Maahir Panchal, the founder of Gujarat-based engineering and manufacturing firm Titan Additive, has voiced strong concerns over the unsustainably high prices of industrial land in the state. According to Panchal, these elevated costs are severely hindering the expansion of manufacturing units and deterring investment in essential machinery across India.
In a recent public statement, Panchal detailed how a plot within his GIDC (Gujarat Industrial Development Corporation) estate in a tier-2 city commands between ₹5,000 to ₹7,000 per square foot. This figure stands in stark contrast to a functioning factory building near Detroit, USA, which, he noted, trades for approximately ₹1,200 per square foot. "American land, American power, American compliance, and their floor space costs a fifth of ours," Panchal stated, emphasizing the significant cost disparity.
Impact on Factory Growth and Efficiency
Panchal argues that such high land costs compel manufacturers to construct smaller factories, which inherently limits operational efficiency. He explained that expensive land often leads to cramped layouts, insufficient space for internal crane bays, and the necessity of storing raw materials outdoors. This restrictive environment prevents manufacturers from building for future expansion, such as adding an extra bay for a machine they might acquire years down the line, ultimately forcing them to buy smaller equipment or forgo investments entirely.
He further elaborated on India's manufacturing landscape, describing it as a "nation of job shops that never became a nation of companies." While India boasts a vast capacity for production, it is fragmented into numerous small units that struggle to scale up due to land constraints. Panchal lamented that much of what is celebrated as Indian manufacturing relies heavily on foreign equipment, steel, designs, and brands, with Indian labor primarily contributing to the final 15% of the value chain.
Industrial Land as an Asset vs. Productivity Tool
Panchal stressed that affordable industrial land should be viewed as a means to boost productivity rather than a mere subsidy. He criticized the current system where industrial plots appreciate significantly in value, creating an incentive for owners to sell their land for profit rather than investing in expanding production. "The moment a shed becomes a real estate position, the man holding it stops thinking about output per square foot and starts thinking about exit," he wrote, citing instances where individuals made more money selling their industrial plots than running businesses on them for decades.
Zoho Founder Sridhar Vembu Backs Concerns
Sridhar Vembu, founder of Zoho, echoed Panchal's sentiments, describing his observations as "a great read on the issues facing manufacturing in India." Vembu highlighted that semi-urban land and plots with access to highways and logistics are excessively expensive, impacting not just manufacturers but also the middle class and the poor. He also pointed to high interest rates as another significant barrier to manufacturing investment, making it difficult to justify purchasing new machinery.
To address these challenges, Vembu suggested proactive infrastructure development, advocating for highways and railway construction to precede other developments, thereby encouraging factories and people to relocate to new areas. For financing, he proposed fostering local capital pools through a new type of Non-Banking Financial Company (NBFC) that would utilize profit-sharing models and allow for pre-tax reinvestment of profits within the pool, aiming to fix both the land cost and financing issues for India's manufacturing sector.