Political unrest does not let Andhra get down to business

The prolonged political uncertainty in Andhra Pradesh has taken a heavy toll on the state’s industrial development, with the rate of industrial growth in the state coming down to around 5 per cent last year from its peak of 11.7 per cent in 2007-08.

The Confederation of Indian Industry (CII) attributes this to the government’s lost focus on development against the backdrop of political instability and an intensified agitation for a separate statehood to the Telangana region.

The slowdown was also preceded by several events, including changes at the helm of the state government and large-scale power cuts causing huge production losses. Postponement of project execution schedules and delays from the government in processing companies’ requests for land, incentives and other support required for setting up new units and expanding the existing ones added to the woes.

 

For instance, ITC has been looking to set up a second new paper production plant at a cost of Rs 3,000 crore for a long time. The land for the project had been identified, but the project could not start for want of forest clearances.

The fate of some proposed power plants has been no different. Despite shortage of power in the state, these projects have been kept on hold due to lack of coal or gas linkages. The pending power projects include state-owned AP Generation Corporation’s Rs 8,000-crore project in Karimanagar and Rs 3,000-crore power plant in Hyderabad.(Click here for table)

Also, there has not been much progress on the proposed Ramagundam Fertiliser Plant and Iffco’s fertiliser plant in Nellore due to non-allocation of natural gas. These plants envisage investment of Rs 10,000 crore each.

Even minor projects like setting up of a Indian School of Mines (ISM) campus in the state has been kept on hold. Responding to a request from the state government, ISM came forward to set up a campus in Khammam district. State-owned Singareni Collieries Ltd also came forward to share a part of the expenditure in establishing the campus. Only the Centre’s approval was pending, but nobody in the state government pursued the matter.

As companies take a long-term view while taking investment decisions, apart from the arduous preparation they have to undertake before beginning the actual work on the ground, the sudden turn of events in the state slowed the expansion of the industrial sector and recovery looks off track.

A quick reality check of the official data of the Commissionerate of Industries suggests that the fall in investments in terms of establishment of new units in the state has been very steep. About 55 major and medium industrial units and only 1,599 small-scale units — with a total investment of Rs 7,116 crore — were established during the first seven months (up to October 2010) of the current financial year, compared to Rs 17,032-crore investments in the full 2009-10 financial year.

Even if it is assumed that the total investments translating into new industrial operations by the end of the current financial year could have been around Rs 12,000 crore (taking Rs 1,000 crore as the average monthly figure), the gap is still wide.

During 2009-10, about 74 major and medium units and 9,129 small-scale units were set up in the state. An amount of Rs 11,610 crore went into setting up major and medium industries sector, though the number of units in this sector was small in comparison to the number of units that had come up in each of the last four years. However, the increase in the number of new units and the size of investment in the small-scale sector during 2009-10 was almost double the 4,700 units and Rs 2,600-crore investment in 2008-09. These have come down to 1,599 units, with an investment of Rs 1,631 crore, during the first seven months of the current financial year.

“The steep fall in the number of new units and investments in the small-scale sector itself is sufficient to say that major investments are not happening in the state in the past one-and-a-half years. The small-scale sector expands mostly as an ancillary base around bigger manufacturing plants, as they source most of the components from these small-scale units,” K Laxman Rao, chairman of Jeedimetla Industrial Estate Service Society, told Business Standard.