Naidu magic doesn't impress India Inc

On most counts, N Chandrababu Naidu's Andhra Pradesh is doing a good job. On July 3 this year, according to the Centre for Monitoring Indian Economy's data, the state had Rs 124,000 crore (Rs 1,240 billion) investment on hand, compared with Rs 115,000 crore (Rs 1,150 billion) for Karnataka, Rs 150,000 crore (Rs 1,500 billion) for Tamil Nadu and Rs 140,000 crore (Rs 1,400 billion) for Gujarat.

Moreover, Andhra Pradesh has Rs 49,000 crore (Rs 490 billion) worth of projects under implementation, compared to Rs 45,000 crore (Rs 450 billion) in Karnataka and Rs 43,000 crore (Rs 430 billion) in Tamil Nadu.

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This is perhaps why a Business Today survey, which ranked the state 22nd in 1995, improved its ranking to 5th in 1997, 3rd in 1999 and 2nd in the latest, September 2003, survey.

However, the numbers do not jell with popular perception that big-ticket investment is not coming to Andhra -- Hyundai and Ford have chosen Tamil Nadu, while Toyota has gone to Karnataka.

Naidu managed to convince Volkswagen to set up shop in the state, but the German major finally decided not to come to India at all. Ditto for Proton of Malaysia.

So what is the catch? Government investment. The CMIE data shows as much as 60 per cent of the investment in Andhra Pradesh is being made by Naidu and the government he supports in New Delhi.

While the central government accounts for a fifth of all investment on hand, the state government accounts for another 40 per cent.

The only other state where the local content is so high is Maharashtra, with the state government's investment share is 43 per cent.

Not surprisingly, both states are bordering on bankruptcy. Karnataka, in contrast, has just a third of its investment coming from the government, both central and state.

Conscious of his state's poor industrial base, on coming to power, Naidu led several high-level delegations abroad and organised road shows to market Andhra Pradesh as an investment destination.

He also introduced a system of "escort executives", whose job was to co-ordinate work between entrepreneurs and government departments to speed up sanctions for projects.

The state also set up a Rs 150 crore (Rs 1.5 billion) Industrial Infrastructure Development Fund to develop infrastructure in industrial areas.

While these have helped to showcase the state as investor-friendly, they have not translated into investments in the manufacturing sector.

Less than 50 greenfield projects have come up in the last 5-6 years, and that too with small investments. One reason for this is probably the conservative attitude of the bureaucracy at the grassroots.

The Andhra Pradesh government signed memoranda of understanding for 88 projects worth Rs 38,700 crore (Rs 387 billion) during the Confederation of Indian Industry Partnership Summit in Hyderabad in January 2001.

Of these, only 17 projects worth Rs 3,000 crore (Rs 30 billion) were completed by the time the second summit was held in January 2003.

The major part of the work was done in another 20 projects worth Rs 5,000 crore (Rs 50 billion). During the CII Partnership Summit 2003, the state government signed MoUs for 40 projects worth Rs 17,000 crore (Rs 170 billion).

Another example of the rhetoric not keeping pace with the reality is the power sector. Andhra Pradesh's power situation has improved dramatically -- the state added 4,000 Mw capacity during the last eight years and proposes to add another 4,000 Mw in the next five -- industrial and commercial tariffs remain perhaps the highest in the country. From the user's point of view, the Crisil number one rating for the state is inexplicable.

Not surprisingly, several investors still do not look at Andhra Pradesh seriously. Ford India considered only Tamil Nadu, Delhi and Maharashtra while deciding on its manufacturing facilities in India, said Ford India Vice-President (sales and marketing) Vinay Piparsania.

"We did not consider either Karnataka or Andhra Pradesh. The factors that were important to us were proximity to a port, availability of land and adequate power."

Toyota Kirloskar Motors selected Bidadi, 30 km from Bangalore, after a detailed feasibility study spanning 23 sites across the country, said Toyota Kirloskar managing director S Aoki.

At the moment, Naidu is concentrating on improving the state's infrastructure. The initiatives include the Rs 1,200-crore (Rs 12 billion) Hyderabad International Airport, projects like the Genome Valley on the outskirts of Hyderabad to attract investment in biotechnology, hardware parks, apparel export promotion parks and a Pharma City near Visakhapatnam.