While the political tussle over the formation of Telangana and the micro-finance crisis hit Andhra Pradesh in a big way, impacting industrial growth, the one fact that cannot be ignored is that it still has untapped potential to be back on the track

On December 28, 2012, Union Home Minister Sushilkumar Shinde held a meeting of various political parties to find a solution to the contentious Telangana statehood issue that has been troubling Andhra Pradesh for a long time now. This wasn't just a political debate. It also had other ramifications with one of the priorities being to get the state back on a path of economic progress. The drive to divide Andhra Pradesh (AP) into two has had severe repercussions over the past two years with not many of India's top companies or multinationals putting the state on their list of investment destinations. This bitter truth has now been exposed through a survey published by the Associated Chambers of Commerce and Industry of India (ASSOCHAM).

With a GDP growth of 6.81 per cent in 2011-12, Andhra Pradesh's economy is not only lagging behind the national GDP average of 6.88 per cent but is also stumbling behind some of the not-so-developed states like Bihar that clocked a healthier 13.13 per cent growth, the study says. Titled 'An Appraisal of Finances of States', the report warns that if the current state of affairs continues, AP may not even be in a position to catch up with the national GDP average of 6.88 per cent in the next six months. The study revealed that apart from Andhra Pradesh and West Bengal, all the other states outperformed the all India GDP growth.

According to ASSOCHAM, while AP's growth in the first three years of the seven-year period from 2006-07 was well above the national average, its performance had deteriorated in the last four years. Also, despite a rise of 135 per cent in AP's tax revenue in 2011-12, which is more than that of Karnataka at 88 per cent, Tamil Nadu at 115.3 per cent and Kerala at 123 per cent, the state has not been able to use its monetary resources effectively to boost growth, the study points out. According to Jyotirmoy Jain, senior adviser to ASSOCHAM, there were various factors like Telangana and power shortages that were hampering AP's growth. "The shortage of power has also crippled industrial growth in the state while the other major factor was the collapse of the microfinance sector. More than 90 per cent of the MFI funding via banks has turned into non-performing assets (NPAs)," Jain informs.

Severe power cuts, in fact, have become the bane of AP, leading to huge industrial losses. One example is that considering the state accounts for some 40 per cent of India's bulk drug exports, the Pharmaceutical Exports Promotion Council (Pharmexcil) has been forced to slash the country's pharmaceutical export growth projections for this fiscal by 5 per cent. India, whose pharmaceutical exports rose nearly 25 per cent to USD 13.2 billion in the 2011-12 financial year, may end up posting only a little over 17 per cent growth this fiscal, hurt by power shortages, states Pharmexcil's director general, PV Appaji.

Power supplies to AP industries fell 35 per cent short of the total requirements in peak summer. The shortage is hovering around 25 per cent now, according to M V Rajeswar Rao, secretary general of the trade body Federation of AP Chambers of Commerce and Industry (FAPCCI). Dr Reddy's Laboratories, Aurobindo Pharma, Mylan Laboratories, Divi's Laboratories, Hetero Drugs, Natco Pharma, Virchow Laboratories, Suven Life Sciences and Nueland Laboratories are among the key pharmaceutical companies with manufacturing facilities located in AP. However, all is not lost.

According to a recent news report in Economic Times, at least four gas-based power plants in the state, which have been lying idle for years for want of natural gas from Reliance Industries' KG Basin field, are about to get a fresh lease of life. "The Andhra Pradesh government has decided to allow several power stations operated by the GVK, GMR and VBC groups to run on imported liquefied natural gas to meet electricity demand during peak seasons," power secretary Mrutyunjay Sahoo is reported to have said. "Based on the interest shown by industry bodies for buying relatively expensive power produced through LNG, the government has recommended to the regulator to allow the IPPs to produce power using alternative fuel," Sahoo told ET.

