 "Amravati, Andhra Pradesh")
The dispute over whether Andhra Pradesh will have three capital cities, a first for any state in India, or a conventional single-city-based headquarter at Amaravati refuses to abate. In 2020, the Andhra Legislative Assembly passed a Bill that gives shape to the government’s plans to have three capitals — an executive capital at Visakhapatnam, a legislative capital at Amravati, a new city for which land was acquired from farmers, and a judicial capital in Kurnool. But just last week, the state’s ruling party, YSR Congress, led by Chief Minister Jagan Mohan Reddy, held a rally in Visakhapatnam to drum up support for the three-capital formula. In another part of the city was a competing rally, supported by the Bharatiya Janata Party state unit, by those in favour of the single-city plan.
The Supreme Court is, meanwhile, due to hear a Special Leave Petition (SLP) filed by the state government against a decision of the Andhra Pradesh High Court (a full bench headed by Chief Justice Prashant Kumar Mishra) in March this year, asking the state to get on with the original plan, proposed under the previous Telugu Desam Party regime of Chandrababu Naidu, to develop Amaravati as the state capital. The three-capital plan proposed by the YSR Congress implies a significant shrinkage of the Amaravati project.
The issue is larger than just a political dispute, since the project for a new capital was to cost over Rs 1 trillion with funding from the World Bank, the Asian Infrastructure Investment Bank and, most significantly, a Singapore-based consortium that included Ascendas-Singbridge (now part of CapitaLand Group) and Sembcorp Development, which is backed by the island nation’s government. The three capital plan was a strategy to buy peace with aggrieved parties. But the plan is a potentially crippling public finance misadventure. The state has a massive borrowing need. From April to the first week of October, Andhra Pradesh’s borrowings are a third more than last year’s level. On the current trend of mismatch of revenue and spending, Comptroller and Auditor General of India data estimates the state will need to borrow over 6 per cent of its state domestic product till 2027, when neighbour Madhya Pradesh will need only 3.9 per cent.
The dispute owes its origin to the way the two states were split in 2014, with Telangana surrounding the districts around Hyderabad and Andhra Pradesh comprising the coastal districts. Political parties in the latter were united in their view that they will need a new capital instead of Hyderabad, since the city was designated as their interim capital for only 10 years.
Chandrababu Naidu decided to set up the new capital for the state at Amaravati, close to an older city, besides the Krishna River and began a large-scale development plan around it. In 2017, his government and the Singapore consortium established a multi-layered partnership structure for the development of Amaravati Capital City Start-Up Area Project. The core of the project, a new city, was to be 6.84 sq km of land. It was ambitious by Indian yardsticks of city-building. Gujarat’s Gandhinagar or Naya Raipur in Chhattisgarh were built adjacent to the older capital. Naidu was planning to build one, further out. The nearest city Vijayawada was 10 km away. The project was inaugurated by Prime Minister Narendra Modi in October 2015.
To finance the project despite the multilateral support, a city development agency was incorporated as a public-private partnership to develop and market the available land in the start-up area for offices and other commercial activities. The Singapore consortium held a 58 per cent stake in the agency. As the agency began to buy land from farmers, a series of litigation hit the project, but those too were eventually settled. Then in 2018, Naidu walked out of the National Democratic Alliance, lost the Assembly elections and the new government led by Jagan Reddy came in promising, among other things, to scrap the project totally.
“Scrapping Amravati (as the sole capital) was not a positive move for overseas investor confidence in India. If local government changes lead to scrapping of advanced projects, then it shakes investor confidence. Particularly if it is a large-scale project like Amaravati,” said Amitendu Palit, senior research fellow and research lead (trade and economics) at the Institute of South Asian Studies, National University of Singapore.
Within four months of the YSR Congress government assuming power in May 2019, the World Bank and Asian Infrastructure Investment Bank withdrew from the project. The bank released a statement noting that it took the decision based on a government of India request to stop the financing for the Amaravati Sustainable Infrastructure and Institutional Development Project.
In another few months, the state government terminated the commercial segment of the project, too. The state’s municipal administration department issued orders authorising the Capital Region Development Authority commissioner to wind up the company, Amaravati Development Partners, as a voluntary liquidation on a mutual consent basis. By New Year 2020, the state cabinet authorised the repeal of the mother act. But thereafter, progress in burying the project has stalled.
Instead of tabling the repeal Bill in the legislature, Jagan Reddy withdrew it. The state government contends in its SLP in the Supreme Court that after the withdrawal there is no need for the judiciary to examine the issue. The orders by the state high court are also not relevant since it was based on a challenge to the cabinet decision to repeal the Act. Meanwhile, some of those affected by the decision to scrap Amaravati have mounted an agitation to which the ruling party has responded with its own rallies like the one in Visakhapatnam last week. Naidu’s model was unique, a profit-sharing model where the farmers lease the land for development of the capital. They were promised long-term attractive rates of return as part of the deal.
So now, eight years since it was formed as a separate state, Andhra Pradesh still doesn’t have a capital to speak of, is close to a debt trap, and new political fractures are emerging. As Palit remarked, it is not the right picture for an investment destination.
Amaravati’s fate is similar to that of several mega industrial-commercial projects in India tied to land acquisition, which often take down political careers. Singur and Nandigram in West Bengal were the most prominent of those in the first decade, those of myriad Special Economic Zones in other states following close behind. The West Coast refinery project in Maharashtra, jointly promoted by three state-owned oil companies with possible investment from Saudi Aramco and UAE’s Adnoc, is still out in the cold and so is a 13.2-million tonne per annum steel plant in Odisha, promoted by JSW Utkal Steel. These projects initially attracted local objections from potential local land losers, controversies that evolved into political dog fights, scaring off investors from green-field projects.
Capital Confusion
- October 2015: Foundation of Amaravati city by Prime Minister Narendra Modi
- February 2016: Notification of detailed master plan for Amaravati city of 217.23 sq km, spread across 25 villages
- August 2017: AP Government and a Singapore consortium— Ascendas-Singbridge and Sembcorp Development — establish multi-layered partnership for Amaravati Capital City Start-Up Area Project
- August 2017: World Bank joins project to develop inter alia 145 km of public transport corridors by 2050 and 1,000 km of road network by 2050
- September 2019: World Bank and Singapore consortium withdraw from the project
- January 2020: AP Cabinet drops Amaravati by AP Capital Region Development Authority Repeal Act; also clears Bill to instead establish three capitals
- November 2021: AP Assembly clears Bill to repeal both the Acts SLP in Supreme Court— ongoing
