The young Chief Minister of Andhra Pradesh YS Jagan Mohan Reddy, who took over in May last, has, through a series of controversial decisions, caused alarm in the business circles nationally and globally.
While Andhra Pradesh topped as the number one state in the Ease of Doing Business rankings in the country for the last two years, the slew of decisions by the new government has unnerved the investors.
Jagan's animosity against his bete noire TDP chief Chandrababu Naidu seems to have got the better of him in his penchant for reversing or scrapping the earlier government's initiatives, in the process upsetting the business applecart.
The concern expressed by the Japanese Ambassador to India Kenji Hiramatsu in a missive recently to Chief Minister Jagan reflected the growing anxiety of foreign and domestic investors at the rather short-sighted approach of the YSR Congress government.
The unusual Japanese reaction came following the state’s efforts to cut renewable energy tariffs by reviewing signed-and-sealed contracts. Jagan's move to review the Public-Private Agreements (PPAs) had already come under fire from the Centre, which advised the state government twice against the decision.
However, the chief minister stuck to his decision, justifying his government's action at the recent Diplomatic Outreach programme held in Vijayawada.
Referring to what he called his 'slightly controversial' decisions, Jagan said that discoms could not function when revenues were lower than the cost of procurement and the only way out was a sustainable model where rates came down. "If we don’t come up with innovative policies, there will be nothing left to offer anybody anything," he justified his decision to renegotiate tariffs. “We are honest enough to tell the reality and we are firm in our policy of renegotiating PPAs," he reiterated.
It was evident that the Centre's unhappiness or the warnings by industry bodies such as Crisil which said that the Andhra Pradesh move puts Rs 21,000 crore debt at risk made little difference to Jagan government on the issue. It is in this background that Japan has now conveyed its apprehensions.
“Many foreign investors, including Japanese companies, are now watching closely the situation unfolding in your state regarding the renewable energy sector,” Japanese ambassador told the chief minister in his letter.
Jagan should give up his obduracy and at least listen to what the foreign countries are saying, tweeted opposition leader Naidu on Japanese ambassador's letter to the state.
Another move that caused consternation among the businesses is the recent law made by the state government, reserving 75 percent of jobs to locals in industries and factories 'already established and to be established'. The act stipulates that all industry should ensure 75 percent employment to the local candidates 'within a period of three years'.
The move has been widely panned as it went against the spirit in which the earlier government of Naidu wooed the industry to create a manufacturing base in a state which has remained largely agrarian.
Interestingly, Andhra Pradesh has been a net out-migration state, as opportunities for jobs are very limited after Hyderabad went to Telangana following the bifurcation of the state. Hundreds of thousands of Andhra IT professionals work in the software industry located in Hyderabad, Bangalore and Chennai. It is also because of the lack of opportunities in the region that educated Andhra youngsters continue to migrate to the US in large numbers.
Critics have pointed out how if Telangana were to reciprocate the Andhra legislation, it would be Andhra Pradesh which would suffer the most. Jagan's move seems to have opened a Pandora's box in this regard, as the demand for local reservations suddenly acquired vehemence in states such as Karnataka and Maharashtra.
“What we are asking for is nothing new or unusual,” Jagan said at the Diplomatic Outreach jointly organised with the Economic Division of the Ministry of External Affairs. He described local reservations as a worldwide phenomenon. "Even in the US, the slogan is Jobs for Locals," he remarked.
His party MP from Hindupur Gorantla Madhav created a ruckus recently at the launch of Kia Motors' Seltos in Anantapur, scribbling on the launch car "KIA car rolled out, young people ruled out here, sorry." The chief minister himself did not attend the ceremony.
Jagan's decision to issue a pre-closure termination notice for works over Rs 3,000 crore, given to Navayuga Engineering Construction, for the ongoing Polavaram irrigation project, also attracted the Centre's ire. Regretting the decision, Union Minister for Jal Shakti, Gajendra Singh Shekhawat said in the Lok Sabha, "This will act as an impediment and will result in delay in completing the project and cost escalation."
Even the Polavaram Project Authority constituted by the Centre expressed concerns that the move would lead to an escalation of cost as well as delays in execution. But Jagan is unmoved. He also cancelled the concession agreement for the development of Machilipatnam port.
The YSR Congress government's promise to introduce total prohibition in phases across the state — a poll promise — has not brought much cheer either. The government has already taken over the liquor business from retail outlets.
The earlier government of Naidu promoted the residual Andhra Pradesh as 'sunrise state' across the globe and was successful in attracting big-ticket investments such as Kia Motors to the state. He was a regular to World Economic Forum at Davos and created buzz around the opportunities in the state. As a result of his efforts, Andhra Pradesh stood fourth in attracting Foreign Direct Investments in the first nine months of the fiscal year 2019 (April – December 2018), ahead of Tamil Nadu and Gujarat, according to Department of Industrial Policy and Promotion data.
Jagan, however, is yet to show any fervour for attracting investments like his predecessor. For example, the Economic Development Board, established by the Naidu government as a nodal point of contact for investments in the state, has been put in limbo since the new government came into power.
Jagan government's hostility to all business deals that were closed during Naidu's regime is also evident. His Minister for IT M Goutham Reddy questioned in the Assembly recently as to why the earlier Naidu government had offered largesse in the name of incentives to industries. “Incentives at what cost?” he asked, and wondered, “Should we become slaves to the investors?”
The government indicated that it would review the Rs 70,000 crore data storage and technology park proposed by Adani Group and the memorandum of understanding by Reliance Industries Limited to invest Rs 52,000 crore in oil and gas and electronics sectors.
Indonesia's Asia Pulp & Paper (APP), which entered into an MoU last January for one of the biggest Foreign Direct Investments in the country till date amounting to approximately Rs 24,000 crore for a greenfield pulp and paper plant in the state's Prakasam district is said to have withdrawn its plans in the new circumstances.
"He has shown immaturity and a lack of economic sense," commented a Hyderabad-based investor who has interests in Andhra, on Jagan's stance towards business.
Meanwhile, Jagan is staring at empty coffers after Naidu emptied them by splurging money in the name of welfare schemes before the recent elections. Unless Jagan can generate revenues and mobilise resources, he will be under tremendous pressure to meet the increasing expenditure. Jagan himself has acknowledged that there was little money left in the treasury even to pay salaries.
It is however unclear as to how Jagan proposes to improve the tax base even as he is going about harming the investor sentiment. His measures to date have unnerved foreign investors and damaged the business environment of the state.
Disclaimer: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd which publishes Firstpost
The author is a Hyderabad-based journalist.
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