Karnataka Global Investors’ Meet: History shows lots on paper, little on ground

If the past is any guide, the Global Investors’ Meet (GIM) organised by the Karnataka government promises to meet the same fate as several such events organised since 2010. The three-day jamboree for industrialists kicked off on November 2.

Clearly with an eye on the state elections due next year, Prime Minister Narendra Modi in his inaugural address invoked the promise of industrial development with a “double-engine” government.

Finance Minister Nirmala Sitharaman urged industrialists to utilise the opportunities offered by the withdrawal of international investors from China and Europe. Only a few weeks ago, she had expressed frustration with private industrialists failing to invest despite all the sops her government had laid out.

Chief Minister Basavaraj Bommai said the government was eager to convert the “investment on paper” into a reality.

Suspect sanctity of numbers

However, at the end of the first day of the ongoing GIM, it became evident that this version of the event promises to run remarkably similar to those undertaken earlier, most notably the GIMs hosted by BJP-led governments in 2010 and 2012. According to the Karnataka government, MoUs for investment proposals amounting to Rs 2.1 lakh crore materialised at the end of the first day of the GIM. That makes it very likely that the target of Rs 5 lakh crore will be surpassed comfortably over the three-day event.

Also read: GIM to attract investment worth Rs 7 lakh cr and create over 3 lakh jobs: Ktaka CM

In fact, state Industries Minister Murugesh Nirani, who hosted the GIM in 2010 and 2012 and is familiar with its trappings, stated that the government had already received proposals for investments amounting to Rs 8 lakh crore. With the meter ticking so fast, it would not be a surprise if promises of investments touch the Rs 10 lakh crore mark by the time it is over.

Indeed, just as in the previous GIMs organised by Nirani, this year, too, there was utter confusion about the number of projects cleared and the value of proposed investments. The official tally stated that Rs 2.1 lakh crore of investments were cleared at the end of Day 1, but Bommai mentioned a figure of Rs 2.8 lakh crore.

Still later, the media quoted Sitharaman as saying that the tally had snowballed to Rs 7.50 lakh crore. The suspect sanctity of the numbers, a recurring feature of every GIM held in Karnataka, continues to dog this latest iteration, too.

Risky concentration of investments

But even if one takes the numbers seriously, there remains the familiar problem of lopsided priorities. And, therein lies a familiar rub.

A look at the projects “approved” on Day 1 shows that like in the previous iterations of the event, there is a heavy concentration of proposals this time, too, not only in terms of the sectors but also in terms of the corporate entities making the promises.

Three-fifths of the promised investments are by the Vedanta Group and ABC Cleantech (see table). Although Vedanta is a well-known industrial conglomerate, ABC Cleantech is a Hyderabad-based private limited company established about seven months ago.

The total investment proposals made by the two groups—Vedanta with Rs 80,000 crore and Cleantech with Rs 50,000 crore—not only account for the overwhelming share of promised investments on Day 1, but also in the same sector, as both are in the field of renewables.

Although the actual breakup of Vedanta’s investments is not yet clear, the buzz at the GIM is that large investment proposals have been made for “green” hydrogen projects in the state. The lopsided nature of the proposed investments—in terms of the concentration of the participating groups as well as sectors—raises the old questions that dogged previous versions of the GIM in Karnataka.

A deja vu moment

Soon after the last version of the GIM hosted by a BJP government in Karnataka in 2012, at which proposals amounting to more than Rs 8.27 lakh crore were made, several industry bodies in the state had voiced their apprehension about the “lack of transparency” in the implementation of the cleared projects.

In fact, a senior official of the Confederation of Indian Industry (CII), which “partnered” the state government in hosting the event, told this correspondent then that the “lack of credible numbers is a major challenge.”

Also read: FDI inflow at all-time high of $83.57 bn in 2021-22; Karnataka top state

The lopsided concentration of industrial groups, as well as sectors, was evident then, too. A significantly large proportion of the investments were to be in energy projects, most notably, gas-based power projects, even though the availability of gas for the projects was by no means guaranteed.

Although the aerospace sector featured as a major focus area at the 2012 GIM, very little actually materialised. Nirani, who held the same portfolio during the 2012 event, had even promised a full-fledged university for aerospace, which never saw the light of day. Nirani left office after a few months, following the turmoil in the BJP which led Chief Minister Yeddyurappa to quit as a result of his involvement in the mining scandal in the state.

The GIM of 2010, which happened before the unearthing of the mining scandal involving top politicians of the Karnataka BJP, also witnessed a similar kind of lopsided investment priorities. Almost two-thirds of the promised investments were in the iron and steel sector.

All this was wiped out by the gigantic scandal that brought the iron ore mining industry in the state to a complete halt soon after. Quite apart from the scam, this clearly demonstrated the risks associated with bidding on a few players or a few sectors. That remains just as true now.

The “green” hydrogen buzz

The promise of “green” hydrogen was the new buzz at this GIM. According to state government sources, seven companies have evinced interest in establishing capacities in this sector, with a hub being planned at Mangaluru.

