Along a dusty, traffic-choked road in Gujarat lies what may be India's industrial future.
As labourers work under a blazing sun to widen the highway, auto giants Ford Motor Co and PSA Peugeot Citroen prepare to spend nearly $2 billion to build new plants in Sanand, a sparsely populated collection of villages about 40km west of Ahmedabad, the state's main city.
More automakers and suppliers are expected to follow, taking advantage of the state's business-friendly policies, including comparatively little bureaucratic red tape and, crucially in crowded India, ease of acquiring land.
"You have a pro-business environment from the Gujarat government focused on getting companies like us to come in," said Michael Boneham, who heads the Indian operations for Ford, which will open its plant in Sanand in 2014.
The auto industry, which grew 30 percent last fiscal year before a recent slowdown, is a key growth engine for India's underdeveloped industrial sector. New Delhi wants to lift manufacturing's share of the economy to 25 per cent over the next decade from about 16 per cent now, a daunting target.
While car sales have skidded in recent months on rising interest rates and prices, the industry is expected to grow 10-12 percent for the year ending March 2012. The longer-term potential is vast in a country that sold 1.9 million cars in its last fiscal year. China sells that many in seven weeks.
By rolling out the red carpet to manufacturers, Gujarat is taking on existing Indian auto hubs, including Chennai, known as "India's Detroit." Executives and investors hope the competition between states ultimately results in improved business conditions across India.
"When more states compete for investments, then more states will become states where people want to go. This is a good thing," said RC Bhargava, chairman of Maruti Suzuki, India's dominant carmaker.
Maruti, which is 54 per cent owned by Japan's Suzuki Motor and has been plagued by labour trouble at its plant near New Delhi, will decide by the end of October where to build its next factory and is widely reported to be leaning towards Gujarat for a plant with capacity of one million cars a year.
Why Gujarat?
Under high-profile but divisive Chief Minister Narendra Modi, Gujarat stands apart in a country that doesn't always make it easy for manufacturers.
Home to the world's biggest oil refinery, Gujarat accounts for 22 per cent of India's total exports, according to KPMG, even though it is home to just 5 per cent of the population. Gujarat's economy grew by 13.8 per cent annually in the five fiscal years through March 2010, far in excess of the national average of 8.6 per cent over the same period.
Modi, a member of the Bharatiya Janata Party (BJP), has leveraged the economic success of his state to become a national leader and potential prime minister despite accusations of complicity in religious riots in 2002 that killed hundreds of mostly Muslim victims.
The 61-year-old Modi, who wears a trimmed white beard, recently held a widely-publicised fast to improve his image.
Gujarat, the birthplace of Gandhi, is known for its abstemious people where most residents are vegetarians and the sale of alcohol to locals is banned. The state's charms for manufacturers include plentiful electricity and skilled labour.
"The biggest challenge for OEMs (original equipment manufacturers), especially automakers, is the availability of infrastructure such as power, roads, ports, rail," said Abdul Majeed J Shaikh, who heads the automotive practice atPriceWaterhouseCoopers in India.
"From that perspective, Gujarat over a period of the last three to five years has started using infrastructure as a key thing to attract investors," he said.
A Tamil Nadu official, points out that Chennai has India's largest component supplier base and three sea ports. He said Chennai continues to attract automotive investment and will remain India's car-making hub.
"There is already a very healthy competition. But healthy competition can become unhealthy also, because some state may get desperate for investments and offer undue incentives," said M Velmurugan, executive vice-chairman of the Tamil Nadu Industrial Guidance & Export Promotion Bureau.
"Many of our companies are being chased at, but even then we are getting substantial investments," he said, without singling out a specific state.
Cluster effect
Sanand was put on the map in 2008 when Tata Motors shifted production of its Nano, the world's cheapest car, from West Bengal, where it was driven away by violent protest from farmers. Tata Motors and the West Bengal state government continue to fight in court over the factory site.
While Tata's Nano has not lived up to the hype that accompanied its roll-out, posting sluggish sales, it has proven a trend-setter in an industry where there are benefits for rival manufacturers and suppliers to cluster together.
As part of an industrial policy introduced in 2009, Gujarat uses a program called "Assistance to Mega and Innovative Projects" that includes financial aid, road links, and help in setting up ancillary units, which is important for car manufacturers that rely heavily on suppliers.
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