The split seems to be working in favour of both Andhra Pradesh and Telangana with both states vying with each other to race ahead in the industrial arena.

According to the second edition of the Government of India’s ranking of various states, released in October 2016, Andhra Pradesh and Telangana have emerged as the top states in terms of ease of doing business in the country. The State Implementation of Business Reforms, 2016 is based on the ranking by Department of Industrial Policy and Promotion (DIPP) that tracks the level of implementation of norms by state governments. Last year, DIPP had finalised a total list of 340 reforms which it had asked states to implement. “While last year only seven states implemented more than 50% of the reforms, this time 18 states have implemented more than that level,” said Commerce and Industry Minister Nirmala Sitharaman.

Andhra Pradesh

For a state that started working with a new identity just over two years ago, the year 2016 was a year of hits and flops. On the positive side, the Union Cabinet will soon approve a special financial package for Andhra Pradesh, as announced by Finance Minister Arun Jaitley. Under this package, the Polavaram irrigation project on river Godavari has been declared a national project and the entire expenditure with effect from April 1, 2014 would be borne by the centre. Andhra Pradesh, which financially suffered because of creation of the separate state of Telangana in June 2014, will get also tax concessions and a railway zone. Meanwhile, the announcement of fresh investments by MNCs bodes well for the state.

For instance, Apollo Tyres has signed a Memorandum of Understanding with the Government of Andhra Pradesh to set up a state-of-the-art manufacturing facility. The company is looking at investing approximately Rs 525 crore towards setting up this facility. According to Onkar Kanwar, Chairman, Apollo Tyres, this will be the company’s fifth manufacturing plant in India. Currently Apollo Tyres has two plants in Kerala and one plant each in Tamil Nadu and Gujarat. Apollo Tyres also has an international manufacturing presence with a plant in the Netherlands and another greenfield facility currently being set up in Hungary. Commenting on the occasion, Andhra Pradesh Chief Minister N Chandrababu Naidu said, “Our endeavour to provide superior infrastructure and ensure full government support to companies has seen the state emerge at the top of the Ease of Doing Business Index in the country. The fact that companies like Apollo Tyres are investing in AP is proof of that.”

Meanwhile, there are reports that Hyundai subsidiary Kia has firmed up its India plans and is considering Gujarat, Tamil Nadu and Andhra Pradesh to set up its plant. The Korean auto behemoth has for long held India as one of its key markets. As the strong and undisputed No. 2 player, Hyundai has entrenched itself in the India market and has also used its operations here to export large volumes to Europe and other parts of the world. Kia Motors’ CEO Park Han-woo has worked with Hyundai Motor India in the past, and has been quoted by South Korean daily Korea Times as saying, “Kia cannot export cars to India because of high import tariffs and so it has to build a plant there. Although we would like to begin constructing the plant as soon as possible, we will not rush.”

The other major news is that the country’s first textile city is likely to come up in AP and the central government has already initiated the process of identifying land, technology and expertise for the same. According to sources, Textiles Minister Smriti Irani has spoken to N Chandra Babu Naidu for providing land and other facilities. With Naidu’s Telugu Desam Party being an ally of the ruling National Democratic Alliance at the centre, the proposal, mooted by the NITI Aayog, is likely to be accepted. The textile sector is the largest employer in the country, employing 32 million people and is critical to Prime Minister Narendra Modi’s plans to create jobs in the country. The government has announced a special package for the sector in June aimed at improving India’s competitiveness, which would lead to greater production. The reforms, in turn, are expected to generate 10 million new jobs in the textiles sector in three years. The package is estimated to cost Rs 6,000 crore, which includes funds for additional 5% duty drawback for the garments sub-sector.

These recent projects establish the fact that the state has well-developed social, physical and industrial infrastructure and virtual connectivity. It also has good power, airport, IT and port infrastructure. At current prices, Andhra Pradesh’s gross state domestic product (GSDP) was estimated at USD 92.17 billion over 2015-16. Between 2004-05 and 2015-16, the average annual GSDP growth rate was 10.67%. The state has attracted foreign direct investment (FDI) equity inflows worth USD 11.57 billion during the period April 2000 to March 2016, according to data released by Department of Industrial Policy and Promotion (DIPP). The Government of Andhra Pradesh has proposed a budget of USD 20.72 billion for FY 2016-17.

As of July 2016, the state had 19 operational SEZs in the state across diversified sectors which include textiles and apparel, food processing, footwear and leather products, multi-product, pharmaceuticals, IT, etc. As of April 2016, Andhra Pradesh had a total installed power generation capacity of nearly 15,311.17 MW. It is the first state in the country to have enacted industrial single-window clearance. The Act has made it compulsory for new industries to register with single-window to obtain clearances quickly. The state also has separate Acts for development in sectors such as solar power, electronic hardware, and food processing.

As per a report published by IBEF, Andhra Pradesh is home to many global and national pharmaceutical players and various companies have set up their manufacturing hubs in different cities of the state. As of July 2016, the state had a total of four pharmaceutical SEZs. As for textiles, it produces medium grade and superior long staple varieties of cotton. During 2016-17 (up to May 2016), 858 metric tonnes of raw silk was produced by the state. The Information Technology, Electronics and Communication Department of the state has established a new IoT policy within the state with a view to attain a substantial market share in India’s IoT market by 2020. However, experts in the IT sector opine that AP is unlikely to face the increasing competition unless the government creates a new and innovative model of development plan for the IT industry in the state. “Mere announcement of incentives and IT policy would not suffice and the state has to create a critical mass to stand out and compete with Hyderabad,” an expert says.

