Hyderabad: Why Telangana-Seemandhra are fighting

Just over one year ago, in June 2012, Hyderabad was rated by the World Bank (in its highly regarded Doing Business Rankings) as the second best city in India to do business in. It ranked way ahead of the other metros; New Delhi (6), Mumbai (10), Bengaluru (13), Chennai (15) and Kolkata (17). Now, the economic powerhouse of Andhra Pradesh - it alone contributes a third of the state’s tax revenues - is likely to fall several notches in any ranking after the near anarchy, engineered by an opportunistic Congress, that has gripped disunited Andhra over the last two months.

The fact is that Hyderabad is the real bone of contention between Seemandhra and Telangana. Seemanadhra is on fire because the residents of that ’new’ state fear for their economic viability once the hub of economic activity, Hyderabad (located in the heart of Telangana), is lost. Vijayawada and Vizag (the obvious candidates for capital of Seemandhra) are not in the big league of Indian cities.

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The danger of course is that if uncertainty and violence don’t go away, the powerhouse may be reduced to an also-ran. Hyderabad may become Kolkata. In the event, India, Hyderabad, Telangana and Seemandhra will all be worse off. But that is the high price the Congress party seems willing to pay for just 17 Lok Sabha seats.

The warnings signs for Hyderabad were on the wall in December 2009 when then Union Home Minister P Chidambaram surprised a lot of people by committing the Union Government to the formation of a separate Telangana.

[caption id=“attachment_1159987” align=“alignleft” width=“380”]  The fact is that Hyderabad is the real bone of contention between Seemandhra and Telangana. Reuters[/caption]

The uncertainty extracted an economic price long before the recent agitations. An article in Outlook Business magazine in July 2011 listed the big ticket investments that the capital and the state had missed out on because of the uncertainty over Telangana. According to the report, Volkswagen moved a planned Rs 3,800 crore manufacturing plant from the state to Chakan in Maharashtra. Hindu Foundries moved a Rs 150 crore castings project to Tamil Nadu fearing uncertainty. Even local Andhra businesses were spooked. The infrastructure major GMR was already based in Bangalore but Lanco, another Hyderabad-born company, moved its headquarters to Gurgaon.

Of course, the larger number of businesses that existed in Hyderabad have chosen to stay on despite the problems. After all, until last year the city was still a great place to do business. The city is still a hub for IT - 99 percent of the state’s exports of IT and IT services are from Hyderabad. It is still a base for other knowledge industries like pharmaceuticals. But the prospect of strikes, power blackouts and political violence may eventually force businesses to explore back up options. Knowledge-industries, largely dependent on human resources rather than huge physical assets like factories, can be much more mobile than others. In certain other sectors, like real estate, investors (particularly those from Seemandhra) may exit for fear of reprisals, or policy discrimination, from the parochial Telanagana Rashtriya Samiti (TRS) which will likely form a government after the next election. Hyderabad faces the real prospect of capital flight.

That is a terrifying prospect for the city as it will lose investments, jobs and consumption expenditure to rival cities and states. The bitter fight over the proverbial golden goose may end up killing an engine of prosperity for Telanagana, Seemandhra and India.