Annex 13 Industry
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Annex 13 Industry Contribution of Gujarat Industry to Output and Employment Gujarat is one of the most industrialized states in India. In 1998-99, the industrial sectors accounted for Rs.40,050 crores ($8,613 million), or 39.2 percent of Gujarat’s GSDP. Although Gujarat’s inhabitants constitute less than 5 percent of India’s population, the state’s contribution to India’s industrial value added is second only to that of Maharashtra. In 1998-99, the manufacturing sector contributed 77.8 percent of industrial value added; mining and quarrying accounted for 5.7 percent; construction accounted for 8.8 percent; and electricity, gas and water supply accounted for 7.7 percent. The state’s manufacturing sector includes subsectors like chemicals, petrochemicals, fertilizers, engineering, electronics, food processing, and gem cutting and polishing. Contribution of Industry in Earthquake-Affected Areas to Output and Employment According to Government data, the five districts where industry was worst hit by the earthquake were Kutch, Jamnagar, Rajkot, Surendranagar and Bhavnagar. These districts include almost 75 percent of India’s salt output, and a range of small scale manufacturing subsectors including chemicals, textiles, ceramics, diamond cutting and polishing and handicrafts. However, this is not the industrial heart of Gujarat, which spreads from Ahmedabad down the rail-road corridor to Surat in south Gujarat. According to the 1998 Economic Census, in 1998 these five districts accounted for only 23 percent of overall industrial employment. Kutch, where over half of the industrial damage took place, accounted for less than 2 percent of overall industrial employment. District-wise GSDP figures are not available. However, Table 1 presents our best estimates of industrial GSDP in each of these five districts. These have been calculated by applying the employment shares by district to industrial GSDP figures for Gujarat as a whole. This approach suggests that total industrial value added in the five districts was Rs. 9,556 crores ($2,055 million) in 1998-99. The 1998 Economic Census suggests that industrial employment in the five earthquake-affected areas is split almost equally between rural and urban areas. Some 45 percent of industry is in rural areas. Table 1: Industrial GSDP in the main Earthquake-Affected Districts, 1998-99 Total Total (current Rs. crores ) ($ million) Kutch 1,250 269 Jamnagar 2,440 525 Rajkot 2,214 476 Surendranagar 1,106 238 Bhavnagar 2,575 554 Total for five districts 9,554 2,055 Gujarat total 40,048 8,612 5-districts as % of Gujarat 2,390 514 Source: joint mission estimates Damages to Assets The GOG Industries Commissioner established 31 teams of district industry officers to carry out preliminary surveys of damage to the industries in affected areas. Results, summarized in Table 2 (and presented in further detail in the appendix table) suggest that Rs. 339 crores ($73 million) of damage was done to buildings, machinery and inventory in Gujarat industry (excluding electricity, gas and water supply, which are surveyed elsewhere). Some 58 percent of this damage was in Kutch district and over 95 percent of it in the five districts of Kutch, Jamnagar, Rajkot, Bhavnagar and Surendranagar. About Rs.200 crores ($43 million) of damage was to some 3,000 small scale industrial units. In Kutch, there was extensive damage in Gandhidham, where there is a Gujarat Industrial Development Corporation (GIDC) estate and a number of wood-based industries; in the Kandla Free Trade Zone; and in the salt industry at Bhachau, where ten to 12 salt washery/refinery units suffered extensive damage. GIDC estates in Bhuj and Anjar also suffered severe damage. In Rajkot, the damage included buildings, chimneys and kilns in the ceramics industries at Morbi and Wankaner, as well as the buildings of cotton and other textile manufacturers. Damage to the ceramics industry is also reported in Surendranagar. Damage was also done to the Kutch cottage industry sector, which contributes a negligible amount to GSDP but which plays a significant role in the welfare of poorer people in rural villages of the district. Many of the homes out of which the craft women worked have been destroyed, with their tools and stocks inside. The remaining Rs.140 crores ($30 million) of damage was to medium and large scale enterprises. Medium and large scale industrial units suffering major damage include the IFFCO fertilizer plant at Gandhidham, Digvijay Cement Ltd. in Jamnagar, the 20 Micrones Salt Refineries in Kutch and Tata Chemicals in Jamnagar. There was minimal damage in the major economic centers of Ahmedabad and Surat, although the housing sector in Ahmedabad suffered greatly. The very large enterprises, like Reliance Petroleum Ltd. in Jamnagar, reported no damage. (Although there were some temporary stoppages, output losses are likely to be made up quickly). No break down of the damage by urban and rural is available, but it would be