paper 1_ chattisgarh report

8/6/2019 PAPER 1_ Chattisgarh Report

1/27


2/27

Chhattisgarh Infrastructure ReportChhattisgarh Infrastructure ReportChhattisgarh Infrastructure ReportChhattisgarh Infrastructure ReportChhattisgarh Infrastructure Report

S.K.N. Nair

Adviser, NCAER

Saumen Majumdar

Senior Economist, NCAER

Series Editors:

Aasha Kapur Mehta, Pradeep Sharma

Sujata Singh, R.K.Tiwari

2006


3/27

Chhattisgarh Infrastructure Report

AcknowledgmentsAcknowledgmentsAcknowledgmentsAcknowledgmentsAcknowledgments

We express our gratitude to:

UNDP for the generous support that enabled us to conduct this study as part of the UNDP funded Economic

Reforms 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 and

active 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 their

valuable time for us.

Ms. Suparna Das and Ms. Archana Jaba, researchers attached to the Centre for Infrastructure and Regulation who

provided excellent research assistance for this report.


4/27

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

4

1

2

3

5

6

7

8


5/27


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


6/27

1

IntroductionIntroductionIntroductionIntroductionIntroduction

1

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 and

roads are undergoing reforms at various levels of

policy, regulation and governing statutes. Through

these reforms, large additional investments are being

attracted and economic growth is receiving a fillip.

This paper tries to assess the status of physical infra-structure in Chhattisgarh and the infrastructure needs

that require to be addressed for it to realise its growth

potential.

The recently constituted state of Chhattisgarh, which is

economically backward, but rich in natural resources, was

selected for this purpose. The state of Chhattisgarh was

carved out of the state of Madhya Pradesh in central In-

dia on 1st November 2000. The 135,000 square kilometre

geographical area of Chhattisgarh accounts for four per-

cent of the total area of India. It is bounded by Uttar

Pradesh and Jharkhand in the north, by Orissa in the east,

by Andhra Pradesh in the south and by Madhya Pradesh

and Maharashtra in the west (Figure 1).

Chhattisgarh is richly endowed with natural resources

including minerals, plentiful water and dense forests.

Figure 1: District Map of Chhattisgarh


7/27

2


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 and

32 percent, respectively, of the states population. Popu-lation density is low and the per capita income is well

below the national average (Figure 2).

Chhattisgarh has tremendous growth opportunities and this

paper outlines some growth strategies for the state, whichare consistent with its vast endowments. It also delineates

the infrastructure requirements needed to enable this.

States


8/27

3

Figure 3: District Map of Chhattisgarh with Artificial Demarcation

Geographical FeaturesGeographical FeaturesGeographical FeaturesGeographical FeaturesGeographical Features

2

The state has 16 districts. This paper broadly classifies

these 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 demographic

profile. The demographic profile of central Chhattisgarh

is markedly different from the rest of the state. The rail-

way line connecting the eastern and the

western part of the country passes

through central Chhattisgarh. Laying of

the railway line has led to the overall de-

velopment of the region and enabled the

movement of goods and the develop-

ment of economic centres based onmanufacturing and trade. Therefore, cen-

tral Chhattisgarh is characterised by the

presence of industries and more

urbanisation than the rest of the state.

The central districts of Durg and Raipur

constitute the industrial belt of

Chhattisgarh and are more densely popu-

lated than the northern and southern dis-

tricts. The mineral-rich tribal communi-

ties of Chhattisgarh inhabit the densely

forested, mineral-rich districts of the north

and south.

As will be evident later, this artificial de-

marcation has implications for the infra-

structure requirements of the state.


9/27

4


Figure 4: Rainfall and Rainy Days in Chhattisgarh

Natural ResourcesNatural ResourcesNatural ResourcesNatural ResourcesNatural Resources

3

The bounty of nature in terms of abundant water, min-

eral and forest resources provide the relatively new state

with rare opportunities for development.

