Attracting new investments in Telangana will not be easy

Investors are unlikely to rush to Telangana until the new leadership of the new state settles down and instills a sense of confidence, say industry players.

This rings true more for investors from the coastal Andhra region, as the mistrust between Telangana and Andhra has only grown over the years. Those in the forefront of the Telangana movement consider businessmen-turned-politicians from coastal Andhra responsible for thwarting their dream.

However, things might not be drastically different as the ruling Congress is expected to ensure political continuity in Telangana.

Years of uncertainty over the demand for a new state impacted not only governance  but also the investment climate in Andhra Pradesh. In the past, industry bodies such as the Confederation of Indian Industry (CII) were more worried about the indecision over the chronic issue of Telangana than on the question of statehood itself, as the agitators stayed away from disruptions.

“We only hope and strive for a good industrial policy whether it is in united Andhra or in the new state of Telangana,” says Srinivas Ayyadevara, president of the Federation of Andhra Pradesh Chambers of Commerce and Industry, without getting into the controversial aspects of whether the division would impact the flow of investments into this region.

The political uncertainty over the likely status of Telangana region, coupled with the leadership vacuum created in the government following the death of chief minister Y S Rajasekhara Reddy, had put the state on the backfoot in terms of growth and development over the past four years.

According to observers, it will now take at least two more years to get a clarity on the priorities and policies of the leadership of the new state of Telangana.

However, investments haven’t stopped completely. For instance, Mahindra & Mahindra launched its 100,000-unit capacity tractor plant in Medak district of Telangana, while global consumer goods major Proctor & Gamble is in the process of establishing its manufacturing operations at Hyderabad to cater to the whole of South India.

The government often quotes the figures of the Centre’s Department of Industrial Promotion and Policy (DIPP) to question the negative perception about the state. DIPP has ranked AP second in terms of new industrial investments in the period from 2011. The question is, whether things will get worse or improve from here onwards.

“A state with a vibrant city like Hyderabad requires a modern and a matured leadership to sustain and accelerate economic development,”  a senior bureaucrat told Business Standard. “The city has world-class infrastructure while its 300,000-strong IT workforce surpasses the total number of the state and the central government employees living in the city. The division of the state will have no adverse impact on the growth of the city or its hinterland unless the future leadership chooses to mess things up.”

One of the prominent concerns about the division is the perception that the Telangana state is going to inherit all the challenges of law and order such as communal tensions and Left-wing extremism. A strong leadership in agencies responsible for maintaining law and order is a prerequisite to navigate the state on the path to prosperity, point out political scientists.

‘Coastal Andhra businesses safe’

Telangana leaders, including K Chandrasekhara Rao of Telangana Rashtra Samithi and Kodandaram of the Telangana Joint Action Committee (JAC), have assured protection to coastal Andhra people and businesses in Telangana.

However, it needs to be seen how much of the commitment will be met. It is not practically possible for a major chunk of coastal Andhra businessmen to relocate their operations from here.

Helped by various factors, including the entrepreneurial culture being a typical characteristic of the people from the coastal Andhra region, over 90 per cent of those who own units in the 13-odd industrial estates located around Hyderabad are from coastal Andhra. These are the places where not-so-educated young people from every region get work besides lower service sector jobs in the city.

According to Ayyadevara, over 70 per cent of these units are a supplier base to defence and aerospace establishments located in the city and they need to stay close to the mother industry. Prominent companies, including Dr. Reddy’s, Aurobindo and Natco, have based their operations in Hyderabad and are promoted by coastal Andhra businessmen.

“Investors chase the money and they have the whole country to look for the opportunities. Net loser will be the people of Telangana if their leadership scares away Andhra investors. Where else would you provide jobs to young people?” asks an industry observer.

However, in Kodandaram’s view the division of the state will only help unshackle Telangana and the city of Hyderabad from the monopoly of coastal Andhra capital, due to which investments from other parts of the country will freely flow into the new state. “It is like 10-20 per cent capital controlling the entire investment flow. That will be a thing of the past,” Kodandaram had said in an earlier interview.

“Things will not be any different in the initial years as the same politicians will continue to be at the helm in Telangana. That is not  what we all aspired for in achieving the statehood. Democratic forces will subsequently undertake the role of rebuilding Telangana,” says political scientist Prof Haragopal.

According to the 2011 economic census, over five million people in Telangana and 7.7 million people in coastal Andhra regions are engaged in small and medium enterprises. Industrial output in 2008-09 stood at Rs 1.31 lakh crore in coastal Andhra and Rs 94,364 crore in Telangana regions. This only indicates that the economic policies will have an equally important role to play in rebuilding Telangana state.