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Successive progressive, industry-friendly governments, deep rooted reforms and a strong focus on far reaching labour and land reforms have helped India's newest state emerge as a major industrial hub. This is helping India emerge as a preferred manufacturing destination for many foreign companies.
India's newest state Telangana, created in 2014 and comprising 10 districts of the erstwhile united Andhra Pradesh, is also among the country's fastest growing provinces. It posted an average of 13.9 per cent state GDP growth over the last five years and clocked a gross state domestic product (GSDP) of more than $150 billion in 2019 or more than 5 per cent of India's GDP of close to $3 trillion. To put things in perspective, it should be noted that the state has only 10 out of India's 718 districts and occupies an area that is only 3.4 per cent of India's landmass.
Building on the legacy of Andhra Pradesh, Telangana has remained at or near the top of India's domestic Ease of Doing Business Index.
Despite having only 10 out of India's 718 districts, Telangana accounts for more than 5 per cent of the country's GDP.
Telangana has benefited from the progressive, industry-friendly policies adopted earlier by most of the governments of the united Andhra Pradesh, which were carried on by the K. Chandrashekar Rao government, which has been in power since the state was formed six years ago.
The state's capital, Hyderabad, which was earlier the capital of the united Andhra Pradesh, has historically been and remains a hub of industry and commerce, Dubbed Cyberabad by the Indian media, it hosts the Indian headquarters of software major Microsoft and a host of other global and Indian IT, ITeS, pharma and industrial companies such as Aurobindo Pharma, Dr Reddy's Laboratories, Tata Advanced Systems, etc. It is also a major start-up hub in India.
It is widely accepted that India's goal of emerging as an alternative to China as a global manufacturing hub will depend on how the states react to Prime Minister Narendra Modi's call to compete among themselves to attract foreign investors in the wake of the Covid-19 pandemic and the US-China trade war.
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“We are talking to hundreds of foreign companies looking to de-risk their global supply chains from over-dependence on one country and many of them are keen on investing here. But FDI will finally flow to the states that offer them incentives and a business environment that is comparable to what our peer nations offer,” said a senior government official who is closely related to the efforts to attract FDI into the country.
Building on the legacy of Andhra Pradesh, Telangana has remained at or near the top of India's domestic Ease of Doing Business Index, which is compiled by the Department for Promotion of Industry and Internal Trade (DPIIT), which is part of the Government of India's Ministry of Commerce and is based on 180 reform parameters such as single window approval systems, improved labour laws, speedy construction permits, easy access to information, etc. These are largely on the lines of the widely followed global index brought out every year by the World Bank.
In the latest rankings, Telangana came in at the #3 position, behind Andhra Pradesh and surprise entrant into the list of most business-friendly states, Uttar Pradesh. It had come second in the previous year's ranking.
Addressing a major pain point of foreign investors, the Government of Telangana has amended labour laws to facilitate Single joint inspection under provisions of various laws. To bring tan end to the so-called Inspector Raj, where low level government officers harass businesses, the state government has fixed the frequency of inspections in low-risk industries at five years; medium-risk industries at three years; and high-risk industries at two years. Further, designated star hotels and IT services companies to be exempt and can opt for self-certification.
Then, to make it easier for domestic and foreign investors to acquire and dispose of land, the government has recently enacted new laws to make land transactions easy and reduce human interface, which can lead to corruption.
The Modi government plans to turn Hyderabad into a major global pharmaceutical manufacturing hub.
Under the Modi government's plan to create 10 industrial clusters to push India's manufacturing ambitions, Hyderabad, which is home to several leading pharmaceutical companies will be developed as a cluster for making pharma products for the world.
The government's reforms are paying off. According to official figures, the state has attracted FDI worth more than $26 billion in foreign direct investment over the past few years.
Given the state's continuing focus on reforms, experts expect this trend to continue.