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

The state of Chhattisgarh receives 1292 mm of rainfall

annually, which is higher than the all-India average of

580 mm. As can be seen from Figure 4, the northern

and southern districts of Chhattisgarh receive more rain-

fall than the central districts (except Durg).

Five major rivers flow through Chhattisgarh. These

are Hasdeo and Gej in the north, Mahanadi and Seonath

in the central region and Indrawati in the south.

Although the state has abundant water resources, it lacks

the necessary infrastructure to use them efficiently. The

utilisation of irrigation potential is significantly below

the national rate. Budgetary allocation for the develop-

ment of irrigation needs to be increased. This will help

the 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 dependable

and environmentally sustainable

water 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 northern

and southern districts of

Chhattisgarh have a higher forest to

non-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 a

large number of industries, while

the northern and southern districts

are predominantly underdeveloped.

Some of the important trees found

in the state are sal, teak, shisham,


10/27

5

Natural Resources

bamboo, tendu and saj. Some of Chhattisgarhs impor-

tant forest products are - timber, resin, gum, tendu and a

variety of medicinal plants such as amla, brahmi, lemon

grass, khus grass and kali haldi. The states forest-based

products can contribute significantly towards the genera-

tion of employment opportunities and provide raw ma-

terials to small scale industries like saw-mills, furniture

units, the bidi industry, the silk industry, solvent plants

and tanning and dyeing units. Currently there are about

ten thousand industrial units that depend on forest pro-

duce in the state. During the period 1999-2000, the total

revenue from forest produce was Rs. 104 crores.

Chhattisgarh has a variety of wildlife including animalssuch as tiger, leopard, bear, lemur, deer, wild boar and

python. 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 with

around 28 varieties of minerals. These

include coal, iron ore, dolomite, baux-

ite, limestone and cassiterite used inheavy metallurgical and chemical in-

dustries. These minerals are required

by critical basic industries that can be

established in the state.

Reserves of precious metals and

stones such as gold, diamond,

garnet, corundum and quartzite

have also been discovered in

Chhattisgarh. This could make the

state an important industrial centre

by making possible the agglomera-

tion of metallurgical, power, infra-

structure and gem and jewellery in-

dustries in the state.

The northern districts of

Chhattisgarh have rich coal and bauxite reserves (Figure 6).

Limestone is predominantly found in the central districts.

The southern districts have abundant iron ore reserves. As

the mineral endowments of Chhattisgarh are distributedover the different regions of the state, the development of

mineral-based industries requires good transport links,

which are presently lacking.

Chhattisgarh is an important producer of minerals in

India. In 2001, the state accounted for 25.2 percent of

the total iron ore production in India, making it the larg-

est producer of iron ore in the country. Bastar district is

the 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 of

dolomite, 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


11/27

6


Figure 6: Mineral Map of Chhattisgarh

tainable economic development. This can be illustrated

by the example of the famous Bhilai steel plant. So farthis plant has depended on the supply of iron ore from

the Dalli Rajhara mines in nearby Durg district. This en-

abled it to save on transport costs, making it the only profit

making steel unit of SAIL. Over the next five years these

iron ore reserves may get exhausted and force the closure

of the Bhilai plant. For the plant to remain in operation, a

railway line linking Durg to Jagdhalpur via Raughat and

Dalli Rajhara must be constructed as proposed, as this

will enable the transportation of the bulky mineral ore

from the mines in the southern districts of Chhattisgarh.

There is need for creating north-south corridors either by

laying railway lines or by laying roads. Since, Chhattisgarhs

infrastructure development is centred around transporta-

tion of bulk commodities, it is imperative that railway net-

works are developed, as these are more cost effective in

transporting bulk quantities of heavy commodities. These

railway lines may later be connected with roads for com-

prehensive railroad connectivity.


12/27

7

Demographic CharacteristicsDemographic CharacteristicsDemographic CharacteristicsDemographic CharacteristicsDemographic Characteristics

4

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 it

the 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 are

more populated than the districts in the north and the

south, which are further away from the industrial zone

(Figure 7). Thus, the central districts of Bilaspur, Janjgir-

Champa, Durg and Raipur have a higher population

density than the other districts of Chhattisgarh.

