Vidarbha’s Industrial Value Chain Breakdown: Inside the Region’s Economic Gridlock

thenewsdirt
7 minutes ago
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The industrial architecture of Vidarbha reveals a structural breakdown that transforms potential into paralysis. Across 98 industrial estates spanning 11 districts, 1,246 manufacturing units have ceased operations, whilst 3,906 allotted plots remain undeveloped.

The region produces nearly one-third of Maharashtra's cotton, approximately 6.2 million tonnes annually, yet 70 per cent of this output leaves for processing elsewhere. This disconnect between raw material abundance and value addition capacity exposes fundamental gaps in the industrial value chain that have persisted for decades.

The architecture of production, from agricultural output to finished goods, contains missing links that prevent economic transformation despite repeated policy interventions and investment announcements.

Processing Infrastructure Deficit Across Key Sectors

The cotton sector demonstrates the most visible manifestation of value chain dysfunction in Vidarbha. The region possesses adequate ginning capacity with pressing units processing significant volumes of cotton.

However, the absence of comprehensive spinning, weaving and processing infrastructure forces raw cotton to travel to Gujarat and other states where processors extract value addition.

Around 35 lakh cotton bales are produced annually in Vidarbha, yet only 7 to 8 lakh bales convert into yarn locally. The remaining cotton exits the region as raw material, eliminating employment and revenue that processing generates.

Maharashtra aims to increase cotton processing capacity from 30 per cent to 80 per cent under the Integrated and Sustainable Textile Policy 2023-2028, yet implementation has consistently lagged behind announcements.

Spinning capacity exists but remains insufficient for local cotton production volumes. A textile factory manufacturing denim requires purchasing 30 per cent of yarn requirements from outside the state due to local supply shortages.

This dependency increases production costs and reduces competitiveness. The textile park at Butibori spans 100 hectares to provide infrastructure for small and medium textile companies, though development progress has been slow. The scant availability of weaving and processing facilities impedes progress despite an abundant raw material supply.

Orange processing presents similar structural gaps. The region contributes significantly to India's citrus production, particularly in Nagpur and Amravati districts.

Post-harvest losses reach 25 to 30 per cent due to inadequate storage, grading and processing facilities. Cold storage facilities remain insufficient for volumes produced, leading to substantial wastage during peak seasons.

The Maharashtra government approved a two-year extension for establishing modern orange processing centres across five locations in Vidarbha, with facilities for cold storage, sorting, grading and packaging. An export-oriented processing unit for oranges at Warud in Amravati district received approval with a budget of 202 crore rupees.

The unit will have the capacity to process 1,000 tonnes daily, translating to 2 lakh tonnes in an entire season. Patanjali's orange processing facility at MIHAN has the capacity to process 800 tonnes of fruit per day, which exceeds daily arrivals at the agriculture produce marketing committee yard at Kalamna.

Steel sector value chains face different challenges. Four major ferro-alloy units, including Vidhi Alloys in Umrer, SMTC Power & Industries in Kanhan, Micron Minerals in Butibori and Sumant Ferroalloys in Gondia permanently closed due to power cost pressures.

These closures eliminated approximately 400 direct and indirect employment opportunities. Over 40 mid-sized steel units shut down in the past two decades.

Until 2005-06, approximately 65 steel manufacturing units operated across Vidarbha, employing 30,000 to 35,000 workers in plants located throughout industrial areas, including Butibori MIDC, Hingna MIDC and Kalmeshwar MIDC.

The steel ecosystem developing around Gadchiroli benefits from Production Linked Incentive schemes for speciality steel, offering incentives ranging from 3 to 4 per cent based on investment and production targets.

The integrated steel plant at Konsari expects to generate direct and indirect employment in a district that historically struggled with limited formal sector opportunities. However, the slurry pipeline technology and infrastructure represent future potential rather than current operational capacity, addressing existing value chain gaps.

Agro-processing sector infrastructure remains underdeveloped relative to agricultural production. The Ministry of Food Processing Industries identified 16 clusters in Vidarbha under the Cluster Development Programme, with five clusters receiving final approval.

Maximum clusters focus on agro and food processing industries, reflecting the region's agricultural resource base.

Mother Dairy's 500 crore rupees manufacturing facility in Nagpur invested 42 crore rupees in procurement infrastructure and 30 crore rupees for facility refurbishment, with targets to enhance milk collection to 10 lakh kg per day.

Cotton processing beyond ginning requires substantial technology upgradation and investment. Whilst Vidarbha produces significant cotton quantities, most value addition occurs in other states.

