On a recent visit by a Reuters reporter to the J&J plant, plush,
furnished conference rooms and cubicles sat inactive; M.Hindustan Unilever Ltd,
an industry bellwether that would compete with the likes of J&J and P&G
in some categories, said its volume growth shrank to 7 percent in the quarter
ended March 31, down from double-digit growth in the previous five quarters.Two
sources familiar with J&J’s operations in India and one state government
official told Reuters production at the plant, at Penjerla in Telangana, never
began because of a slowing in the growth in demand for the products.The company
warned that the daily consumer goods segment in India was “recession resistant .
But instead of encouraging economic activity as intended, they did the opposite,
at least in 2016-2018, by sapping consumer demand, according to some
economists.Yet, three years after the US healthcare company completed
construction of production facilities for cosmetics and baby products on the
47-acre site, they stand idle.”Local media reports at the time said the J&J
facility would employ some 1,500 people.BIG INVESTMENTS, GREAT EXPECTATIONSA
range of Modi’s business policies, such as capping prices of medical devices,
forcing tech companies to store more data locally and stricter e-commerce
regulations have in the past two years hurt plans of American multinationals
such as J&J, Mastercard, Amazon and Walmart-owned Flipkart.The second source
familiar with J&J’s plans said the company miscalculated Indian market
demand.GST and demonetisation were two key reasons the plan didn’t kick off, one
of the sources said, adding that lack of consumer demand since then dented
company’s plans.Modi’s office did not respond to a call and an email with
questions.“India is a priority market for P&G globally and in recent
quarters, P&G’s business in India has registered strong double-digit growth
consistently,” the company said.The weak rural economy, where most Indians work,
has also hurt growth in sales of basic items such as detergents and shampoo in
the past year.J&J spokespeople in its Mumbai operations in India and at its
global headquarters in New Brunswick.
New Jersey, declined to respond to a list of questions from Reuters.A P&G
spokesperson denied that, saying the plant was “operating at full capacity in
line with our business plans”..Still, Modi and his ruling Hindu nationalist
Bharatiya Janata Party are expected by many of the strategists to be in a
position to get a second term – probably with support of some other parties -
when votes are counted on Thursday, partly because of his strong stance on
national security issues.A J&J official, who was not identified by name, was
reported subsequently in December 2016 in India’s Business Standard as saying
that the 85 million plant would be operational by 2018 after it had overcome
procedural delays.The groundbreaking of the J&J facility in Penjerla, its
third in the country, was carried out with much fanfare in 2014, attended by
Telangana’s Chief Minister Chandrashekar Rao, who hailed the foreign investment
as a big win for local communities. It was to eventually employ at least 1,500
people and help bring development to a rural area near Hyderabad in southern
India.Shaukat Ali, running a tea shop under a bamboo stall on barren land
outside the plant, said local workers check in routinely for possible vacancies
at the Spandex
Fabrics Wholesale J&J site, but nothing has come up in years. They said
they were part of the P&G plant’s production team and the plant had been
running below capacity.Lack of jobs growth and a farm-income crisis because of
low crop prices have hurt Modi in the current general election, according to
several political strategists.At the local pollution control board office, the
member secretary Satyanarayana Reddy said the J&J plant had all the required
approvals and he was not sure why it hadn’t started production.”.“It is unusual
for such a big plant to stay idle for so long,” he said. The suspended J&J
project stands as one of the most vivid examples of the impact on the broader
investment picture.In the first month after demonetisation, some business
surveys showed that sales of products such as shampoos and soap fell more than
20 per cent. not recession proof.One of them said that demand didn’t rise as
expected because of two shock policy moves by Prime Minister Narendra Modi: a
late 2016 ban on then circulating high-value currency notes, and the nationwide
introduction of a goods and services tax (GST) in 2017.PLANNED FURTHER
EXPANSIONLocal officials had hoped the initial J&J plant would be only the
beginning. After the groundbreaking in 2014, Pradeep Chandra, who was
Telangana’s special chief secretary of industries, told Business Today magazine
that “based on the extent of land (J&J) have acquired we believe that they
are looking at much larger expansion here.?It was supposed to be Johnson &
Johnson’s biggest manufacturing plant in India.
“But there is no problem from our side.Vikas Srivastava, the managing
director of J&J Consumer(India), who was at the 2014 groundbreaking, did not
respond to calls for comment. Sairam, who said he was the site manager, told
Reuters production areas with machines were idle too.Many businesses, especially
small and medium-sized enterprises, complained publicly – some in their
financial statements - that they suffered a drop off in orders.Aimed at rooting
out corruption and streamlining the tax system, the double whammy of
‘demonetization’ and GST – were two of Modi’s signature policy moves.Reuters
also talked to two workers outside a sprawling Procter & Gamble facility
making detergents and diapers, which is next to the J&J plant.A document
dated April 2017 that lists products the company planned to make at the
facility, submitted to the Telangana government and reviewed by Reuters, names
baby oil, baby shampoo, baby lotion, baby hair oil, face wash and creams. The
official was quoted as saying the company had earmarked an additional 100
million for expansion..”Chandrasekhar Babu, an additional director at the
Telangana industries department, said a J&J company official told him the
plant hadn’t started due to lack of demand