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6.2 Background of Neemrana Industrial Park

The Neemrana Industrial Park is located in the state of Rajasthan, and is approximately 105 km southwest of Delhi's Indira Gandhi International Airport (a 90 min drive). The Park faces National Highway 8, connecting Delhi and Mumbai. With the establishment of Phase III (1,166 acres), it will be the first in India to be developed specifically for Japanese companies (Fig. 6.1).

India has pursued industrial decentralization policies aiming to balance development since the 1970s by providing industrial location guidance to underdeveloped and unindustrialized regions. In addition to the Delhi Special Area, the center of development since the latter half of the 1980s, development plans have expanded in the neighboring states of Uttar Pradesh (UP), Haryana, and Rajasthan (in part), all of which comprise the National Capital Region (NCR). These plans aim to relieve overpopulated conditions in the capital and decentralize economic activities.

Fig. 6.1 Map of Neemrana Industrial Park and surrounding area

The NCR is a planned area adjacent to Delhi and is based in seven centers (Gurgaon, Faridabad, Noida, Ghaziabad, Sonipat, Greater Noida, and Meerut) located along the National Highways radiating outward from Delhi. It is near consumer markets centered in Delhi, and is a valuable base for the expansion of the Northern Indian market. Being based near the capital has many other advantages, such as better communication with government and other enterprises as well as procuring excellent labor. The nexus of industrial development is the industrial parks, and developmental corporations under the control of each state's department of industries are responsible for the purchase, establishment, and sale of properties in the parks.

The Noida Business Park, situated in UP, is the largest industrial park in the NCR, and has been under development since 1976. Phase I saw the participation of smaller companies, while Phases II and III saw the participation of medium-sized companies. Plans to proceed with mediumand large-sized factories in this region, made up primarily of foreign auto makers, necessitated vast open spaces, and thus the Greater Noida industrial park was developed at a distance of about 10–15 km southeast of Noida. The foray of automakers into Greater Noida spurred the expansion of the auto parts market, thus currently making this region the greatest agglomeration of auto industry companies. Suzuki (passenger cars in 1983) and Honda (motorcycles in 1984) built factories in Gurgaon, Haryana, during the 1980s. Gurgaon is located to the southwest of Delhi, making it possible to procure parts from nearby areas of Noida and Greater Noida, resulting in this region also having an agglomeration of auto industry companies.

In India today, Suzuki and Honda procure 80–90 % of parts locally, although this figure applies only to finished vehicles. Japanese parts manufacturers in India that supply to automakers, procure approximately 60 % of their raw materials internationally. It is becoming more difficult, even within India, to compete in price, as low-cost cars such as the “Nano” made by Tata Motors are causing a stir with its INR 100,000 (about JPY 200,000) price tag. There is an increasing necessity for Japanese manufacturers to procure not only first-tier parts, but also secondand even third-tier parts from local sources in the future to enable price competitiveness through cost reduction. Automakers await the entry of secondand third-tier Japanese parts suppliers into India, and when they do, these suppliers will need land for factories. These parts manufacturers are oftentimes smalland medium-sized firms, with low manpower or capital, making it difficult to independently enter the Indian market. Thus, JETRO's initiative is essential by kicking off projects to build industrial parks for Japanese companies.

The issue is primarily location based. With sudden farmland expropriations to develop industrial parks, land prices have risen in Noida and Greater Noida in the state of UP. JETRO approached Faridabad and Gurgaon in the state of Haryana, but industrial parks have already been developed in these regions, causing land prices to skyrocket. Therefore, the state of Rajasthan, which had missed the development wave, came under JETRO's radar. Rajasthan was originally a kingdom (name derived from “raja” or king and “stan” or country) with territories ruled over by a maharaja (a powerful king), today it is said to have a citizenry with an earnest nature. Vasundhara Raje, of the Bharatiya Janata Party (BPJ), became the first female chief minister of the state in 2003 proves the change. Chief Minister Raje was very popular among those in the industry and had a reputation for being a wise and decisive leader. Further momentum for industrialization was gained by the aggressive efforts of the Chief of Industries in the Raje cabinet. The managing director of the Rajasthan State Industrial Development & Investment Corporation Ltd. (RIICO), a believer in the promotion of industrial development and having a deep understanding of economic development in China, enabled agreements with Japan to proceed smoothly.

RIICO created a Japan Desk, and appointed Anil Sharma as general manager. Mr. Sharma notes the characteristics of the state of Rajasthan as an ideal location for industry operations: “The laws and systems are well put together for India as a whole, compared with developing nations. India is a democracy, and laws and systems don't change according to the whims of government. Also, contracts are seen as things to be honored. Next, we have an abundant workforce. There have been 76 engineering firms established in the state of Rajasthan in the last 15 years, and the state has produced a tremendous number of IT and software-related companies. An Industrial Training Institute (ITI) has also been established to develop factory workers. Third, the electric power infrastructure is well developed compared with Haryana and Punjab near Delhi. Finally, there is policy support. Much support is given to lure industry here through RIICO.”

In regards to land, the plan has always been to sell property with RIICO as the landowner, causing the appropriation to be free of problems often inherent with complex land ownership. Another important factor was that this land was, for the most part, a desert, and therefore not appropriate for agricultural use. All 1,166 acres of Phase III of the Neemrana Industrial Park sitting alongside National Highway 8, in Rajasthan was provided as an industrial park for Japanese companies. In July 2006, the Japanese government requested the state government of Rajasthan for (1) priority purchase rights for Japanese companies over a 2 year period (which in 2008 was extended for another year) and (2) a reduction in the state border tax (from 4 to 0.25 %). In that same month, JETRO and RIICO entered into a memorandum of understanding (MOU) to jointly support a “campaign to facilitate Japanese investment”. For the first 6 months, not many companies were convinced to set up operations in Rajasthan, but with the Indian government's focus on infrastructure development to lure foreign (particularly Japanese) companies, the campaign became a Japanese–Indian “Delhi Mumbai Industrial Corridor Project” (DMIC); these efforts came to be more broadly known.

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