The state has a large tribal population, which accounts

for a little over one third of the total population of the

state. This has significant implications for the task of

development planning, as the tribals reside in widely dis-

persed habitations and have a unique way of life.


13/27

8


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

5

Figure 8: Consumption of Crude Steel

Given the huge natural resources available in

Chhattisgarh, there are many possible opportunities ofgrowth. As pointed out earlier, it is the sole producer of

casseterite in India, which is concentrated in the Bastar

and Dantewara districts. The total reserves are estimated

to be around 30 million tonnes. Casseterite is used for

the production of tin. Estimates also suggest that around

25 tonnes of corundum is available in Dantewara dis-

trict, five tonnes of gold is available in the Raipur, Jashpur

and Mahasammund districts and gemstones in the Raipur

and Bastar districts. These are potential inputs for the

gem and jewellery industry.

In view of the availability of limestone, iron ore and

coal 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 argued

that mining based industries will grow and consequently

generate more employment opportunities.

Chhattisgarh has abundant coal reserves. One estimate

suggests that there is potential for 30,000 MW of ther-

mal power generation. For a power deficient country

like India, Chhattisgarh has the potential to sell excess

power and earn revenue. Recent deregulations in the


14/27

9

The Potential Engines of Growth in Chhattisgarh

electricity sector have made it easier to set up generating

units 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-based

industries are two potential engines of economic growth

in Chhattisgarh. A carefully considered land use policy

would have to be put in place to enable an optimum

level of forest conservation.

It is evident from the figure given above that mineral

based industries are the key to Chhattisgarhs develop-

ment. In 2000, the per capita consumption of crude steel

was 846 kilograms in South Korea and 128 kilograms inChina. In comparison, Indias per capita steel consump-

tion was around 31 kilograms in the year 2000. If our

level of per capita consumption catches up with that of

China, India will require around 100 million tonnes more

of crude steel. This will lead to a huge demand for the

domestic crude steel industry. Chhattisgarh, being one

of the largest producers of iron and steel in the country,

will profit by way of royalty. In this regard, the state has

requested 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, the

royalty arising out of the export of the minerals from

the state will also increase over time. The setting up of

value added industries based on iron and steel produc-

tion, means more employment opportunities for

Chhattisgarh. As discussed later in this report

(Chapter 6), one way to make this happen is to develop

cluster-based industries. Realising the huge potential of

this sector, the state has set itself a target of doubling

the contribution of minerals to the net state domestic

product and ensuring occupation and shelter to all tribals

affected 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 and

Minerals Regulation and Development Act, 1957. The

amendments including the renaming the Act as the

Mines and Minerals Development and Regulation

(MMDR) Act - are aimed at attracting private invest-

ment including foreign direct investment (FDI) into the

sector. The Government of India has allowed up to 100

percent foreign equity participation through the auto-

matic route in the case of exploration and mining of all

minerals, except diamonds and precious stones where

only 74 percent FDI is permissible via this route. More

powers have been delegated to the state governments.

A new clause relating to reconnaissance permit has been

added 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 the

present dispensation, the power of approving mining

plans for 29 non-metallic and industrial minerals in re-

spect of open cast mines has been given to the state

governments. The state governments have been given a

time frame for the disposal of mineral concession ap-

plications and for the approval of mining plans. In this

regard, the state of Chhattisgarh has to create efficientinstitutions to deal with these matters in a time-bound

manner. The non-ferrous metals and mining sector have

been opened up to the private sector. Consequently, the

government of Chhattisgarh can think of granting min-

ing concessions for profitable mineral sites to private

players through competitive bidding or some form of

auctioning, so that the state can maximise revenue.


15/27

10


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

The mining and mineral industry contributes revenues

to the central and state governments through payments

of royalty, dead rent, cess, sales tax, excise duties and

custom duties.