IT expert and entrepreneur J A Chowdary, who was instrumental in developing the IT industry in combined Andhra Pradesh in his capacity as STPI’s director, feels the Hyderabad model will not work now as that kind of environment is not there. The situation and battlefield have changed. “As the companies are changing their business models, the government should change its approach and evolve measures to attract investments. The government needs to lay emphasis on SMEs, start-up companies and invite NRIs to focus on high-end niche services besides offering loans. Unless the government creates confidence among companies that Andhra Pradesh has skilled manpower than the rest of India, it will not cut the ice,” he says.

Telangana

Telangana, the 29th state of India, was formed in June 2014, with Hyderabad as its capital. Its gross state domestic product (GSDP) has expanded at a compound annual growth rate (CAGR) of 14.49% to USD 89.1 billion between 2004-05 and 2015-16. At a CAGR of 19.08%, services has been the fastest growing sector among agriculture, industry and services from 2004-05 to 2015-16. During 2015-16, the services sector accounted for 61.9% share in the overall GSDP. As of April 2016, the total installed power capacity of Telangana state was 11,568.76 MW. The capital city of Hyderabad is a hub for information technology (IT) and pharmaceutical sectors. During 2015-16, export of IT products of Telangana was USD 10.42 billion. Leading IT companies like Facebook, Google, IBM and Microsoft hold significant presence in Hyderabad.

Hyderabad also accounts for approximately 20% of India’s total pharmaceutical exports. The state government plans to set up a pharmaceutical city and promote public private partnership to develop this sector. Meanwhile, the central government recently announced the formation of an Information Technology Investment Region (ITIR) near Hyderabad. With the establishment of the ITIR, the government plans to generate 1.5 million direct and 5.3 million indirect jobs in the IT sector in the next five years. According to the Department of Industrial Policy and Promotion (DIPP), cumulative FDI inflows in Telangana from April 2000 to March 2016, totalled USD 11.57 billion. Further, as of March 2015, a new textile policy was introduced in Telangana, its purpose being to provide special incentives to the textiles sector. In order to promote the textile sector in the state, the Government of Telangana is working on a new textile policy to attract investments in the sector.

Overall, the edge that Telangana has in the IT sector is something the state government would like to beef up further. A few months ago, the Telangana government and Cisco signed an agreement to cooperate on a host of initiatives, including Smart Cities, Internet of Things, cyber security, education and digitisation of monuments. Cisco will set up a Centre of Excellence (CoE) at the T-Hub premises, the largest building in India to be entirely dedicated to entrepreneurship. “Our expectation is that a lot of companies that are in the start-up space and a lot of others that are here can come and co-innovate with us,” Dinesh Malkani, President, Cisco India and SAARC, told Economic Times. The concept, he said, is to let start-ups and existing companies bring any idea, use Cisco’s facilities and technology, and create a product.

In addition, US data firm Factset will set up its largest global office in Hyderabad, earmarking Rs 800 crore for lease rentals over 15 years. The Nasdaq and NYSE-listed firm, which has 8,000 employees in 40 locations across 21 countries, is gearing up to hire 7,000 employees for Hyderabad alone, as per an unconfirmed report. The move by Factset to acquire its largest global office space in Hyderabad comes months after Apple, Amazon and Google choosing Hyderabad for their global development centres. “My vision for the state is to continue that rich legacy of making Hyderabad the most preferred IT destination in the world and expand it to the rest of Telangana. I envision digitally empowering every citizen of the state, enhancing quality of life of citizens, accelerating economic competitiveness, boosting local innovation and becoming a knowledge and technology hub of the country,” says K T Rama Rao, the Telangana minister of IT, electronics and communications.

Among some of the other developments in Telangana, the government has approved 16 industrial proposals with a total outlay of Rs 1,046 crore under the TS-iPass facility. The projects include pharmaceutical sector companies, bottling and beverages firms, automotive tubes and tyres, and other industries. Those in the pharmaceutical sector include that of Biological Evans with investment of Rs 30 crore, Glukem Biocare (Rs 11 crore), Aurobindo Pharma’s two units of Rs 89 crore and Rs 128 crore respectively in Mahabubnagar district, Hetero Labs Limited (Rs 164 crore) in Rangareddy district and Genesys Biological (Rs 11 crore). Those in the automotive sector include Mahindra CIE Automotive Limited for sheet metal stamping with an outlay of Rs 69 crore and Rane Madras Limited for brake-liners with Rs 42 crore also in Medak district and ACE Tyres Limited for automotive tubes and tyres (Rs 15 crore) and Total Oil India Limited for bottling (Rs 14.3 crore). “It is the clear focus of both Andhra Pradesh and Telangana governments on expanding their industrial base which is helping attract huge investments and giving them an edge over the other states,” points out S Vaidyanathan, an industry expert.

Huned Contractor