of the tra-ditional mineral belts and even basement rocks will haveto be undertaken. To do this effectively and to acquirehigher capability in all fields of mineral exploration anddevelopment, there is a need for concerted action plansto be drawn up by the concerned organisations ofChhattisgarh in collaboration with central governmentagencies. This will call for technology upgradation forfield data acquisition, state-of-the art laboratory back upand development of expertise. Focus areas will includeair-borne surveys; ground geo-physical surveys, explor-atory drilling, marine survey, use of digital equipmentfor surveys, etc.

5.4 Environmental Damage due to5.4 Environmental Damage due to5.4 Environmental Damage due to5.4 Environmental Damage due to5.4 Environmental Damage due toMiningMiningMiningMiningMining

The impact of mining activities on the pollution of air,water, land, soil quality, vegetation including forest eco-systems, and on human health and habitation will be-come a matter of concern for the state of Chhattisgarhin the near future. Any deterioration in the physical,

chemical, and biological quality of the environment af-fects human health as well as flora and fauna. The mag-nitude and significance of the impact of mining activi-ties on the environment varies from mineral to mineraland also on the potential of the surrounding environ-ment to absorb the negative effects of mining due tothe character of mineral deposits and the size of miningoperations. Mineral production generates enormousquantities of waste/overburden and tailings/slime. Someof the environmental damage that can be caused by theminerals found in Chhattisgarh is given below.

Limestone mines are categorised as shallow operationsand are generally confined to a depth of 40-50 metres.Currently, the overburden and waste being generated isused to refill the abandoned pits to up to one third ofthe mined out areas. In case of iron ore, washing plantsare installed at the sites where the ore is mined. Slime isgenerated as a result of washing. In order to check theflow of slime to watercourses and agricultural land, it isnecessary to construct garland drains, check dams, con-tour drainage and plantations. Water treatment is alsonecessary before it is released into the river system.

The main pollution consequent to bauxite mining isbecause of red mud. Making barriers or dams in low-lying areas generally confines the red mud. Water is re-circulated to the process plant. Red mud is also used inmaking bricks.

The environmental damage caused by the mining ofminerals affects the livelihood of tribals. Therefore, rev-enues collected by the government should be spent onsocial welfare schemes that benefit tribals. Environmentaldamage may also affect tourism, which is one of thedrivers of growth in Chhattisgarh. It has the potentialof generating employment and showcasing the rich tribalculture of the state. It is therefore imperative that thegovernment minimise environmental damage withoutcompromising the mineral development of the state.

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GrGrGrGrGrowth of Clusterowth of Clusterowth of Clusterowth of Clusterowth of Cluster-based Industries-based Industries-based Industries-based Industries-based Industries

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As emphasised earlier, one of the key facilitators of eco-nomic growth in the state of Chhattisgarh is buildingsuccessful cluster-based industries. This will not only helpto create jobs, but will also generate incomes throughvalue addition to the abundant minerals found in thestate. To do so, the state needs to know what the sourcesof agglomeration are, which factors are responsible foragglomeration of industries and which industries aremost likely to agglomerate.

Lall et al, (2001), cite three sources of agglomerationeconomies: (1) at the firm level – from improved accessto market centres, (2) at the industry level – enhancedintra industry linkages and (3) at the regional level – in-ter-industry urbanisation economies. The authors use acombination of plant level and disaggregate physio-geo-graphic data to examine the contribution of agglomera-tion economies to economic productivity. Their resultsshow that there is considerable variation in the sourcesand magnitudes of agglomeration economies betweenindustrial sectors. In particular, results indicate that ac-cess to markets through improvements in inter-regionalinfrastructure is an important determinant of firm levelproductivity, whereas the benefits of locating in denseurban areas do not appear to offset associated costs.

Therefore, an option for improving efficiency in indus-try location decisions is to improve the availability andquality of inter-regional transport infrastructure linkingsmaller urban areas to the rest of the network. This wouldenhance market access for manufacturing plants and alsoprovide opportunities for standardised manufacturing

activities to move out of high cost large urban centres torelatively lower cost secondary centres. In this context,Chhattisgarh’s emphasis on building roads is well placedand will definitely pay rich dividends in the future.

Results from the same paper show that there is consider-able heterogeneity in the sources and magnitudes of ag-glomeration economies between industry sectors. Forexample, market accessibility (MA) has the strongest ef-fect for the leather products industry. The coefficient of0.66 implies that a 10 percent change in MA would leadplants to increase output by 6.6 percent or that a doublingof MA would increase plant output by 66 percent withno additional plant level production inputs. Similarly, posi-tive and significant effects of 0.09 for MA are found forSIC 36 (electronics and computer equipment).