Royalty and dead rent

As per Section 9 of the MMDR Act, the holder of a

mining lease is required to pay royalty to the state gov-

ernment in respect of any mineral removed or consumed

at the rate specified in the Second Schedule of the Act.

The central government, by a notification in the official

gazette, 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 based

on the London Metal Exchange prices. For gold it is

based on the London Bullion Market Association price.

For 18 minerals, including coal and lignite, it is a fixed

amount 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 products

is levied and collected by the central government.

Cess

Cess is collected on some minerals (mica, limestone and

dolomite, iron-ore and chromite) to set up welfare funds

to provide housing, medical care, social security, educa-

tion and recreation facilities for workers employed in

these 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 government

and 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 generate

revenue 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 in

remote, forest or tribal areas and that require funds for

development. The tribal areas in general are the most

backward in the state of Chhattisgarh. There is need for

increasing health facilities and imparting education for

developing skills that can enable gainful employment in

the tribal regions of the state.

For example, the government of Maharashtra has taken a

policy decision to allocate a part of the royalty collected

on mineral production in the state, for the development

of mineral producing areas. The state government has set

up a Mineral Development Fund and 10 percent of the

royalty collected is transferred to this. This Fund is to be

spent on the development of infrastructure in districts

having mining activities and also in the development of

mines in the ratio of 2:1 respectively.

With huge reserves of coal, Chhattisgarh would like tosee the central government also revise the royalty rates

of coal. The frequency of revision and the rates them-

selves are in need of review. These rates need to be based

on ad valorem rates. With about 15 percent of the total

coal production in the country coming from

Chhattisgarh, the state stands to gain if the royalty rates

on coal are pegged on an ad valorem basis. As per the

current practice of fixing rates by the central govern-

ment, it seems that the real rates of coal have fallen over

time implying that there is a loss of revenue for states

over 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


16/27

11

The Potential Engines of Growth in Chhattisgarh

deposits available in such forest areas in Chhattisgarh.

A way out must be found for commercially exploiting

such deposits for the benefit of the economy, even while

maintaining the requisite forest cover and eco-balance.

There is multiplicity of legislation: laws related to for-ests, environment, mining and labour. All these have a

bearing on mining operations in the state. To encourage

speedier growth of the private sector investment in the

sector, there is a need to streamline the legislation ac-

cording to the requirements of the day.

Despite being among the few mineral-rich countries in

the world, our expenditure on exploration, on an aver-

age, is less than one percent of global spending. For a

mineral-rich state like Chhattisgarh this implies low

utilisation 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 have

to be undertaken. To do this effectively and to acquire

higher capability in all fields of mineral exploration and

development, there is a need for concerted action plans

to be drawn up by the concerned organisations of

Chhattisgarh in collaboration with central government

agencies. This will call for technology upgradation for

field data acquisition, state-of-the art laboratory back upand development of expertise. Focus areas will include

air-borne surveys; ground geo-physical surveys, explor-

atory drilling, marine survey, use of digital equipment

for 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 Chhattisgarh

in 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 mineral

and 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 mining

operations. Mineral production generates enormous

quantities of waste/overburden and tailings/slime. Some

of the environmental damage that can be caused by the

minerals found in Chhattisgarh is given below.

Limestone mines are categorised as shallow operations

and are generally confined to a depth of 40-50 metres.

Currently, the overburden and waste being generated is

used to refill the abandoned pits to up to one third ofthe mined out areas. In case of iron ore, washing plants

are installed at the sites where the ore is mined. Slime is

generated as a result of washing. In order to check the

flow of slime to watercourses and agricultural land, it is

necessary to construct garland drains, check dams, con-

tour drainage and plantations. Water treatment is also

necessary before it is released into the river system.

The main pollution consequent to bauxite mining is

because 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 in

making bricks.