Transportation and Supply Chain Fragmentation

Raw materials exit Vidarbha whilst finished products enter from other states, creating an inverse flow that undermines local manufacturing.

Cotton travels to Gujarat, where it undergoes grading and branding as 'Shankar', a highly valued variety that sells at premium prices in export markets.

The higher quality of processing in Gujarat extracts inherent value that fails to materialise in Vidarbha. Yarn from Vidarbha exports in large volumes to Bangladesh where the garment industry utilises it, supported by rail and road links connecting Nagpur to ports in Gujarat and Maharashtra.

The logistics infrastructure presents both advantages and inefficiencies. The Multi-modal International Cargo Hub and Airport at Nagpur provides connectivity supporting multiple manufacturing sectors with cargo handling capacity of 870,000 tonnes annually. The Samruddhi Mahamarg eventually extends to Visakhapatnam through Gondia, bringing districts such as Gadchiroli and Chandrapur into the national logistics framework.

The 37,000 crore rupees Raipur-Visakhapatnam corridor, 88 per cent complete, allows steel producers in Gadchiroli access to Visakhapatnam and Kakinada ports.

However, transportation networks operate primarily to move raw materials out rather than facilitate local processing. Logistics costs dropped from 16 per cent to 10 per cent of product value according to studies by IIM Bangalore and IITs Kanpur and Chennai, with targets to reach 9 per cent. In comparison, logistics costs in China stand at 8 per cent and 12 per cent in the US and Europe. Despite improvements, the fundamental pattern of exporting raw materials and importing processed goods persists.

Industrial raw material procurement faces systematic obstacles. The steel supply chain suffers from non-transparency, right from procurement from plants to supplying to customers. Logistics costs increase when plants are distant from sourcing locations. Since steel is a commodity, prices fluctuate constantly, requiring careful management.

Post-pandemic, most players eliminated traditional inventory systems, making markets more sentiment-driven.

Iron ore production in Gadchiroli represents future potential, with estimates suggesting 40 per cent of the country's supply could come from the district once reserves are fully established. Out of 500 mine blocks auctioned across the country, only around 60 became operational due to delays from multiple issues, including land acquisition. Exploration of additional reserves remains challenging, with proven deposits potentially depleting without sustained exploration.

Agricultural produce transportation presents specific challenges. Orange farmers lack efficient cold chain infrastructure, leading to high perishability during transport. Limited access to market information affects decision-making, leaving farmers unable to plan which crops to grow or when to sell.

This lack of transparency reduces negotiation ability and creates dependence on intermediaries. Storage facilities prove inadequate, forcing farmers to sell immediately after harvest, even at low prices.

The absence of integrated supply chains creates dependencies on multiple intermediaries. Cotton procurement involves layers of traders between farmers and processors, with each layer extracting margins.

The Maharashtra Cotton Producers' Marketing Federation historically served as a monopoly procurement agency, though the system faced criticism for benefiting textile industries rather than farmers. The scheme operated with 75 per cent of profits distributed as a bonus to farmers, whilst the rest served as a price-fluctuation buffer.

Export infrastructure exists but remains underutilised for value-added products. The MIHAN facility provides infrastructure for agricultural exports, but processors must invest in quality control systems and certification processes to access global markets.

Meeting international quality standards and certification requirements requires investments that many small processors cannot afford. The disconnect between production capacity and export-oriented value addition perpetuates the pattern of raw material exports.

Cost Structure Disadvantages and Competitiveness Erosion

Power tariffs emerge as the primary driver forcing industrial units to cease operations or relocate to neighbouring states.

Maharashtra's industrial electricity rates consistently exceed competing states by substantial margins, creating unsustainable cost structures for energy-intensive industries.

High-tension industrial consumers in Maharashtra face charges of 8.50 rupees per unit compared to 5.75 rupees in Karnataka, 5 to 5.30 rupees in Gujarat and 4.50 to 4.80 rupees in Chhattisgarh. This tariff disparity particularly devastates the steel and ferro-alloy sectors, forming the backbone of Vidarbha's industrial economy.

Cotton ginning mills and processing units across the region pay between 9.09 and 10.31 rupees per unit for industrial electricity consumption, with additional fixed charges reaching 583 rupees per month.

These rates substantially exceed those available in neighbouring states. Chhattisgarh offers industrial tariffs ranging from 3.90 to 8.10 rupees per unit, creating a significant cost disadvantage for Vidarbha manufacturers. Tariff increases averaging 7.5 per cent in 2024 for industrial consumers further eroded competitive positions.

