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View PointOpinion: Moving beyond the Capital

Opinion: Moving beyond the Capital

Published: 23rd Nov 2021 12:40 am

By Mahitha Lingala

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Telangana has moved ahead a significant distance from growing at 2.7% in the undivided State to 13.3% in mere six years after bifurcation, a rate which is higher than the national average. Its Industrial Policy introduced in 2015 contributed immensely to this surge bringing in over Rs 1.4 lakh crore.

IT exports from Telangana stood second in India for the financial year 2019-20 at Rs 1,28,807 crore. The State also houses MNCs like Microsoft, which has its largest R&D campus outside of the US, Amazon, Apple and IBM. This apart, it also meets three-fifth of the pharma needs of the country. Though extremely impressive and significant for a young State like Telangana, most of this economic activity and new investments are centred around the economic engine of Hyderabad.

India’s annual per capita income is expected to at least treble from 2017-18 to $6,500 by 2032-33 (mospi.gov.in). But achieving such a feat requires the States to concentrate on inclusive growth and on the districts outside of their established economic engines. This is essentially what the government of Telangana must be looking at – a policy of moving beyond the capital. The State has already started looking at decentralising development, but it requires a greater push while simultaneously concentrating on Hyderabad.

While the primary sector employs most of the workforce, it contributes the least, whereas the service sector concentrated in Hyderabad contributes a major chunk to the GDP. The secondary sector has been rapidly growing but is nowhere close to the service sector, though it has immense potential in the semi urban and rural areas, which lack superior human capital.

To accelerate districts and promote inclusive growth, the State must look at a prospect of investment and MSME-led growth, for which key gaps need to be identified in areas including logistics, skill development, transport and power. This will enable “structural transformation, plug regional imbalances and promote job creation and help focus on integrated regional development to incentivise organic growth of industrial areas anchored by large firms, and supported by a network of MSMEs linked through value chains”. The National Investment & Manufacturing Zones (NIMZs) have been allotted but they progress at a very reduced speed and are not conclusive enough. A more decentralised push is required. The need is for more manufacturing sector enterprises and competitiveness. The following can help address that:

Infrastructure

JS Felker and RM Townsend observe in ‘The Geographic Concentration of Enterprise in Developing Countries.’ (2011) on the geographic concentration of enterprises with regard to proximity of areas to local roads that per every kilometre one moves away from a major highway, on average there is a 1.8% decrease in the number of businesses/enterprises. So the conclusion is: “there are substantial positive agglomeration economies affecting enterprise development in rural areas” (Foster, Andrew D, 2011. ‘Creating Good Employment Opportunities for the Rural Sector,’ ADB Economics Working Paper Series 271). The length of roads in Telangana is 1,26,135 km as opposed to 1,76,474 km in AP and 3,61,041 km in Karnataka. State Highways stand at 2,553 km for Telangana, 6,485 km for AP and 19,556 km for Karnataka. (RBI, 2020. Handbook of Statistics on Indian States)

In comparison to its neighbours, Telangana’s connectivity is poor and needs to be worked on. As a landlocked State, road and last mile connectivity plays a big role in attracting manufacturing enterprises and fostering inclusive growth. Access to inland container depots or dry ports that will link production centres is significant. This can be bolstered through enhanced transport and access-to-gateways infrastructure, which will focus on furthering transport projects to simplify gateway access for enterprises. This will not only simplify logistics but also optimise costs, which will attract secondary sector enterprises. Thus, setting up ‘multimodal logistics hubs’ across districts will ease product movement within and outside the State, which will not only attract more investment into the districts but also boost establishment of local small and medium enterprises.

Medium, Small, Micro Enterprises

MSMEs account for 40% of the country’s exports, and play a crucial role in creating unskilled and semi-skilled employment. According to NSSO, Telangana has 26 lakh MSMEs as opposed to 33 lakh in AP and 38.34 lakh in Karnataka. These MSMEs employ about 40.25 lakh people in Telangana, 56 lakh in AP and 71 lakh in Karnataka. The State could tap into this area as it enables productivity and employment in the manufacturing sector. Karnataka has seen considerable success in this area mainly due to its policies. For example, in Karnataka, 20-30% of its available land in industrial areas is set aside for MSMEs, the application fees are half and it provides other turnover-based subsides.

Telangana can have a dedicated MSME development cell to augment cluster-based development as many MSMEs, especially in districts, face problems like lack of finance, poor personnel, and lack of know-how. These cells can act as bridges in giving support, market access, technological training and supply chain solutions to integrate MSMEs into local value chains, as pointed by Mitra, Gupta, Nikore in ‘Infrastructure and Investment Planning for Inclusive Growth in Uttar Pradesh,’ (ADB. 2019).

Policy Diversification

  • Regional Balance: The Industrial policy in Telangana has no zonal categorisation and the incentives apply uniformly across the State. The State ought to adopt a policy like that of Karnataka that clubs different taluks into different zones with separate incentives and concessions. As investors usually tend to flock to Hyderabad and its neighbouring areas, such zoning can help achieve inclusive growth. Industrially backward districts can be clubbed as Zone-1 and Zone-2 depending on the suitable sectors recognised by the government in that area. The more industrially developed districts can be classified under Zone-3 and Zone-4. Incentives can be greater in the first two zones to encourage investment in certain industries there.
  • Employment and Environment: The State’s current industrial policy doesn’t provide any employment generation subsidy. According to McKinsey, India will need to create 90 million non-farm jobs in the next 10 years and in Telangana it’s estimated that 61% of the factories employ less than 50 people each, and only 5.34% employ over 500 people each. Hence, employment- and environment-related subsidies are important. These subsidies can also be extended in a zone-wise manner based on the requirements of the district. For example, Tamil Nadu gives 5% subsidy up to Rs 5 lakh if 25 people are hired for 3 years or more in the first 5 years. It also offers a training subsidy for skill development. The government can provide interest-free loans if they employ more than 15 locals. Economic transformation of Telangana with a significant shift in the economic composition is imperative to generate gainful employment opportunities outside the primary sector to counter regional imbalances. Greater diversity and decentralisation is required to cater to and accelerate development of all regions putting Telangana on a fast-tracked yet sustainable inclusive growth path.
(The author is lawyer based in Hyderabad and independent policy analyst)

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