The environmental damage caused by the mining of

minerals affects the livelihood of tribals. Therefore, rev-

enues collected by the government should be spent on

social welfare schemes that benefit tribals. Environmental

damage may also affect tourism, which is one of the

drivers of growth in Chhattisgarh. It has the potential

of generating employment and showcasing the rich tribalculture of the state. It is therefore imperative that the

government minimise environmental damage without

compromising the mineral development of the state.


17/27

12


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

6

As emphasised earlier, one of the key facilitators of eco-

nomic growth in the state of Chhattisgarh is building

successful cluster-based industries. This will not only help

to create jobs, but will also generate incomes through value addition to the abundant minerals found in the

state. To do so, the state needs to know what the sources

of agglomeration are, which factors are responsible for

agglomeration of industries and which industries are

most likely to agglomerate.

Lall et al, (2001), cite three sources of agglomeration

economies: (1) at the firm level from improved access

to market centres, (2) at the industry level enhanced

intra industry linkages and (3) at the regional level in-

ter-industry urbanisation economies. The authors use a

combination of plant level and disaggregate physio-geo-

graphic data to examine the contribution of agglomera-

tion economies to economic productivity. Their results

show that there is considerable variation in the sources

and magnitudes of agglomeration economies between

industrial sectors. In particular, results indicate that ac-

cess to markets through improvements in inter-regional

infrastructure is an important determinant of firm level

productivity, whereas the benefits of locating in dense

urban areas do not appear to offset associated costs.

Therefore, an option for improving efficiency in indus-

try location decisions is to improve the availability and

quality of inter-regional transport infrastructure linking

smaller urban areas to the rest of the network. This would

enhance market access for manufacturing plants and also

provide opportunities for standardised manufacturing

activities to move out of high cost large urban centres to

relatively lower cost secondary centres. In this context,

Chhattisgarhs emphasis on building roads is well placed

and 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. For

example, market accessibility (MA) has the strongest ef-

fect for the leather products industry. The coefficient of

0.66 implies that a 10 percent change in MA would lead

plants to increase output by 6.6 percent or that a doubling

of MA would increase plant output by 66 percent with

no additional plant level production inputs. Similarly, posi-tive and significant effects of 0.09 for MA are found for

SIC 36 (electronics and computer equipment).

However, the net effects of improving MA are not always

positive. While improved market access potentially increases

the demand for a firms products and enables investment

in cost saving technologies, it also opens avenues for com-

petition with other domestic firms as well as with products

made internationally. For SIC 32 (non-metallic mineral prod-

ucts) and 35 (machinery and equipment), the coefficients

for MA are -0.08 and -0.10 respectively. For SIC 35 this

would mean that the net effect of doubling MA would

reduce 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 that

increase in travel time to DHUBS would have a negative


18/27

13

Growth of Cluster-based Industries

effect on output as firms would incur higher costs and

reduced profitability. The coefficients for DHUBS are

negative for six of the nine sectors and statistically signifi-

cant for four sectors. The strongest effects are for cotton

textiles and leather products, where the coefficient of

-0.23 means that a 10 percent increase in travel time to

the nearest port would reduce plant output by 2.3 per-

cent. Conversely, reduction in travel time by improving

transport 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 (SIC

23). The coefficient of 0.20 for beverages and tobaccomeans that a 10 percent increase in a districts urban

population density would reduce plant level output by

two percent. Similarly, for cotton textiles, the coefficient

of 0.14 means that a doubling of urban population

density would reduce plant level output by 14 percent.

Even though the negative coefficients for the other four

sectors are not significant, the results point to a trend

that the economies of urban concentration arising from

factors 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 dense

urban areas. These results are not unexpected as Indian

industry in general is inefficient and uses standardised

processes and product designs without much innova-

tion. As a result, firms in these industries cannot afford

the relatively high wages and rents in dense urban areas

and prefer to locate in smaller/secondary centres.

