When Amarnath Mahashabde of IEC Air Tools was approached by officials from Surat to set up a unit there, the Pune-based manufacturer of pneumatic tools thought it was a God-sent opportunity.
Surat is wooing him with cheap land and other concessions to set up a precision-tools unit with a promise of a 24-hour power supply and a full exemption from excise. These are the two issues that plague most entrepreneurs in Pune.
With the Maharashtra state electricity board resorting to a four-hour load shedding this year, many have invested in gensets. But small units have simply downed shutters.
Says Mahendra Shah of Litel Infrared Heating Solutions, "In the last four months, I have seen five out of seven of my neighbours closing down." He, too, is putting up a unit in Uttaranchal where he will get 100 per cent exemption from excise.
The Chinchwad-Pimpri area in Pune had at its peak around 6000-7000 units. But now, nearly 60-per cent of them have closed down, says Shah, a member of the confederation of Indian industries panel on SMEs.
Mahashabde estimates that 70 per cent of the units in Chinchwad-Pimpri may be sick. "Till 2003, we were in the grip of a recession. Only a few with niche products were able to weather it. The others just went sick."
A revenue department official points out that octroi collection in the area has come down by 20 per cent in the last one year. While officials blame this reduction on under-invoicing, entrepreneurs point out that it is more because of units closing down.
Another reason is that big feeder industries, which farm out jobs to SMEs, are moving away from this area. When Bajaj recently moved its plant to Chakhan from Pimpri-Chinchwad, 40-45 units closed down, as small units could not afford to compete with the giant.
"And after paying octroi, their products were no longer competitive with those who did not fall in the municipal limits," says Shah.
Mahashabde says he may consider moving his entire production to Surat, if the city fulfills its initial promises.
"On one hand, infrastructure in Pune is falling apart. There are no roads, water or power in the MIDC estates. Add to that 2-3 per cent octroi that we have to pay. At a time when your operating margins are 8-10 per cent, two per cent octroi can destroy your competitiveness," he says.
Competition from Chinese and South Korean products over the past 3 years have also affected units here. Even government establishments like the Defence Research and Development Organisation and Indian Space Research Organisation, which had asked Shah to develop heating systems, chose the cheaper Chinese components.
"I took a loss, since what they paid me did not even cover my development costs," says Shah.
On the other hand, years of booming industrial activity has spawned a host of other facilities which are tempting entrepreneurs to stay put in Pimpri-Chinchwad.
Says Alka Kulkarni of Elkay Chemicals, "Over the years, good schools and residential colonies have sprung up. Most of our staff now live around here. Pune has a good crop of engineers graduating every year and we get our entry level staff locally. If we were to move elsewhere, these advantages be will be lost."
NL Shah, a manufacturer of microscopy-based educational instruments, warns, "Right now, Pune is at crossroads: If the government gets its act together and comes up with incentives, SMEs will stay on. Else, the exodus will increase in the coming years."