Business Today

Andhra: Banking on a promise and a track record

There are challenges galore for Nara Chandrababu Naidu as he tries to build a new capital ground up and hard sell emerging geographies in a new state. 

By E. Kumar Sharma | February 26, 2016 | Updated 18:05 IST
Andhra: Banking on a promise and a track record
Chandrababu Naidu, CM, Andhra Pradesh

There are challenges galore for Nara Chandrababu Naidu as he tries to build a new capital ground up and hard sell emerging geographies in a new state.  

"Nara Chandrababu Naidu has the ability to dream with his eyes open."

This is what Reliance founder Dhirubhai Ambani told  his younger Anil Ambani after he met Naidu for the first time in early 1990s, when N T Rama Rao, Naidu's father-in-law and political mentor, was still chief minister of an undivided Andhra Pradesh.

The Reliance patriarch's mentoring nugget was apparently meant to alert his younger son, who could be "the true inheritor of NTR's legacy and mantle in Andhra." 

Naidu has charmed many entrepreneurs with his hard-selling skills. Anil Ambani was witness to it himself, when few years later, Naidu persuaded Anil Ambani and other leading Indian business leaders to ensure the Indian School of Business, which was almost set to come up in Maharashtra, came to Andhra Pradesh and to its capital Hyderabad.

Kiran Mazumdar-Shaw, chairperson and managing director of Biocon, while appreciating the proactiveness of both Andhra and Telangana and a slight edge to Telangana in terms of and eco system for human capital, says, "Chandrababu Naidu is getting lot of interest because investors see in him a person who believes in reforms and one who is pro-liberalisation."  

Therefore, it was no surprise, when the Confederation of Indian Industry held its "Partnership Summit' in Vizag this year, Naidu, tried his best to leverage the port city and his marketing skills to talk business with leading leaders of India Inc assembled there, leading to a slew of memoranda of understanding signed with several companies across sectors to set up ventures in his state.

According to the CII, between January 10th and 12th a total of 331 MoUs were signed promising a total eventual investment of Rs. 4.78 lakh crore to create around 10 lakh jobs. Anil Ambani's Reliance Group, one among them, signed the MOU to build a Naval Shipbuilding Facility, 70 kilometres south of Visakapattanam with an investment of Rs 5,000 crore. The reason many Indian business leaders like to sing the song of praise for Naidu is because, they hope he will translate hard-selling and the resulting investments into business realities.

Just Naidu did for Hyderabad, in his earlier role as the chief minister of a united Andhra Pradesh in the late 1990s. But they also know that what Naidu has at the moment is a promise and a track record of performance in Hyderabad, which is no longer part of his new state. He has several challenges, including building a new capital - a massive greenfield project - with limited options to raise resources for it. Consider this: the new capital Amaravati - the name derived from Indra's kingdom in Hindu mythology (and also covering a small town with the same name in the region)  is to be built from scratch. Located in Guntur district, between the towns of Guntur and Vijayawada, the proposed new capital is a hugely expensive proposition. Calculations within the official circles, suggest that the building the main capital area - called the seed capital area alone-  will cost around Rs 20,000 crore, while the entire project will be around Rs 1.5 lakh crore.

Where will the money come from? The 14th Finance Commission's recommendations, which increased the states' share of the Centre's tax revenue from 32 to 42 per cent, gave Andhra Pradesh additional central funds of around Rs 12,000 crore a year - or Rs 60,000 crore over five years - but this hardly helps, for the state government had to already earmark this and more to fulfill the promises it made in its election manifesto. The state had already committed itself to salary hikes for its employees amounting to Rs 25,000 crore, while fulfilling its electoral promise of waiving farms loans will cost another Rs 35,000 crore. Add to this, current expenses, some with a hint of populism, are already putting a strain. Sample this: Back of the envelope calculations by some Andhra Pradesh officials show that the state has at such difficult times indulged in avoidable expenses too like Rs.2,000 crore for the Godavari Pushkarams, the festival to worship the river Godavari, in July last year to create utilities  and facilitate flow of pilgrims though only a fifth of that amount was apportioned in the budget. Similarly, the foundation stone ceremony for Amaravati during Dussehra last year cost another Rs.400 crore. Add to this sops of festival hampers of groceries for Ramzan and Sankranti given to the indigent spend around Rs. 300 crore and the total spending that is not budgeted for is a staggering Rs.12,000 crore.

To top it all, while the industry is willing to side Naidu and sing his praise, it is estimated that none of the new investment proposals would really be contributing to directly raising the state revenues, at least for the next few years, as apparently many of the projects enjoy exemptions from either VAT (value added tax) or from registration or from stamp duty.  Despite these constraints, Naidu is optimistic about creating the climate for investments and implementing some projects swiftly like the Pattiseema Scheme that links the Godavari and Krishna rivers for irrigation, as part of the larger national river linking programme, and bringing Godavari waters to Vijayawada. What is even more satisfying for the state's residents, as well as business honchos, is that he has persuaded the central government to announce some major projects for his state.

At the CII meeting in Vizag, Ananth Kumar, Minister of Chemicals and Fertilizers, Government of India announced a slew of projects in Andhra Pradesh including a Petrochemical Complex in partnership with GAIL and HPCL and a Medical Devices Park with investment potential of Rs. 20,000 crore. He also committed to setting up a NIPER in Visakhapatnam worth Rs. 600 crore and a centre of higher learning in Vijayawada with a capacity of 5000 students. While this will provide some impetus for growth, efforts by the government to do its best to garner additional revenue is also showing results. For instance, just by better focus and through plugging of loopholes in commercial taxes, excise and stamp registrations, the state could last year add revenues of close to Rs 7,000 crore. This is impressive and is also an indicator of the cascading effect of the growth impulses on the state's economy. Suresh Rayudu Chitturi, chairman, CII for the Andhra Pradesh region and the managing director of Srinivasa Hatcheries Group, says: "The state's GSDP is now around 11 per cent and substantially up from the three to four per cent when the region was part of the undivided  Andhra Pradesh. It shows industrial activity has picked up. Andhra has emerged as a promising state but a lot more needs to be done to take the growth further and there is interest from industry going by the recent MoUs, "At the same time, he sounds caution about likely hurdles." Much of the actual investments in the country are today linked to the macro economic signals in the economy as a whole. Investors are hoping to see them, like for instance the move on GST."  Naidu is determined to do his bit to help them overcome such hurdles keeping in mind his state's future.


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