A majority of India Inc., surveyed by ASSOCHAM, perceives that the state of Andhra Pradesh may be in for a long haul of agitations and bandhs, on the knotty Telangana issue, taking a toll on investment in the state, particularly in the new economy of the Hyderabad city.
As many as 67% of CEOs and senior managements of corporates felt that the biggest casualty of the impasse on Telangana is investment in Hyderabad, particularly in the IT sector.
"While there is no threat of existing companies shifting out of the city, fresh investment may not flow in, as the boards of multi-nationals are receiving negative publicity about the disruptions and bandhs in the state. The situation is likely to continue till the 2014 elections, taking a toll on the business environment not only in Hyderabad, but also in other commercial hubs of the state such as Vijayawada, Kakinada and Visakhapatnam," the survey said.
Corporates also believe that
the announcement made by the UPA to create Telangana, with Hyderabad being the joint capital of Telangana and Andhra Pradesh, would be difficult to sell across the state, and said that more work is required in building a political consensus.
The Hyderabad region has been among the largest destinations of foreign direct investment, with cumulative a FDI of USD 8.6 billion between 2000 and 2013. It has been among other favourite FDI destinations such Mumbai, Chennai, New Delhi and Bangalore.
The city witnessed an increase in FDI even in 2012-13, to USD 1.16 billion from USD 848 million in the previous year.
However, according to the survey, companies feel that the trend may not continue till there is clarity on the political situation in the state.
ASSOCHAM says that in the last decade or so, the character of the city of Hyderabad has undergone a transformation to being a cosmopolitan city with young IT professionals and people from other disciplines drawn from all over the world. They provide a huge consumer base to the city, which traditionally was laid-back, it said.
Over 91% of the respondents in the ASSOCHAM survey agreed that it is the IT professionals who have given the city a cosmopolitan character, which has also thrown in a new breed of global entrepreneurs and business houses.
"Some of the home-grown entrepreneurs and groups from the city of Hyderabad and Andhra Pradesh have taken their footprints across the world. These include the GMR group, Dr. Reddy's Laboratories, Lanco and GVK group.
"It was the political leadership in the early 2000s which pitched in for successfully making Hyderabad the modern city of India, and successfully attracted a lot of global companies and investment with a liberal and friendly state government," ASSOCHAM said.
"While a liberal and friendly state regime continued in the recent past, unfortunately, political events revolving around the demand for a separate state of Telangana have overwhelmed the political leadership. Besides, investors all over the world do not prefer a place which has rallies, bandhs and uncertainty of political structure," said D S Rawat, secretary general of ASSOCHAM.
As many as 81% of the respondents in the ASSOCHAM survey said they do not see an early solution to the issue.
"The backlash from the opponents will keep the political atmosphere in the state and the capital city of Hyderabad surcharged, vitiating business environment," the report said.
"While global IT investors will remain wary, those seeking opportunities in the state's infrastructure, like hotels, transport, ports, are likely to be less enthused about Andhra Pradesh.
"Whenever a company's decision about fresh investment in AP goes to its board, the deliberations among the directors are bound to focus on the political situation and Telangana. Chances are that investors might prefer bordering states like Karnataka and Maharashtra," the ASSOCHAM survey noted.
"It also apprehended that the situation is likely to become murkier in the run-up to the 2014 elections, with investment being a casualty," said Rawat. (INN)