However, the net effects of improving MA are not alwayspositive. While improved market access potentially increasesthe demand for a firm’s products and enables investmentin cost saving technologies, it also opens avenues for com-petition with other domestic firms as well as with productsmade internationally. For SIC 32 (non-metallic mineral prod-ucts) and 35 (machinery and equipment), the coefficientsfor MA are -0.08 and -0.10 respectively. For SIC 35 thiswould mean that the net effect of doubling MA wouldreduce plant level output by 10 percent.

In addition to MA, the authors used travel time to trans-shipment hubs (DHUBS) as a measure of scale econo-mies from improved market access. It is expected thatincrease in travel time to DHUBS would have a negative

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Growth of Cluster-based Industries

effect on output as firms would incur higher costs andreduced profitability. The coefficients for DHUBS arenegative for six of the nine sectors and statistically signifi-cant for four sectors. The strongest effects are for cottontextiles and leather products, where the coefficient of-0.23 means that a 10 percent increase in travel time tothe nearest port would reduce plant output by 2.3 per-cent. Conversely, reduction in travel time by improvingtransport links would increase plant level output.

In general, the authors find that urban density has a nega-tive effect on plant level output. The coefficient of ur-ban density is negative for six of the nine sectors. How-ever, the coefficients are significant in two sectors – bev-erages and tobacco (SIC 22) and cotton textiles (SIC23). The coefficient of –0.20 for beverages and tobaccomeans that a 10 percent increase in a district’s urbanpopulation density would reduce plant level output bytwo percent. Similarly, for cotton textiles, the coefficientof – 0.14 means that a doubling of urban populationdensity would reduce plant level output by 14 percent.Even though the negative coefficients for the other foursectors are not significant, the results point to a trendthat the economies of urban concentration arising fromfactors such as access to specialised financial and pro-fessional services and inter industry information trans-fers do not offset the high costs of locating in denseurban areas. These results are not unexpected as Indianindustry in general is inefficient and uses standardisedprocesses and product designs without much innova-tion. As a result, firms in these industries cannot affordthe relatively high wages and rents in dense urban areasand prefer to locate in smaller/secondary centres.

The authors also contend that firms in the sample thatthey analysed tend to benefit from internal scale econo-mies driven by market accessibility. Estimates for twoindicators—market access and proximity to DHUBS —indicate that improved market access is likely to provideincentives for increasing the scale of production. It alsoallows firms to invest in cost reducing technologies. It isdifficult to make generalisations about the effects oflocalisation economies, though the net gains from intra-

industry transfers are not likely to be very high in thegenerally inefficient Indian industry. Even between sec-tors, the benefits of localisation are higher in the ma-chine tools (SIC 35) and electronics (SIC 36) sectors,which have relatively higher levels of technology em-bodied in production processes.

6.1 Favourable Cluster-based6.1 Favourable Cluster-based6.1 Favourable Cluster-based6.1 Favourable Cluster-based6.1 Favourable Cluster-basedIndustriesIndustriesIndustriesIndustriesIndustries

It may be pertinent to point out that the ChhattisgarhGovernment’s Industrial Policy (2001-2002) outlinesagro-based, forest-based and mineral-based industriesas important growth areas. The aim is to build industryclustering around these industries. Arguably, it is a verydifficult task and the only way to make it succeed is forboth the government and industry associations to takejoint initiatives to make it successful. This requires iden-tification of the factors leading to the success of clus-ter-based industries like the bicycle industry in Ludhiana,the fan industry in Hoogly, or the textile industry inTiruppur. Valuable lessons may be learnt from these casestudies. Although they may not be replicable, they maythrow important light on the setting up of cluster-basedindustries in the state. Apart from this measure, the gov-ernment should work to develop networks among thekey players in individual clusters and help form alliancesamong firms, technical institutes and business supportinstitutions. The government will focus on attractingexternal investments by forging partnerships with theprivate sector and working closely with the relevant in-dustry/ associations for manpower needs.

The importance of the agro-based and forest-based in-dustry lies in its significant contribution to the state grossdomestic product and in the provision of employmentopportunities to 80 percent of the state’s rural population.

The following categories of industrial units are ear-marked for development:

Industries involved in the processing of food grains,fruits, vegetables, herbal and medicinal plants.

