Bifurcation blues

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Crucial infrastructure issues dominate the newly-created state of Telangana

June 2 should be considered D-day in the life of Andhra Pradesh because this is when India’s 29th state, Telangana, will come into being. The cusp of big expectations is tempered by Herculean challenges.

Limited resources at disposal, difficulties in garnering land banks for attracting industries and the somewhat uncertain prospects of a brand new government, are just some that will need to be tackled head on. Various departments are digitalising official records using high-speed scanners to make them ready by the anointed date.

Those who know the innards of government working believe residuary Andhra Pradesh will find it difficult to garner salaries for its employees. Telangana, on the other hand, will face power shortage as consumption outstrips generation capacity.

Political parties are promising the moon — the financial conditions of the two states are hardly their problem.

Telugu Desam Party (TDP), led by former chief minister N Chandrababu Naidu — out of power for ten years now — claims 5 million jobs could be created in Telangana in 10 years. In addition, TDP also promised a monthly dole of Rs 2,000 to the unemployed, Rs 5 lakh insurance cover for lorry and taxi drivers, a Rs 1, 000 crore market intervention fund, national highways and bullet trains to all district headquarters, Rs 10,000 crore budget for the welfare of backward castes, you name it.

In Andhra Pradesh, there would be waiver of crop and DWCRA loans for women, nine-hour free power to agriculture, Rs 5,000 crore prices stabilisation fund, a security set up for rescuing women in distress within five minutes, round-the-clock power supply to households and industries, free education from KG to PG to the poor, tablets for college students and many more.

The Telangana Rashtra Samithi, which spearheaded the Telangana movement, has its own list of dos. It plans to waive farm loans up to Rs 1 lakh, pay the state government employees on par with central government employees, abolish contract system of employment, create 14 more districts, additional employment of about one lakh, free education and 2bhk houses for poor and many more.

The reality is pretty grim. In terms of land bank, the Andhra Pradesh Industrial Infrastructure Corporation (APIIC), which is the nodal agency for land allotment to industries, has about 40,000 acres including 35,000 acres in Andhra and 5,000 acres in Telangana, according to Telangana industries forum president Sudhir Reddy.

With the recent Land Acquisition Act, the cost of land to be acquired by the government agencies for setting up industrial parks will go up three-fold. It would be required to pay market price and offer relief and rehabilitation to those dependent on the land. All of this will increase the costs of setting up industrial parks, which are sought by the MSME players. “After the new act brought by the centre, it has become very difficult and expensive to acquire land for industries,’’ said Reddy.

The total land taken possession in Andhra Pradesh is 97,873 acres while Telengana has 28,252 acres. Of this, Rangareddy and Medak between the two account for 23,500 acres and the remaining eight districts in Telangana cobble together only 4,900.

The total number of industrial parks in Andhra Pradesh is 199 while 133 are located in Telangana – here again Rangareddy and Medak have 90 of them leaving a measly 40 for the rest of Telangana.

“We should ensure smooth transition of land use as well as equitable distribution of additional income in order to leave populations dependent on a particular tract of land considerably better off,” said Vanitha Datla, vice-chairperson, CII (Andhra Pradesh).

Governments should conduct land zoning for allocation to agriculture, urbanisation and industrialisation. Land bank corporations, tasked with scientific acquisition of non- cultivable land and its development, should be created. We need a transparent policy for allocating land to industry, Datla said.

The special category status (SCS), announced by the prime minister to Andhra is seen as the talisman to attract new investments.

For an SCS state, the normal central assistance (NCA) is split into 90 per cent grant and 10 per cent loan. For other states, the grant to loan ratio is 30:70. SCS states enjoy concessions in excise and customs duties, income tax rates and corporate tax rates.

However, industrialists in Telangana are not amused. “No industrialist can ignore SCS- related tax benefits and will ensure that all or most of the proposed investment to Telangana will move to Seemaandhra,’’ fumes Reddy of TIF.

Telangana will suffer a flight of capital as industrialists would seek to leverage the SCS- related tax benefits and can lead to permanent damage of reconstruction activities. “No amount of innovation or efficiency can bridge the pricing gap between an industry receiving tax benefits and one that does not,” said Reddy, who predicts that Telangana industries will lose their customer base and eventually be forced to shut shop.

According to Sambasiva Rao, past president of CII Visakhapatnam zone, with tax sops, industries in residuary Andhra Pradesh could be 18-20 per cent more cost efficient.

Not surprisingly, a few pharma companies are already drawing up their expansion plans towards Visakhapatnam. The pharma sector in united Andhra is estimated to be upwards of Rs 25,000 crores with exports pegged over Rs 10,000 crores. Bulk drugs dominate the pharma industry in Hyderabad. Further growth of the bulk drugs segment around Hyderabad is not likely as new capacity addition has been banned due to pollution concerns. The industry has moved to coastal locations and a pharma cluster has been developed near Visakhapatnam.

