PENJERLA / NEW DELHI, India (Reuters) – It was to be Johnson & Johnson's largest production plant in India. It should eventually employ at least 1,500 people and help drive development of a rural area near Hyderabad, southern India.
FILE PHOTO: Johnson & Johnson's facility in Penjerla on the outskirts of Hyderabad, India, April 16, 2019. REUTERS / Zeba Siddiqui
Three years after the US healthcare company completed construction of cosmetics manufacturing facilities and baby products they are idle on the 47-acre site.
Two sources familiar with J & J's activities in India and one government official told Reuters that production at the Penjerla plant in Telangana had never started as demand for the products grew more slowly.
One of them said demand was not rising as expected as a result of two shocking measures by Prime Minister Narendra Modi: at the end of 2016, the circulation of high-quality banknotes was banned and a country-wide tax on goods and services (GST) was introduced in 2017. [19659004J&JspokespersonsinMumbai(India)andGlobalHeadquartersinNewBrunswickNewJerseyhaverefusedtorespondtoalistofReutersquestions
Modi's office did not answer a phone call and an email with questions.
With the aim of eradicating corruption and streamlining the tax system, the double clutter of "demonstration" and GST were two of the most important steps of Modi. Instead of encouraging economic activity as intended, they did the opposite, at least in the years 2016 to 2018, when, according to some economists, they reduced consumer demand.
Many companies, especially small and medium-sized enterprises, publicly complained – in part in their financial statements – about a decline in orders. The suspended J & J project is one of the most illustrative examples of the impact on the overall investment picture.
In the first month after the demonstration, some company surveys showed that sales of products such as shampoos and soaps fell by more than 20 percent.
Lack of employment growth and a crisis in farm income due to low crop prices have harmed modes in the ongoing parliamentary elections, several political strategists say.
Nevertheless, Modi and his ruling Hindu nationalist Bharatiya Janata party expect many strategists to be able to get a second term, probably with the support of some other parties, if votes are cast on Thursday, also because of it his strong attitude to national security issues.
BIG INVESTMENTS, GREAT EXPECTATIONS
A set of business modalities, such as limiting the price of medical devices, forced tech companies to store more data locally, and have stricter e-commerce regulations over the last two years American's plans affect multinationals like J & J, Mastercard, Amazon and Walmart Flipkart.
The groundbreaking ceremony for the groundbreaking J & J facility in Penjerla, the third in the country, was a great success in 2014, with the participation of Chandrashekar Rao, the Prime Minister of Telangana State, who views foreign investment as a major asset to the country welcomed local communities. A April 2017 document listing the products the company plans to produce at the facility, which was submitted to the Telangana government and reviewed by Reuters, mentions baby oil, baby shampoo, baby lotion, baby hair oil, facial cleansers, and creams.
Shaukat Ali, who runs a tea shop under a bamboo stump on barren land outside the plant, said local workers would regularly check in at J & J's location, but nothing has appeared for years.
At the local Environmental Protection Bureau, Member Satyanarayana Reddy said that the J & J plant had all the necessary permits and was not sure why it had not started production.
"It's unusual that such a large plant stands still for so long," he said. "But from our side there is no problem."
Chandrasekhar Babu, an additional director of the Telangana Industry Department, said a J & J employee told him that the plant had not started because of a lack of demand.
GST and Exposure were two main reasons that the plan did not start, one source said, adding that the lack of consumer demand since then affected the company's plans.
The second source, familiar with J & J's plans, said the company had miscalculated demand in the Indian market.
A recent Reuters reporter visit to the J & J plant left luxurious, furnished conference rooms and cabins inactive. M. Sairam, who said he was the site manager, told Reuters that the production areas with machines were also unoccupied.
FURTHER EXPANSION PLANNED
Local officials had hoped that the first J & J facility would be just the beginning. After breaking ground in 2014, Telangana's Special Representative for Industry, Pradeep Chandra told Business Today magazine: "Due to the expansion of the country (J & J), we expect to see much greater expansion here."  Local media reported back then that the J & J facility would employ around 1,500 people.
A non-named employee of J & J was informed in December 2016 in the Indian Business Standard that the $ 85 million plant would be operational by 2018 after the procedural delays were overcome. The official was quoted as saying the company had earmarked additional $ 100 million for the expansion.
Vikas Srivastava, Managing Director of J & J Consumer (India), who broke ground in 2014, failed to respond to calls for comment.
Reuters also talked to two workers in front of a sprawling Procter & Gamble plant that produces detergents and diapers and is located next to the J & J factory. They said they were part of the production team at the P & G plant and the plant was under-loaded.
A P & G spokesman denied this on the grounds that the facility was "operating at full capacity in accordance with our business plans." "India is a priority market for P & G worldwide, and in recent quarters P & G has consistently delivered strong double-digit growth in India," the company said.
The weak rural economy, where most Indians work, has also affected sales growth of basic items like detergents and shampoo last year.
Hindustan Unilever Ltd, an industry analyst who would compete in some categories with J & J and P & G, announced that its volume growth in the quarter ended March 31 has dropped to 7 percent, having been in the previous five quarters had recorded double-digit growth.
The company warned that the daily consumer goods segment in India is "recession-resistant … not recession-proof".
Reporting by Zeba Siddiqui and Aditya Kalra; Editing by Martin Howell