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Industries based on livestock processing and fisheries.

Development of specialised industrial estates withprovision for infrastructure facilities like cold stor-age, post harvest storage and air freighting of fruits,vegetables and other perishables.

Making available wasteland or degraded land onlong-term lease for plantation purposes, to encour-age forest-based industries. In order to promote in-tegrated agro industrial complexes, the state gov-ernment will allot wasteland up to 500 hectares (inexceptional cases up to 1000 hectares) for suchprojects, based upon the technical and financial vi-ability of such schemes.

Incorporating special provisions in the AgricultureLand Ceiling Act to encourage corporate farmingand integrated processing and value addition units.

Developing agro processing information and tech-nology centres in collaboration with internationalinstitutes.

Proactively liaising with financial institutions to fa-cilitate funding of value addition centres for grad-ing, packaging, distribution, storage, etc.

Predictably, the Industrial Policy 2001-2006 also pointsout that as far as mineral-based industries are concerned,it is beneficial for the government of Chhattisgarh toconcentrate on processing the minerals to maximise valueaddition in the state. Due to abundant mineral resources,this sector has immense potential for attracting largeinvestments and generating employment. As the sole

producer of casseterite, Chhattisgarh may also attemptto develop value added industries based on tin. Cluster-based industries specialising in aluminium and alliedproducts may also be developed because of the avail-ability of large amounts of bauxite.

Accordingly, the government will need to take steps to:

Undertake modern methods of exploration like re-mote sensing and arrow magnetic surveys to pre-pare the resource inventory of various mineralsacross the state.

Prepare zoning atlases of all districts to identify “spe-cial mining zones” for optimum and streamlinedmining activities with least disturbance to the eco-logical balance. An appropriate system will be for-mulated for obtaining clearances through a nodalagency under a time bound schedule for undertak-ing mining activity in these special mining zones.

Forge partnerships with other nations/states forexploration of minerals.

Promote mineral-based industries includingbeneficiation and enrichment of low-grademinerals.

Special focus would be to develop industrial clus-ters based on the following industries: iron and steel,cement, aluminium, chemicals and granite.

Establish a gems and jewellery park to create jobsand add value to raw stones. This will result in higherroyalty/excise collections as applicable.

15

Infrastructure: A Prerequisite for EconomicInfrastructure: A Prerequisite for EconomicInfrastructure: A Prerequisite for EconomicInfrastructure: A Prerequisite for EconomicInfrastructure: A Prerequisite for EconomicGrowth in ChhattisgarhGrowth in ChhattisgarhGrowth in ChhattisgarhGrowth in ChhattisgarhGrowth in Chhattisgarh

7

Given the natural endowments of Chhattisgarh, infrastruc-ture development is extremely critical for enabling the stateto exploit its potential for rapid economic growth.

Currently, the northern and the southern districts ofChhattisgarh, blessed with abundant reserves of min-eral and non-mineral resources and dense forests, arelargely cut off from the industrial belt in the central partdue to the lack of road and railway connections. Thismeans a loss of potential addition to the wealth ofChhattisgarh due to sub-optimal industrial developmentin the central region. Thus, there is an urgent need toensure the connectivity of the northern and southerndistricts with the industrial central districts. The PWDroad policy of Chhattisgarh has outlined, among others,the promotion of two north-south and four east-westhigh-speed access corridors to develop Chhattisgarh intoa regional logistics and transshipment hub.

The Chhattisgarh government’s road policy outlines fourstrategies:

1. Integration of road development and management

2. Participation of private sector

3. Dedicated funding and

4. Capacity building of state institutions.

Of these four strategies, the first strategy is extremely rel-evant and consistent with infrastructure development as

outlined in this report. This strategy is based on cluster-based development as envisaged by the Chhattisgarh gov-ernment for the overall economic and social developmentof the state. The government therefore plans to promoteand improve the road network with the objectives of:

Developing high speed access corridors

Linking economic clusters i.e., industrial areas, com-mercial centres and agricultural mandis, and

Integrating Pradhan Mantri Gram Sadak Yojna(PMGSY) with the overall road developmentprogramme.

While the first two objectives will ensure comprehensiveroad connectivity of the important economic centres, thelast objective will ensure that this connectivity is also linkedto the rural network which, though now largely absent, istaking shape through the PMGSY.

