With India’s focus firmly on improving the share of the manufacturing sector in the economy from the current level of about 16% to upwards of 20%, several Indian states have been reaching out to international investors to come and set up shop in India.

Karnataka has been at it for a while and has been the recipient of investments from a slew of Japanese companies, most notably Toyota. Even as Karnataka prepares to host the Invest Karnataka summit from 3-5 February 2016, it is perhaps worthwhile examining why investors have historically selected Karnataka for their investments.

Contrary to popular perception overseas, Bengaluru, as it is now called, is not just an infotech destination. Many government of India manufacturing entities have started their manufacturing operations here such as Hindustan Aeronautics Limited, Bharat Electronics and Hindustan Machine Tools. This has led in many ways to the deepening of a knowledge culture that has been a contributory factor to the infotech boom. The presence of places of learning such as the Indian Institute of Science and the Indian Institute of Management (IIM) has helped promote the knowledge culture even further. Karnataka today boasts of engineering colleges, medical colleges and places like Manipal (on the west coast of Karnataka) which have earned a nationwide reputation for academic excellence and students from other parts of India come there to earn an engineering or medical degree.

Karnataka’s challenge today is not just to attract investments into the state, but for that investment to get dispersed across the state, particularly in less developed areas. It is this imperative that will result in the development of skilled labour, growing economic activity, higher tax collections and growing demand and supply linkages that will make for uniform all-round growth of the state. The challenge for industry is to set up factories and workshops and industrial estates in far-flung areas of the state, particularly North Karnataka where social infrastructure is yet to gain traction. Setting up industry is the relatively easy part. The human resources and engineering skills required to build a plant and operate it will also need good quality housing, schools and hospitals and entertainment facilities. This is willy-nilly a chicken and egg situation, but both investors and the government will need to work together on defined timelines to push this together.

Steel plants have done this successfully in Karnataka, given the scale of their base investments and with a high level of automation, Toyota, which set up their operations within a sleepy hamlet off the Mysore- Bengaluru road, had no need to create the social infrastructure so necessary to attract and retain talent as the proximity of Bengaluru helped. But even as the car plant got built and production commenced, the local population experienced a surge in the demand for services such as local transport, drivers, and the need for accommodation. Toyota, of course, chipped in to build some social infrastructure such as water storage tanks, schools, sanitation facilities well before the current law on compulsory social spend was enacted. Factors that facilitated Toyota’s steady growth over the years, including the building of a second plant, were the excellent performance of the factory staff, including workmen, and supervisory staff that has ensured that in terms of various quality parameters, it stands at the top of the league table in Toyota’s global operations.

While the outcome of Toyota’s Indian landcruise has been a happy one, what prompted Toyota to invest in Karnataka? While the standard reasons are easy to spot such as good weather all year round, a conducive Industrial Policy announced by the state government last year and a responsive bureaucracy to handle some of the niggling day-to-day issues, what stands out is a work culture that is geared toward “learning” — something that Toyota itself prides on. It is important to also note that the support of the government both at the Centre and the state has been steadfast, straddling governments of different political persuasion.

With the growth of industry having become indispensable to the growth of the state and creating employment opportunities, the industrial infrastructure and support services are striving to keep pace with the requirements of industry for better roads within the industrial estate, better street lighting, assured electricity supply and uninterrupted water supply to keep the wheels of industry moving. This has made necessary industry associations within industrial estates to take over from the state government the responsibility of providing basic amenities and infrastructure, facilitating uninterrupted operations and driving cost efficiencies. If this model of industry growth finds further traction, it might well be that industrial estates across Karnataka will be the best bets to set up industry in India. Today, Karnataka sees itself not in competition with other states in India to attract investors, but is seriously challenging countries like Thailand and Indonesia in attracting foreign investors to its space.

(Shekar Viswanathan is the Vice Chairman & Whole-time Director, Toyota Kirloskar Motor)

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