The authors also contend that firms in the sample that

they analysed tend to benefit from internal scale econo-mies driven by market accessibility. Estimates for two

indicatorsmarket access and proximity to DHUBS

indicate that improved market access is likely to provide

incentives for increasing the scale of production. It also

allows firms to invest in cost reducing technologies. It is

difficult to make generalisations about the effects of

localisation economies, though the net gains from intra-

industry transfers are not likely to be very high in the

generally 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 Chhattisgarh

Governments Industrial Policy (2001-2002) outlines

agro-based, forest-based and mineral-based industries

as important growth areas. The aim is to build industry

clustering around these industries. Arguably, it is a very

difficult task and the only way to make it succeed is for

both the government and industry associations to take

joint 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 in

Tiruppur. Valuable lessons may be learnt from these case

studies. Although they may not be replicable, they may

throw important light on the setting up of cluster-based

industries in the state. Apart from this measure, the gov-ernment should work to develop networks among the

key players in individual clusters and help form alliances

among firms, technical institutes and business support

institutions. The government will focus on attracting

external investments by forging partnerships with the

private 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 employment

opportunities to 80 percent of the states 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.


19/27

14


Industries based on livestock processing and fisheries.

Development of specialised industrial estates with

provision 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 on

long-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 (in

exceptional cases up to 1000 hectares) for such

projects, based upon the technical and financial vi-

ability of such schemes.

Incorporating special provisions in the AgricultureLand Ceiling Act to encourage corporate farming

and integrated processing and value addition units.

Developing agro processing information and tech-

nology centres in collaboration with international

institutes.

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 to

concentrate on processing the minerals to maximise value

addition in the state. Due to abundant mineral resources,

this sector has immense potential for attracting large

investments and generating employment. As the sole

producer of casseterite, Chhattisgarh may also attempt

to develop value added industries based on tin. Cluster-

based industries specialising in aluminium and allied

products 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 minerals

across the state.

Prepare zoning atlases of all districts to identify spe-

cial mining zones for optimum and streamlined

mining activities with least disturbance to the eco-

logical balance. An appropriate system will be for-mulated for obtaining clearances through a nodal

agency under a time bound schedule for undertak-

ing mining activity in these special mining zones.

Forge partnerships with other nations/states for

exploration of minerals.

Promote mineral-based industries including

beneficiation and enrichment of low-grade

minerals.

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 jobs

and add value to raw stones. This will result in higher

royalty/excise collections as applicable.


20/27

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 of

Chhattisgarh, blessed with abundant reserves of min-

eral and non-mineral resources and dense forests, are

largely cut off from the industrial belt in the central part

due to the lack of road and railway connections. This

means a loss of potential addition to the wealth of

Chhattisgarh due to sub-optimal industrial development

in the central region. Thus, there is an urgent need toensure the connectivity of the northern and southern

districts with the industrial central districts. The PWD

road policy of Chhattisgarh has outlined, among others,

the promotion of two north-south and four east-west

high-speed access corridors to develop Chhattisgarh into

a regional logistics and transshipment hub.

The Chhattisgarh governments road policy outlines four

strategies:

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 development

of the state. The government therefore plans to promote

and 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 comprehensive

road connectivity of the important economic centres, the

last objective will ensure that this connectivity is also linked

to the rural network which, though now largely absent, is

taking shape through the PMGSY.

The other strategies of Chhattisgarhs road policy re-

volve around methods to finance road projects and the

augmentation of managerial capacity for expediting road-building projects. These include strategies for private

sector participation. Private sector participation will need

to increase manifold to meet overall funding needs. To

achieve this, the government will, among other things:

Formulate guidelines to support private sector par-

ticipation;


21/27

16


Figure 10: State Ranking in Transport Sector Ensure transparency in bidding and

selection criteria; and

Provide fiscal support to private

sector initiatives.

The government will take steps to ensure a

dedicated funding mechanism for the devel-

opment of roads in the state. This will en-

sure not only systematic maintenance of

roads 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 planning

and project management.

Having outlined the states transport policy,

it is imperative to know how the state fares

with regard to transport vis--vis other

states. Figure 10 shows the ranks of the

states 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. Road

length and rail route length per non-forest

area 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 roads

surfaced 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 road

connectivity across the state.