The other strategies of Chhattisgarh’s road policy re-volve around methods to finance road projects and theaugmentation of managerial capacity for expediting road-building projects. These include strategies for privatesector participation. Private sector participation will needto increase manifold to meet overall funding needs. Toachieve this, the government will, among other things:

Formulate guidelines to support private sector par-ticipation;

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Figure 10: State Ranking in Transport SectorEnsure transparency in bidding andselection criteria; and

Provide fiscal support to privatesector initiatives.

The government will take steps to ensure adedicated funding mechanism for the devel-opment of roads in the state. This will en-sure not only systematic maintenance ofroads but also timely completion of projects.The government seeks to strengthen its in-stitutions to enhance project preparation,contract and project management skills. Thegovernment will progressively focus on play-ing a more broad-based role in road man-agement, with greater emphasis on planningand project management.

Having outlined the state’s transport policy,it is imperative to know how the state fares

with regard to transport vis-à-vis otherstates. Figure 10 shows the ranks of thestates on the basis of rail route per non-forest area, road length per non-forest area,percentage of villages connected by roads,percentage of total roads surfaced and per-centage of urban roads surfaced. Roadlength and rail route length per non-forestarea will determine the density of the tran-sit in the state, while the percentage of vil-lages connected will determine the connec-tivity and accessibility of the state. The per-centage of total roads and total urban roadssurfaced indicates the quality of the roads.As evident from the ranking of the states,Chhattisgarh ranks very low on this indica-tor and there is urgent need to enhance roadconnectivity across the state.

The state’s performance in the power sec-tor and information technology is alsoshown in Figures 11 and 12 respectively. The

Figure 9: Road Map of Chhattisgarh

17

Infrastructure: A Prerequisite for Economic Growth in Chhattisgarh

power sector is ranked based on elec-trical energy consumed per sq.kilometre, per capita electrical energyconsumed and percentage of villageselectrified. Chhattisgarh has surplus gen-erating capacity in power. More signifi-cantly, with the availability of large re-serves of coal, its potential to generatemore power is very high. This power gen-eration can sustain the industrial clustersthat are envisaged for the state.

The ranking in information technologyis based on telephone density, percent-age of villages connected by phones andInternet subscribers per 1000 people.Chhattisgarh’s rank in the informationtechnology sector is very low and ca-pacity has to be developed in this area.

For this to happen, the state has to offerincentives to private firms.

With only 28 per cent of the Indianpopulation having access to improvedsanitation facilities, it is imperative thatthe state has an investment plan for ur-ban infrastructure in place. Raipur, thecapital of Chhattisgarh, has no under-ground drainage facilities and the situ-ation in other cities is worse. Thus, in-vestment in urban infrastructure isneeded on a priority basis inChhattisgarh. If urban cities are up-graded, then with the consequent im-provement in the quality of life, therewill be an incentive for industries to setup factories, as it will be easier for themto attract skilled labour. This is espe-cially true for sectors like informationtechnology.

Figure 11: State Ranking in Power Sector

Figure 12: States Ranking in Information Technology Sector

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ConclusionConclusionConclusionConclusionConclusion

8

As mentioned in previous sections, the state ofChhattisgarh is well endowed with mineral deposits andthere is potential for forest-based industries. Industrialdevelopment is mostly confined to the main east-westrail route line. For the state to develop further, it is es-sential that landlocked areas are made accessible. There-fore this paper envisages that an infrastructure baseddevelopment plan is essential for the state.

The growth strategies for the state revolve around itsability to stimulate industrial clusters based on abundantmineral endowments. Another growth strategy is to fos-ter the development of forest-based industries. This willhelp to generate employment opportunities for the state’sbackward communities. The third growth strategy is todevelop the mining based industries. This will help thestate to earn royalty from the extraction of minerals,which is of critical importance to finance various socio-welfare policies of the state.

It is evident that for these growth strategies to succeedit is important to improve the availability and quality ofinter-regional transport infrastructure, linking smallerurban and rural areas to the rest of the network. Thiswould enhance market access for manufacturing plantsand also provide opportunities for standardised manu-facturing activities to move out of high cost large urbancentres to relatively lower cost secondary centres. Ex-pansion of this network will also improve the transship-ment of raw or semi processed minerals to industrial

clusters located inside the state for further value addi-tion or to other states for export.