The power tariff escalation beginning after 2005-06 created cascading effects, with manufacturers unable to compete against products from states offering significantly lower electricity rates.

Industrial associations consistently highlighted that Maharashtra's power tariffs create a cost disadvantage of 3 rupees per unit compared to Chhattisgarh and Madhya Pradesh, making local production economically unviable. Recent MSEDCL tariff proposals for 2025-30, citing a revenue gap of 48,060 crore rupees, threaten to worsen the situation further.

Power costs make production comparison stark. A textile unit reported that 20 per cent of input costs consisted of electricity. The power bill component in production after recent hikes reached 12 rupees per kilo, whereas operating margins stood at 1 to 2 rupees per kilo.

Even after partial open access, power costs 6 rupees per unit after considering all risks, still very high compared to Andhra Pradesh and Chhattisgarh. For ferro-alloy units, power rates in Chhattisgarh and Andhra Pradesh run approximately half of Maharashtra's rates.

This difference makes local alloy costlier by 12,000 rupees per ton, whereas margins in the business amount to only 500 rupees per ton.

Steel manufacturing faces similar economics. The difference in steel rates of local industries compared to those in Andhra Pradesh and Chhattisgarh amounts to around 2,500 rupees per ton. Electricity tariffs in Maharashtra reach the highest levels in the country, making steel production economically unviable. The finished products from neighbouring states like Madhya Pradesh, Chhattisgarh, Goa, Gujarat and even Odisha and Jharkhand capture the region's market due to cost advantages.

Under the Vidarbha and Marathwada Subsidy Scheme introduced in 2019, incentives for large and efficient units stood at 2.40 rupees per unit of electricity consumption. The new incentive scheme reduced this to 90 paise per unit, a difference of 1.50 rupees per unit. For small and inefficient units, incentives dropped from 1.90 rupees per unit to 80 paise, a difference of 1.10 rupees per unit. During 2022-23 and 2023-24, amounts released proved significantly lower than the budgeted amounts of 1,200 crore rupees each year.

Infrastructure costs compound power disadvantages. Common Effluent Treatment Plants prove mandatory for textile operations due to environmental regulations, yet setting up independent ETPs represents a substantial capital expense. The absence of common effluent treatment plants in several MIDC areas forces individual units to invest in expensive treatment facilities, further eroding competitiveness. Butibori CETP with 5 MLD capacity serves 437 member industries, though such facilities remain exceptions rather than widespread infrastructure.

Regulatory compliance adds overhead without corresponding support. The Maharashtra Electricity Regulatory Commission regulations from 2021 increased security deposits for industries from one month's average electricity bill to two months. With continuous rises in power tariffs and Fuel Adjustment Charges, this adds huge burdens on industrial consumers despite timely payments. The requirement for 40 per cent FSI utilisation within two years of allotment creates pressure for hasty construction decisions that may not align with market conditions or business viability.

Land and establishment costs create additional barriers. MIDC land disposal mechanisms maintain legal compliance but have not prioritised industrial viability and long-term sustainability. Some industrial areas suffer from poor connectivity, inadequate power supply infrastructure and limited access to skilled labour, making them unattractive to serious industrial investors.

The exorbitant rates of industrial plots and the lack of facilities and supporting infrastructure prevent investment despite the development of industrial areas.

Skilled workforce availability presents persistent challenges. Industrial activity faces a shortage of skilled labour due to the exodus of workers.

Most workers operating furnaces and making steel billets come from outside the state. Textile, construction and power sectors face problems as 30 per cent of the workforce leave periodically.

Local workers require training in ITIs and polytechnics for skilled industrial work. The disconnect between available workforce skills and industrial requirements creates hiring difficulties and training costs.

Policy Implementation Gaps and Systemic Failures

The industrial crisis in Vidarbha reflects systemic failures in policy design and implementation that persist across multiple administrations.

Despite various incentive schemes and special packages announced for backward regions, fundamental issues driving industrial distress remain unaddressed.

The Maharashtra Industrial Policy 2019 promised conducive environments for industrial growth but failed to tackle core problems of electricity tariff competitiveness and infrastructure development.

Textile policy targets demonstrate implementation shortfalls. Maharashtra's Integrated and Sustainable Textile Policy 2023-2028 sets ambitious targets to increase cotton processing capacity from 30 to 80 per cent over five years whilst attracting 25,000 crore rupees in investment and generating 5 lakh jobs. Vidarbha receives designation as Zone 1 in the policy framework with specific focus for development.