reasonable to assume that about half was in urban areas and half in rural. The very large majority of the facilities damaged were privately owned. The exceptions are the small proportion of the damaged buildings situated on GIDC estates, which were publicly owned. Table 2: Summary of Damage to Industrial Buildings, Machinery and Inventory District Estimated Damage (Rs. crores ) Estimated Damage % of total ($ million) Kutch 199.1 42.8 58.4% Jamnagar 52.6 11.3 15.4% Rajkot 45.0 9.7 13.2% Bhavnagar 17.4 3.8 5.1% Surendranagar 12.5 2.7 3.7% Other Districts 14.4 3.1 4.2% TOTAL 341.0 73.3 100.0% Source: Government of Gujarat Industries Commissioner Survey (as at Feb 19, 2001). During field visits the assessment team saw extensive damage to industrial plants, including small-scale chemical factories, ceramics factories and damaged GIDC facilities. While we have not conducted our own survey, and are not in a position to corroborate the initial estimates provided, the assessment team found no grounds on which to qualify the Government’s statistics. In assessing the reconstruction costs, the assessment team has made the assumption that one half of the asset damages are accounted for by buildings, and that reconstruction would cost 20 percent more if done to earthquake-resistant standards. The reconstruction costs with improvement would thus be Rs. 204 crores ($43.8 million). The total cost of reconstruction of lost buildings with improvement and replacement of lost machinery and inventory would be Rs. 374 crores ($80.4 million). Output Losses In addition to the losses to capital and inventory associated with the earthquake, it is also necessary to consider the impacts on industrial value added. Based on its surveys, the Government of Gujarat has assumed that industrial output will be disrupted for approximately one month on average. Initial estimates produced by the Government put these losses at Rs. 2,046 crores (440 million) in the month following the earthquake, which is around 2 percent of Gujarat’s 1998-99 GSDP. Given the limited extent of the damage to industrial capacity, the assessment team finds these calculations to be on the high side. We recognize of course that the assets taken out of production may be much greater than the assets damaged. Damage to one small part of a plant may bring the entire factory to a halt. In addition to this loss due to capital damage by the earthquake, there may also be some loss of value added due to flight by migrant workforces. There is reported to have been such a flight of labor from the diamond cutting and polishing industries situated in these districts and in Ahmedabad. Nevertheless, a review of the methodology used revealed that the calculations were based on total industrial production, rather than on industrial value added; and that asset damage had been erroneously added to lost output. Our own calculations, set out in Table 3, suggests that the fall in industrial value added in 2000-01 as a result of the earthquake is unlikely to exceed Rs. 1070 crores ($230 million), which is 0.8 percent of Gujarat’s GSDP and a negligible amount of India’s total GDP. This is assuming that an entire month’s industrial value added is lost in all five of the earthquake affected districts, which is probably an extreme assumption. Offsetting this loss, there are likely to be positive impacts on industrial GSDP as a result of the earthquake. First, the demand for the output that is lost in earthquake-affected areas is likely to be made up at least in part, by producers in districts that are not affected. Second, a massive investment by public and private sectors is likely to be necessary to provide temporary accommodation, restore damaged buildings, replace damaged machinery and replace lost inventory. This is certain to give a significant boost to growth, particularly in the construction sector. With these effects taken into account, it is possible that the earthquake may have almost no net impact on Gujarat’s GSDP. Table 3: Estimated Lost Industrial Value Added as a Result of Earthquake Damage Item Rs. crores $ million A: Nominal industrial value added in the five districts in 1998-99 (from 9,550 2,054 Table 1) B: Nominal industrial value added in the five districts in 2000-01, assuming no 12,280 2,770 earthquake and 16.1% nominal growth per annum (average of past five years) C: Loss of one month’s worth of above due to earthquake 1,070 230 D: Total nominal GSDP in Gujarat, 1998-99 (from Table 1) 102,210 21,981 E: Total nominal GSDP in Gujarat, 2000-01, assuming no earthquake and 135,870 29,219 15.3% nominal growth per annum (average of past five years) F: Fall in industrial value added as share of 2000-01 GSDP assuming no 0.8% 0.8% earthquake Source: joint mission estimates based on Government of Gujarat data Reconstruction Strategy Although the impacts of the earthquake on aggregate GSDP are likely to be small, it is important not to understate the impact of the earthquake on employment and earnings of people in the five earthquake-affected districts.