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Seemandhra is Open for Business

A.K. Sabharwal

“For purposes of central assistance, Special Category Status will be extended to the successor state of Andhra Pradesh comprising 13 districts, including the four districts of Rayalaseema and the three districts of north coastal Andhra for a period of five years. This will put the state’s finances on a firmer footing’’
–Prime Minister Manmohan Singh

While the details of the Special Category Status for Seemandhra are yet to be finalized, the Central government has indicated that the status would be on the lines of the Special Package given to the Kalahandi-Bolagir-Koraput (KBK) region of Odisha.
Under the package, in late 2012, KBK got Rs. 250 crores from the Central government to give a boost to industrial development in the eight districts under KBK.
Seemandhra would be getting Rs.50,000 crores, over five years, as per Union Minister Mr. Jairam Ramesh.
This is a good bit of change, by any measure. At the rate of Rs. 10,000 crore a year, Seemandhra will have the funds necessary to jumpstart its economy. More importantly than the financial infusion, the Central government has also planned to unroll tax concessions that will give a fillip to investment in Seemandhra. The concessions could include a tax holiday for industry, perhaps even a substantial subsidy for new units in the manufacturing sector.
Going forward, the key industrial sectors that are likely to see increased investment are real-estate and the mining sectors. The real estate sector is likely to get a lot of investment once the location of the new capital for Seemandhra is decided. The new capital city would need to be built from the ground up, requiring a lot of investment. Government investment would spur private investment in the real-estate sector. The same situation will obtain even if the government decides to name one of the major towns as the capital city, according to analysts.
The mining sector, which has been marred in controversy over the last few years, is another industry which could see a lot of private sector investment. The mining sector is very labour intensive, so this will spur a lot of job creation, albeit many of the positions will be temporary. But there will be a lot a well-paying jobs in the mining sector.
The tax concessions are also likely to spur the development of the port sector. Seemandhra has a 972-km coast line but only one major public seaport, at Visakhapatnam. The concessions could encourage more Public-Private Partnership projects in the port sector. In some ways, Andhra Pradesh was an early adopter of the PPP model for the development of the port sector, as demonstrated by the setting up the Kakinada deep water port, and the ports of Gangavaram and Krishnapatnam. Seemandhra could emerge as a key gateway in southern India if it manages to fine-tune its PPP model, leveraging on the tax concessions promised by the Central government.
However, for the investment to be ramped up in Seemandhra, there is one critical thing that needs to be put in place. And that is a clear and transparent industrial and investment policy. The policy would need to be widely discussed by stake holders like industry, land owners and organized labour before it is decided. And once decided, the government of Seemandhra will have to assure industry that the policy regime would be stable, and not subject to change at the whims & fancies of the political leadership or the bureaucracy. The policy should also be fair and even-handed in the sanctioning of tax concessions, rather than cherry-picking from applicants based on their proximity to policy makers.
Such cherry-picking would lead to the government facing charges of crony capitalism. While many such charges will be fanciful and without any basis, some of the charges will probably stick. This in turn will short-circuit and bring disrepute to the industrial policy.
The Central government has set the tone for the development of Seemandhra by announcing a Special Category Status to Seemandhra. It will now be up to the new government, which will assume office after 16th May, to put the status and the tax concessions to good use for the rapid development of Seemandhra.

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