The states performance in the power sec-

tor and information technology is also

shown in Figures 11 and 12 respectively. The

Figure 9: Road Map of Chhattisgarh


22/27

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 energy

consumed and percentage of villages

electrified. Chhattisgarh has surplus gen-

erating capacity in power. More signifi-

cantly, with the availability of large re-

serves of coal, its potential to generate

more power is very high. This power gen-

eration can sustain the industrial clusters

that are envisaged for the state.

The ranking in information technologyis based on telephone density, percent-

age of villages connected by phones and

Internet subscribers per 1000 people.

Chhattisgarhs rank in the information

technology sector is very low and ca-

pacity has to be developed in this area.

For this to happen, the state has to offer

incentives to private firms.

With only 28 per cent of the Indian

population having access to improved

sanitation facilities, it is imperative thatthe state has an investment plan for ur-

ban infrastructure in place. Raipur, the

capital of Chhattisgarh, has no under-

ground drainage facilities and the situ-

ation in other cities is worse. Thus, in-

vestment in urban infrastructure is

needed on a priority basis in

Chhattisgarh. If urban cities are up-

graded, then with the consequent im-

provement in the quality of life, there

will be an incentive for industries to set

up factories, as it will be easier for them

to attract skilled labour. This is espe-

cially true for sectors like information

technology.

Figure 11: State Ranking in Power Sector

Figure 12: States Ranking in Information Technology Sector


23/27


24/27

19

End NotesEnd NotesEnd NotesEnd NotesEnd Notes

This report seeks to identify unique growth opportuni-

ties for the state of Chhattisgarh and profess a broad

infrastructure plan to maximise the growth potential of

those 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 Action

Plan for Chhattisgarh Final Report available at the

official 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 sources

below. The data used to generate the ranking in trans-

port, power and information technology are collected

from various Infrastructure issues published by Cen-

tre for Monitoring Indian Economy (CMIE). Some

of the data on the power sector are also collected

from the website of Central Electrical Authority

and for the telecom sector from Indian Telecom

Statistics, 2002.

Conclusion


25/27

20


Data SourcesData SourcesData SourcesData SourcesData Sources

Chhattisgarh in charts and graphs, Directorate of Eco-

nomics and Statistics, Government of

Chhattisgarh, 2001.

Chhattisgarh at a glance, Directorate of Economics and

Statistics. Government of Chhattisgarh, 2002.

Chhattisgarh Industrial Investment Promotion Act, 2002,

Government of Chhatisgarh.

Lall, Somik; Shalizi, Zmarak and Deichmann, Uwe 2001.

AgglomerationEconomies and Productivity in In-

dian Industry, The World Bank, Washington DC.


26/27

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 the

Chronic Poverty Research Centres work in India. She has a Masters from Delhi School of Economics, an M.Phil from

Jawaharlal Nehru University and a PhD from Iowa State University, USA. She has been teaching since 1975, initially at

a 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 in

the India Country Office of United Nations Development Programme (UNDP). A post-graduate from University of East

Anglia (UK) and Doctorate from Jawaharlal Nehru University, he has held several advisory positions in the Government

of India and has taught economic policy at LBS National Academy of Administration, Mussoorie. He has several

publications to his credit.

Sujata Singh is an Associate Professor at the Indian Institute of Public Administration. She completed her doctoral

studies in Public Administration and Public Policy at Auburn University, USA. Her primary research interests are in the

area of Comparative and Development Administration, Public Policy Analysis, Organizational Theory and Evaluation of

Rural 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), New

Delhi. He received his education at Gwalior, Allahabad and Delhi. He has undertaken a number of research studies in

Development Administration, Rural Development, Personnel Administration, Tribal Development, Human Rights and

Public Policy. He has conducted consultancy assignments for the Department of Posts and in the Ministry of Rural

Development, Government of India; and for the Government of Orissa and the Narmada Planning Agency, Government

of Madhya Pradesh. He has published several books.


27/27

paper 1_ chattisgarh report

Documents