However, the policy timeline for 2018-2023 showed that investment of 14,000 crore rupees materialised against target of 35,000 crore rupees, representing roughly 40 per cent of investment target and 23 per cent of the employment target. The shortfall stemmed from inaction, lack of investor response, poor infrastructure and connectivity in targeted regions, and delays in establishing supporting facilities.

Cluster development programmes face execution delays. The Ministry of Food Processing Industries identified 16 clusters in Vidarbha under the Cluster Development Programme with five clusters receiving final approval. Plans for establishing modern orange processing centres received two-year extensions in 2025, indicating earlier timelines proved unrealistic.

Textile parks approved under the Scheme for Integrated Textile Parks experienced significant delays. The textile park at Butibori inaugurated two months after the Democratic Front government came to power remains to see meaningful development. Nandgaonpeth industrial estate in Amravati district was described as complete failure.

MIDC operational policies sometimes work against industrial interests. Mandatory FSI utilisation requirements impose additional financial burdens on struggling units. The requirement for 40 per cent FSI utilisation within prescribed periods creates pressure inconsistent with typical industrial planning horizons of 10 years.

Industry associations argued that entrepreneurs must spend undue amounts on this, suggesting the time limit for 40 per cent FSI consumption should increase to 10 years, with only 20 per cent FSI consumption mandatory in the first three years of allotment.

Approximately 50 per cent of 16,000 plots allotted across various MIDC industrial areas in Vidarbha remain unproductive for multiple reasons, according to data from 2022. The COVID-19 pandemic emerged as significant catalyst, though underlying structural problems built for years before the health crisis.

Some units stopped production because of market conditions, some face financial matters, some remain under construction whilst many others face legal issues. Files related to allotments, extension of validity or extension of the two-year allotment window require processing in MIDC's Mumbai office, creating time-consuming and frustrating procedures for entrepreneurs.

Coordination between government departments operates in isolation rather than supporting integrated industrial development. This fragmentation results in infrastructure gaps, policy inconsistencies and missed opportunities for creating industrial clusters that could enhance competitiveness through economies of scale. The absence of coordinated development approaches envisioned in various policy documents prevents realisation of intended synergies.

Environmental compliance lacks adequate support mechanisms. Environmental regulations, whilst necessary, were implemented without adequate support to help industries transition to cleaner technologies. Many smaller units lack technical expertise and financial resources to comply with increasingly stringent environmental norms, leading to closures rather than upgrades. Setting up Common Effluent Treatment Plants requires collective action and capital investments beyond individual unit capacities.

Incentive scheme administration shows persistent delays. Industries face long delays in disbursement of industrial incentives affecting cash flows and planning. The process requires multiple approvals and verifications creating bureaucratic hurdles. The revision of power subsidy schemes demonstrates policy uncertainty, with new schemes offering substantially reduced benefits compared to predecessors. Cabinet Sub-Committee formations and Government Resolution issuances span years, during which industrial conditions deteriorate.

Land acquisition and development timelines prove unrealistic. Industrial townships declared in policies require notifications that sometimes never materialise.

The Butibori industrial township declared in Industrial Policy 2001 saw notification stuck for want of no-objection certificate from concerned gram panchayat. Such administrative obstacles paralyse development despite policy announcements.

The Bombay High Court's suo motu cognisance of closure of 1,246 industrial units across Vidarbha in October 2025 represents judicial recognition of systemic failures. The court appointed advocate Sanket Charpe as amicus curiae to formulate comprehensive public interest litigation within four weeks. The court's observation that non-utilisation of industrial land directly affects employment generation acknowledges broader socio-economic implications beyond mere commercial considerations.

Investment intentions versus realisations show persistent gaps. Proposals received for 14 spinning mills with a likely investment of 666 crore rupees and three composite spinning and weaving units that could pump in investment of 700 crore rupees face delays as investors scout for land and infrastructure. Such proposals take at least a year to come up with positive results, often longer. The disconnect between announcement and actualisation characterises decades of industrial policy in Vidarbha.

Regional investment patterns reveal systemic bias. A 2013 evaluation confirmed that 60 to 70 per cent of major industrial investments were directed toward Western Maharashtra, further sidelining Vidarbha's potential. Approximately 80 per cent of industries are located in the Mumbai-Pune-Nashik belt, with only 20 per cent in Vidarbha and Marathwada combined.

Despite various incentive schemes, including stamp duty waivers and interest subsidies, investors continue to prefer established industrial corridors due to better infrastructure and lower overall compliance costs. This concentration reinforces rather than corrects existing regional imbalances.