These companies apparently plan to invest Rs 2.91 lakh crore in capacities in not just “green” hydrogen but also using the fuel for “green” ammonia projects. The state government has touted the cluster as being able to export to markets in Japan, South Korea, and Europe.

Also read: Green energy is on surge, but can it fill the bottomless pit of demand?

However, an industry source who is a specialist in energy issues and has decades of experience with global consultancy majors, said there are several major imponderables in the nascent “green” hydrogen industry that is trying to pitch itself as an energy alternative to fossil fuels. First, it is still highly capital-intensive. Second, its main targets are highly fossil-fuel-intensive industries, such as steel, cement, fertiliser, and plastics. Some of these industries may lack the requisite scale to justify the high costs associated with the new fuel.

Quite apart from the capital costs associated with “green” hydrogen, which is premised on the use of renewable energy sources such as solar power, a network of infrastructure needs to be in place. This, the expert pointed out, was a prerequisite before production even begins.

Since hydrogen density is lower, it would have problems similar to batteries for the auto industry. Just as electric vehicle requires infrastructure, such as charging stations, “green” hydrogen would need its own infrastructure, especially, transportation through pipelines or by other means.

The point is that the infrastructure must be in place for the industry to have any reasonable chance of success. “All the hoopla at the GIM does zilch; it has only placed the cart before the horse,” said an industry source.

Although the Narendra Modi government has unveiled a “green” hydrogen policy, its outlines remain unclear. In particular, it is not clear how subsidies will be designed to encourage capacity accretion. It is critical because the costs of setting up generation capacity, as well as storage and transport infrastructure, are likely to be non-competitive vis-a-vis fossil-fuel-based capacities. Without this clarity, the sector is unlikely to take off.

Investor meets “like a wedding”

Given all this, why do industrialists participate in such shows?

“My own impression, based on experience and interactions with fellow industrialists, is that less than 10 per cent of the so-called promises of investments by industrialists actually materialises,” said a Bengaluru-based industrialist who has participated in such investor meets in Karnataka, Gujarat, and Uttar Pradesh.

A senior executive of a machine tool manufacturer told The Federal that industry bodies—and increasingly, central and state governments—organise such trade shows with “the primary objective of promoting the success of the event.” The measurement of “success” is in terms of how many people participated or how much “investment” was promised through the signing of MoUs, he pointed out. “If you actually go through the MoUs, you will find a lot of ifs and buts, but those ifs and buts cannot ever materialise,” he said.

Also read: Ktaka inked MoUs worth Rs 1.3 lakh cr in renewable energy space: CM

Asked why industrialists feel compelled to attend such mega events, he offered the example of a traditional Indian wedding as an explanation. “It is like one of those weddings you simply have to attend, whether you like it or not,” he said.

“It is like this: you know the organisers, so you feel obliged to attend. And, the organisers also know this. They, too, do not realistically expect the investment, but they are so focused on the event itself that even mere participation is good enough to create the feel good factor. My own experience is that 50 to 60 per cent of the people who participate do so for this reason,” he added.

Industrialists also attend so that they can rub shoulders with those in power and to mingle with their peers, on the lookout for “business contacts” they can establish, which by no means is a guarantee of actual investments.

Low confidence in governance processes

An industry source said although there is more confidence among the captains of industry about growth prospects, there is less confidence in governance processes and procedures despite the perception that India is better placed than other countries, given the geopolitical situation.

“The ability or the capacity to invest is just one aspect of the problem,” explained TK Ramesh, a veteran industrialist associated with the Ace Micromatics Group, which has a significant presence in machine tool manufacturing, with bases in India and China.

He pointed out that since competitiveness is no longer measured within the confines of national boundaries, access to technology, the cost of materials, infrastructure costs, and access to skilled labour are all important in determining the level of investments. The so-called incentives, such as tinkering with subsidies or even reducing GST for a couple of years, are not enough to induce enterprises to start production, Ramesh observed.

“Those days are gone,” he quipped. “Hosting a GIM, where such incentives are promised for a few years, is no longer seen as an attractive proposition,” he added.

“We are doing far too little in fundamental research and development, or to improve logistics and infrastructure, which is so essential for industry,” said an industrialist who attended the inaugural session of the GIM.

Little focus on addressing problems

An industrialist, who runs a small enterprise in the Peenya industrial cluster, said small and medium enterprises (SME) have been badly hit since the pandemic. He pointed out that there was very little “focus” on addressing the problems of such enterprises, even though they account for a sizeable share of not just output but employment and exports.

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“Throwing some short-term sops at industry does very little to address the problems of these enterprises,” he said. “Sustained industrial development is more than just getting a few marquee investors to attend such jamborees,” he complained. “Instead, the governments (not just in Karnataka but also the Centre) need to develop the enabling infrastructure.”

He pointed out that it was more than just roads or industrial parks. There must be an ecosystem in which investment can happen. He cited the “pipe dream” of establishing an aerospace university in Bengaluru as an example. “Nothing happened because the governments did not take the steps needed to establish the university. Instead, it just hoped that the companies in the sector would do it,” he pointed out.

“What is the use of a double-engine government when the main engine itself is sputtering?” he remarked ruefully.