The Andhra Pradesh Electricity Regulatory Commission has agreed in principle to allow the utilities to produce electricity using imported LNG and is preparing guidelines to enable willing industrial consumers to buy the expensive power. "The supply of power will at least be assured and it will still be cheaper than electricity produced from diesel gensets," an official of the Confederation of Indian Industry said. Industrial consumers in Andhra Pradesh, who pay up to Rs 7 per unit, will have to shell out Rs 10 for a unit of electricity produced by burning LNG. On the other hand, electricity from diesel gensets costs Rs 15. The state government has shortlisted four generating stations - GVK Extension (220 MW), Gautami, GVK (464 MW), Vemagiri, GMR (370 MW) and Konaseema, VBC (444.1 MW) - that can use imported LNG as fuel.

Meanwhile, renewable energy sources, primarily solar power, are also being tapped to bring the power supply situation to normal. According to Kameswara Rao, who heads the energy, utilities and mining sector at PricewaterhouseCoopers (PwC) India, "The solar sector has attracted a lot of interest and many states such as Rajasthan, Gujarat, Madhya Pradesh, Karnataka and more recently Andhra Pradesh and Tamil Nadu have announced aggressive policies to attract investments. The tender for NSM Phase 1 (batch 1 and 2) has been very successful and attracted wide local and overseas interest." Tamil Nadu and Andhra Pradesh have targeted 3,000 MW and 1,000 MW. "This will not be easy to achieve given the challenges in land acquisition and financing but we expect to see a new addition of at least 1,500 MW from state policies alone in the medium-term," Rao adds.

To continue to look at the brighter side, it is not as if investments have stopped flowing the AP way. Oralcare major Colgate Palmolive India recently announced that it has bought 25 acres of land in AP to ramp up its capacities. "We are working on two new projects. One is in Gujarat at Sanand to make toothpaste while Sri City in southern Andhra Pradesh is another place where we have acquired land and paid Rs 11.4 crore as part of the initial lease. This place, where we will set up a toothbrush manufacturing plant, is not very far from Chennai," announced Colgate Palmolive India Chairman Mukul Deoras at the company's 71st annual general meeting. The plant at AP will become operational this year.

Another piece of good news is that Mahindra & Mahindra will commence the production of tractors next month at its new facility at Zaheerabad in Medak district of Andhra Pradesh. M&M currently has its automobile plant spread over 343.36 acres of land at Zaheerabad, 136 km from Hyderabad, where its products like UV (Maxx), three-wheelers (Champion Alfa), light commercial vehicles and buses are manufactured. With an assembly capacity of 218 vehicles per day, M&M is investing Rs 300 crore on the new tractor manufacturing facility where it intends to manufacture 90,000 units per annum, providing direct employment to about 2,000 persons.

Andhra Pradesh has also been included in the proposed Chennai-Bengaluru Industrial Corridor, which will give a thrust to industrial development in border districts like Anantapur, Chittoor and SPS Nellore. Briefing the media, AP's Major Industries Minister, J Geetha Reddy, said that the state was initially not a part of the corridor but has been included after hectic lobbying with the Centre. "The corridor's development is being supported by the Japanese government. The Krishnapatnam port region development will be taken up in the first phase. In the second phase, the Hindupur-Chittoor-Nellore belt will be developed," the minister added.

Further, replying to a question, she said approval from the Government of India was awaited for setting up national investment and manufacturing zones (NIMZs) in the state. "We have submitted proposals for setting up NIMZs in Medak, Chittoor and Prakasam districts in an area of 5,000 hectares each. We will create world-class infrastructure in the NIMZs in line with the National Manufacturing Policy of the GoI," Reddy said, adding that the state government was also focusing on development of infrastructure in the industrial parks in the state. Meanwhile, contrary to claims, Reddy has said that the state was witnessing significant growth on the industrial front. "Of the 115 proposals we have received during the Partnership Summit last January, ten have already gone into production while another 73 are under implementation," Reddy said. According to the minister, AP's industrial growth rate in 2011-12 stood at 7.33 per cent as against the national average of 3.95 per cent. Of the 69 investment proposals cleared by the State Investment Promotion Board, 21 units have already started production with an investment of Rs 20,176 crore and employment creation of 41,605. Four more units, set up with an investment of Rs 3,468 crore, were ready to commence production and another 40 (Rs 58,689 crore) were under implementation. "Investors from countries like Japan, The Netherlands, Sweden and Queensland are coming to the state with investment proposals. The investment scenario in the state is encouraging, compared to other states, despite recession," Reddy said.

