Maharashtra, Tamil Nadu and Gujarat are the leading industrial states of India. Each of these is characteristically different. While Tamil Nadu is a labour-intensive industrial state, Gujarat industries are capital-intensive. And, Maharashtra is the state that deploys both, labour and capital, better than both the other two states. Gujarat is among the worst users of capital.
According to the Annual Survey of Industries (ASI), Tamil Nadu employed 1.9 million in the organised factory sector in the state in 2010-11. This was the highest amongst all states. Maharashtra followed with an employment of 1.7 million in factories and Gujarat and Andhra Pradesh were a distant third with 1.3 million, each.
Tamil Nadu’s lead in terms of employment can be appreciated better when we see factory employment as a per cent of the size of the state. Factory employees account for 2.7% of the population of the state, implying that roughly 12% of the households could have a factory-employed person in the state. This is much higher than other states. Factory employment, of course, being a part of organised employment, is a preferred employment. And, Tamil Nadu clearly leads in this respect.
But, Tamil Nadu factories are not the best of paymasters. Total emoluments per employee at R1.15 lakh in the southern state was lower than Gujarat?s R1.43 lakh and, it was much lower than Maharashtra?s R1.98 lakh. The disparity is much bigger in terms of wages per worker (workers constitute about 75% of total employees). Wages per worker in Maharashtra were nearly twice as high as in Tamil Nadu and Gujarat was closer to Tamil Nadu than Maharashtra.
Tamil Nadu’s relatively large factory employment at relatively low wages has spread employment, but these low wages have not helped the factories in Tamil Nadu to be more productive. Net income per employee in the state at R3.1 lakh was nearly half of Gujarat’s R5.99 lakh and way below Maharashtra’s R7.8 lakh. Profit per employee in the factories of Maharashtra at R5.42 lakh is 2.5 times higher than the R1.65 lakh profit per employee in Tamil Nadu and 27% higher than in Gujarat.
Part of the reason for this low productivity of Tamil labour is the low investment of capital. Productivity of labour can be increased by the appropriate infusion of capital. Tamil Nadu factories invest R8 lakh into fixed capital per employee, which is much lower than Maharashtra?s R14 lakh and even lower than Gujarat?s R21 lakh investment into fixed capital per person employed.
The total fixed capital (which is the depreciated value of all plant and machinery and other fixed assets) invested in the factories of Gujarat was R270 crore in 2010-11 against R230 crore in Maharashtra and R150 crore in Tamil Nadu. Tamil Nadu is particularly low on capital investments. Its investments into fixed capital are lower than even Andhra Pradesh?s R160 crore.
Gujarat?s capital-intensive industries however, are not the most efficiently run ones. A rupee invested into net fixed assets generates an income (net value added) of 33 paise in Gujarat. A similar investment in Tamil Nadu yields 49 paise and in Maharashtra it yields 64 paise. Thus, the lead that Gujarat has in terms of the amount of investments made in the state, is lost on the lack of sufficient efficiency in the utilisation of the assets created. In fact, on this count (efficiency in the use of capital), Gujarat fares very poorly as it ranks 28th of the 32 states and union territories covered in the ASI data. The ASI data shows the severe hit that the state took following the 2002 riots. Net capital formation was negative for three consecutive years following the riots. This helped improve the ratio of value added to fixed assets. Yet, the state remains woefully behind on efficiency.
According to the ASI, capital is available cheaply to factories in Gujarat. Interest payments as a per cent of outstanding loans was 10%. This is lower than the 11.3% interest in Maharashtra and 12.1% rate in Tamil Nadu.
Like Tamil Nadu could not capitalise sufficiently on cheap labour, Gujarat is unable to capitalise on cheap capital. Both seem to have deployed their respectively cheap factor of production maximally, but both have failed to deploy it efficiently.
Maharashtra on the other hand, wins on both counts. The better utilisation of labour and capital by Maharashtra, makes it the leading industrial state in the country by a huge margin. The net value added in factories in Maharashtra at R150 crore is way above any other state. Gujarat, which trails Maharashtra, has a net value add of only R89 crore. This is followed by Tamil Nadu, whose net value added in factories, at R71 crore, is less than half of the value-add of Maharashtra.
In the last two years for which the ASI data is available (2009-10 and 2010-11), Gujarat made good progress on investments. Its fall after the 2002 riots and its recent rise in investments as seen in the ASI data matches our observations from CMIE’s CapEx data. But, the last two years cannot undo the damage of the fall in investments post riots too soon. A ten-year perspective reveals that Gujarat has still a long way to go to catch up with the industrial leader Maharashtra.
Over the period 2000-01 through 2010-11, total employment in the factory sector in Gujarat grew at an impressive 5.6% per annum. This is a tad higher than Tamil Nadu?s 5.5% and much higher than Maharashtra?s 3.7% per annum. But, the long-term investment growth rate is unimpressive. It works out to less than 2% per annum for the period 2001-02 through 2010-11. (Since investments were negative in 2000-01, this could not be used as a base year for Gujarat.) Further, Maharashtra?s fixed capital investment per person employed rose faster (9% per annum in the decade ended 2010-11) than that of Gujarat (8% per annum) in the same period. And, its value added per person employed in factories has also risen faster?12.6% per annum against Gujarat?s 11.8% per annum.
Maharashtra has tremendous head-room for further industrial growth. Only 1.5% of its population is employed in factories compared to 2.1% in Gujarat and 2.7% in Tamil Nadu. Maharashtra has only 71 factories per square kilometre, while Gujarat has 86 and Tamil Nadu has a much larger 202. So, while Gujarat and Tamil Nadu need to improve their efficiency in the use of capital and labour, Maharashtra needs to capitalise on its leadership and expand industrialisation.
(All data sourced from statesofindia.cmie.com)
Mahesh Vyas
The author is managing director and CEO, Centre for Monitoring
Indian Economy P Ltd