Commercial taxes are a significant part of state’s revenues. Andhra Pradesh expected Rs 50,000 crore from the commercial taxes department for the financial year 2013-14. These taxes are counted at the point of remittance. The deficit in the present state is around Rs 1,875 crore, which will be apportioned after distributing the commercial taxes accounted in the Hyderabad revenues.

Andhra Pradesh’ s deficit was expected to be around Rs 6,300 crore while Telangana’s surplus was claimed to be Rs 4,500 crore, according to Sudhir Reddy.

According to commercial taxes commissioner Hiralal Samariya, the department will issue tax-payer identification numbers (TINs) to about two lakh traders in Telangana. Those wanting to have operations in both the states would need two TINs, he said.

Much of Hyderabad’s claim to fame is in the IT and services sectors. According to JA Chowdary, member of investing community Hyderabad Angels and co-chair of industry body Ficci, Indian software industry has come a long way from exporting techno-coolies to building products from India.

“The focus should be on creating infrastructure in tier II and III cities and promoting industry with incentives like rent-free premises for some time and incubation facilities at a nominal rent,” said Chowdary.

“Even as Hyderabad continues to play a key role in software services and products, Visakhapatnam and Tirupathi would emerge as new destinations,” he predicts.

Hyderabad has about 1,200 IT companies employing over 3,50,000 employees. Global players like Microsoft, Google and Amazon have a marked presence in Hyderabad and IT accounts for about 39 per cent of total exports from all sectors in the united Andhra Pradesh.

Coastal Andhra with four ports handles about 130 million tonne cargo; by 2020 this zone is expected to handle about 200 million tonne cargo. There is a potential for separate railway zone based at Visakhapatnam or Vijayawada, said Vanitha Dantla, adding that separate freight corridors are needed. Coastal Andhra with its long coastline provides for developing minor ports at every 100 kilometres.

According to M Sreerama Murthy, chairman of industrial development committee, Fapcci, manufacturing sector has not been focused in Telangana. The most recent announcements of big ticket investments have gone to Sri City in Andhra Pradesh.

Industry in united Andhra Pradesh consumed only 30 per cent of the power produced in the state while Gujarat, Karnataka, Tamil Nadu and Maharashtra are using up more than 38 per cent of the power for industrial use in their respective states, Vanitha Datla said.

In the private sector, Andhra Pradesh with 3,407 MW of gas-based power plants and about 1,500 MW of installed capacity is lying idle due to shortage of gas and securing gas supplies would be a key challenge to new governments.

Gas supplies, said Datla, should be ensured for the Karimnagar gas-based power plant (700 MW) and Sankarapalli gas-based power plant (1000 MW) in Telangana. The Kakatiya Thermal Power Plant – Stage II 800 MW and the proposed NTPC Thermal Power Plant 4000 MW will be critical for Telangana, she said.

Industry body CII has a blue print for developing an industrial corridor in Krishna, West Godavari, Prakasam, and Guntur (KGPG) districts in Andhra Pradesh for food, marine processing, granite and mineral processing. It said the implementation of petro chemical and petro investment region (PCPIR), which was announced at Visakhapatnam, should be speeded up.

The manufacturing sector plays vital role in reviving up the economic growth. Presently the manufacturing sector constitutes 12 per- cent of the GSDP, which needs to grow at 17% for creating employment opportunities. It is being said that each one percent increase in manufacturing growth creates 20-30 million additional jobs directly or indirectly at the national level.

Datla’s priorities are quite clear: Visakhapatnam can be developed as a fisheries and sea food hub, Kakinada as a petro chemical centre, Vijayawada as a multi-modal logistic hub due to its location, develop Ongole as an engineering hub, Anantapur as a centre for electronic industry due to its proximity to Bangalore and Tirupati and Chittoor agro-based food processing hubs due to food processing industries in the district.

For Telangana, the effort should be on expediting the establishment of a railway wagon manufacturing unit in Kazipet, introduction of high speed commuter trains between Hyderabad and Warangal, establishment of modern inland container, completion of metro rail project and increasing the frequency of MMTS and suburban trains coverage.

There is a need to develop a freight corridor from Delhi to Bangalore via Kazipet, Hyderabad, Kurnool and Renigunta and establish a modern railway or metro coach factory in Bhongir (Nalgonda). Telangana should look at developing airports at Warangal and Adilabad for promoting industrialisation in these cities. Hyderabad airport should be developed as hub for domestic and international flights, MRO Centre, Cargo HUB / Courier Hub.

From the real estate segment, the developers now want to take their focus away from a single market and instead try to tap multiple markets.

According to C Shekar Reddy, national president of industry body Credai, urban areas would expand farther. “The demand for housing is dependent on employment opportunities that would be created. It is imperative to focus on the manufacturing sector,” he said.

In united Andhra, Hyderabad saw about 20,000 units sold on an annual basis, Visakhapatnam about 4,000 units and Vijayawada saw about 1,000 units sold a year.

The Centre has constituted a five-member committee to identify a new capital — Visakhapatnam, Vijayawada-Guntur, Kakinada, Rajahmundry, Ongole, Kurnool and Tirupathi are among the contenders. Bifurcating a state is no easy job.

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