In terms of infrastructure development, A GMR-floated SPV for construction of roads in Andhra Pradesh will raise Rs 316 crore from the bond market on the back of guarantee issued jointly by India Infrastructure Finance Corporation (IIFCL) and Asian Development Bank (ADB). Also, the Ramky Group is establishing a multi-product industrial park in AP. The park will come up at Nalgonda district with an investment of Rs 1,000 crore. While the project recommendation is lying with the Ministry of Environment & Forest for approval, the Ramky Group has inked a memorandum of understanding (MoU) with the state government to develop the park over 4,000 acres. Industrial segments such as pharmaceuticals and biotechnology, textile and garmenting, knowledge and speciality chemicals, food processing and thermal power plant have been recommended for the park.

Earlier in the year, the AP government had declared a proposal to establish 124 new industrial centres across the state. According to the plan, there will be 18 new industrial units in Ranga Reddy, 14 in Nellore, 13 in Medak, 12 each in Chittoor and Ananthapur, eight in Krishna, eight each in Guntur and Kadapa, three in Prakasam, six in Kurnool, four each in Nalgonda and East Godavari, three in Karimnagar, two each in Mahabubnagar, Nizamabad and Srikakulam and one each in Khammam, Visakhapatnam and Vizianagaram. According to Reddy, the proposals of land alienation were under process. After taking possession of lands from the revenue authorities, the park would be developed in two years, she added.

As for the IT business, which is also a barometer of the state's economic health, AP has achieved a turnover of Rs 53,246 crore in 2012, crossing the Rs 50,000 crore mark for the first time. This was announced by V Rajanna, president of ITsAP (IT and ITeS Industry Association of Andhra Pradesh), a registered apex body with more than 300 members representing the software industry in the state. "The growth rate of the industry in the state is at 16 per cent, which is on par with the national average," Rajanna said. The turnover includes 76 per cent (Rs 40,646 crore) from exports and 24 per cent (Rs 12,600) crore from the domestic market. The state IT industry currently provides employment to 1.33 million, including 3,18,624 direct and 10,12,769 indirect jobs. "Overall, the IT industry in the state is extremely well-positioned in terms of three fundamental requirements for growth and leadership - infrastructure, talent and a good business ecosystem," Rajanna added.

IT exports currently account for close to 38 per cent of the state's total exports. Also, 12 per cent of India's IT exports are from Andhra Pradesh, with the state continuing to be the fourth-largest exporter in the country.

And finally, AP continues to be a top tourist destination. With Tirupati temple attracting millions of visitors, Andhra Pradesh recorded more than 155.8 million domestic tourists last year. "The Tirupati temple attracts maximum tourists. In fact, the number of domestic tourists visiting the state is more than Uttar Pradesh and Maharashtra which have Taj Mahal and Ajanta Ellora respectively," a senior tourism ministry official said. In conclusion, even though the year 2012 began with a high profile event on projecting AP as an investment destination at the government and CII-held 'Partnership Summit' to attract investments in agro processing, petroleum, construction, power projects, etc but slid down the scale a bit, the potential continues to be strong. The fact that the year saw the Tech Mahindra merger with Mahindra Satyam, the UN Conference of Biodiversity Meet, the setting up of the first healthcare technology centre in Hyderabad by Covedian, the India Aviation Show, the pan-India launch of Bharat Benz, the opening of a latest MRO facility by MAS-GMR consortium are indicators of an upward swing in the offing.