The success of these growth strategies will require anabundant supply of electricity. The state has huge re-sources of coal. More generating capacity based on coalwill need to be created in the future. In this respect, thestate can encourage independent power producers toset up power projects in the state. For this to happen,the state has to initiate enabling institutional reforms inthe power sector. An unintended fall-out of these strat-egies is environmental degradation. The state needs todevelop a well-intentioned environmental plan for sus-tainable growth as also to maximise its revenue fromroyalty. Therefore, it is also important to formulate arevolving plan to rationalise the royalty rates over timefor the benefit of the state of Chhattisgarh, withoutcompromising national interest.

As outlined in the paper, the state has to invest heavily incorrecting the existing imbalances in infrastructure require-ments. The government has estimated the funds requiredfor this purpose. However, this can lead to problems offiscal deficit. So it needs to ensure that investment in in-frastructure is sustainable. Despite this, it is estimated thatthe state of Chhattisgarh could perhaps have invested Rs.350 crores more. In the long run, a sustainable solution isto create an enabling framework for private sector par-ticipation in diverse forms. It also includes reforms to-wards recovery of user charges, so that private investorsare able to recover their investments.

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End NotesEnd NotesEnd NotesEnd NotesEnd Notes

This report seeks to identify unique growth opportuni-ties for the state of Chhattisgarh and profess a broadinfrastructure plan to maximise the growth potential ofthose opportunities. The report does not purport to out-line a detailed plan for the state. A detailed plan is out-lined in the study “Infrastructure Development ActionPlan for Chhattisgarh – Final Report” available at theofficial web site of the government of Chhattisgarh:http://chhattisgarh.nic.in/opportunities/

Data for all the graphs and in the text are from gov-ernment publications as mentioned in the data sourcesbelow. The data used to generate the ranking in trans-port, power and information technology are collectedfrom various Infrastructure issues published by Cen-tre for Monitoring Indian Economy (CMIE). Someof the data on the power sector are also collectedfrom the website of Central Electrical Authorityand for the telecom sector from Indian TelecomStatistics, 2002.

Conclusion

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Data SourcesData SourcesData SourcesData SourcesData Sources

Chhattisgarh in charts and graphs, Directorate of Eco-nomics and Statistics, Government ofChhattisgarh, 2001.

Chhattisgarh at a glance, Directorate of Economics andStatistics. Government of Chhattisgarh, 2002.

Chhattisgarh Industrial Investment Promotion Act, 2002,Government of Chhatisgarh.

Lall, Somik; Shalizi, Zmarak and Deichmann, Uwe 2001.‘Agglomeration Economies and Productivity in In-dian Industry’, The World Bank, Washington DC.

About the Series EditorsAbout the Series EditorsAbout the Series EditorsAbout the Series EditorsAbout the Series Editors

Aasha Kapur Mehta is Professor of Economics at the Indian Institute of Public Administration, New Delhi and leads theChronic Poverty Research Centre’s work in India. She has a Masters from Delhi School of Economics, an M.Phil fromJawaharlal Nehru University and a PhD from Iowa State University, USA. She has been teaching since 1975, initially ata college of Delhi University and then at IIPA since 1986. She is a Fulbright scholar and a McNamara fellow. Her areaof research is now entirely focused on poverty reduction and equity related issues.

Pradeep Sharma is an Assistant Resident Representative and heads the Public Policy and Local Governance Unit inthe India Country Office of United Nations Development Programme (UNDP). A post-graduate from University of EastAnglia (UK) and Doctorate from Jawaharlal Nehru University, he has held several advisory positions in the Governmentof India and has taught economic policy at LBS National Academy of Administration, Mussoorie. He has severalpublications to his credit.

Sujata Singh is an Associate Professor at the Indian Institute of Public Administration. She completed her doctoralstudies in Public Administration and Public Policy at Auburn University, USA. Her primary research interests are in thearea of Comparative and Development Administration, Public Policy Analysis, Organizational Theory and Evaluation ofRural Development Programmes.

R.K. Tiwari is Senior Consultant, Centre for Public Policy and Governance, Institute of Applied Manpower Research,Delhi. He was formerly Professor of Public Administration at the Indian Institute of Public Administration (IIPA), NewDelhi. He received his education at Gwalior, Allahabad and Delhi. He has undertaken a number of research studies inDevelopment Administration, Rural Development, Personnel Administration, Tribal Development, Human Rights andPublic Policy. He has conducted consultancy assignments for the Department of Posts and in the Ministry of RuralDevelopment, Government of India; and for the Government of Orissa and the Narmada Planning Agency, Governmentof Madhya Pradesh. He has published several books.

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