How Jagan's hostility towards business deals is driving investors off Andhra

Not long ago, Andhra Pradesh had consistently topped the list in the Ease of Doing Business rankings in the country. However, the present mood is one of pessimism and negativity, despite the state having enormous potential for attracting domestic and foreign investments.

A slew of policy decisions by the Jagan Mohan Reddy government, guided by political vindictiveness rather than developmental imperatives, has unnerved investors.

Be it cancellation of contracts for key projects, sanctioned during the previous Telugu Desam Party (TDP) government, review of Power Purchase Agreements (PPAs) or putting on hold all the works related to Amaravati capital city project, the spree of policy reversals has thrown a spanner in the works of several important projects covering power, irrigation and infrastructure sectors, thereby adversely affecting the investor confidence.

The review of PPAs with solar and wind power producers has angered the Centre which has warned that such a move would halt the flow of foreign investments into the sector.

Withdrawal symptoms

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, upsetting the business applecart in the process.

The list of companies withdrawing or planning to exit from the state is growing by the day while a question mark hangs over Amaravati, the dream capital city project envisioned by the previous government.

1)    Lulu Group International, a United Arab Emirates-based conglomerate, has announced that it has no intention of making any fresh investments in Andhra Pradesh “given the current scenario.”  The announcement follows a decision by the state cabinet on October 30 cancelling allotment of land made to Lulu Group during the TDP regime for developing an international convention centre in the port city of Visakhapatnam. The company was to invest Rs 2,200 crores to build an International Convention Centre, a shopping mall and a five-star hotel to provide global exposure to Visakhapatnam as a convention and shopping hub and create nearly 7,000 jobs.

2)    A Singapore consortium has opted out of the Amaravati capital city start-up area project with “mutual consent” after the government terminated a contract signed with it by the previous government. The consortium, comprising Ascendas Singbridge and Sembcorp Development, was set up in 2017 to develop a 6.84-sqkm start-up area in the new capital in three phases over a period of 15 years.

3)    Reliance Group considering withdrawing from the proposed mega electronics manufacturing project near the temple town of Tirupati.

4)    Adani Group’s Rs 70,000 crore solar-powered data storage and technology park in a limbo. The company has ignored the government’s directive to submit an alternative proposal.

5)    The government to review the agreements signed by the previous regime with Reliance Industries Limited (RIL) for the Rs 52,000 crore project covering oil and gas and electronics sectors.

6)    Indonesia’s Asia Pulp & Paper (APP), which entered into a MoU with the state government last year for one of the biggest Foreign Direct Investments in the country  amounting to Rs 24,000 crore for a greenfield pulp and paper plant in the state’s Prakasam district, is understood to have withdrawn its plans.

7)    The flight services to Singapore, the only international air travel service from the coastal Andhra city of Vijayawada, has been terminated. This followed the government’s decision not to renew the Viability Gap Funding (VGF) agreement with Indigo Airlines which was operating the bi-weekly non-stop flight.

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Hostile approach

Despite being a businessman himself, having interests in infrastructure, power and media sectors, Jagan appears hostile to striking business deals and networking with potential investors.

The previous TDP government had promoted Andhra Pradesh as ‘sunrise state’ across the globe and was successful in attracting big-ticket investments such as Kia Motors to the state. Naidu was a regular participant at the World Economic Forum at Davos and created a 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 the Department of Industrial Policy and Promotion data.

Jagan, however, is yet to show any appetite for attracting investments like his predecessor. 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 in May.

The Information Technology Minister M Goutham Reddy questioned in the Assembly recently as to why the earlier 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?”

Shield investors

“Jagan’s vendetta politics and harassment of investors has not only led AP into a sinkhole, but has also created serious doubts in the minds of investors about the sanctity of agreements in the country,” Chandrababu Naidu said.

Referring to a report that the Centre was mulling a new law to shield global investors from the unilateral and whimsical cancellations of contracts by the state governments, he said, “We welcome such a law that discourages state governments and despots from arbitrarily cancelling contracts.”

Another move that caused consternation among the businesses circles is the rule making it mandatory for the private sector to reserve 75 percent of jobs to locals in industries and factories.

This applies to ‘already established and to be established’ industries. The act stipulates that all private industries 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 wooed the industry to create a manufacturing base in a state which has remained largely agrarian.

Interestingly, AP has been a net out-migration state, as opportunities for jobs are very limited in the state after Hyderabad went to Telangana following bifurcation.  Thousands of Andhra IT professionals work in the software industry located in Hyderabad, Bangalore and Chennai. It is also because of lack of opportunities in the region that the educated Andhra youngsters continue to migrate to the United States in large numbers.

Warning signals

In August, Japanese ambassador to India Kenji Hiramatsu, in an unusual communication, cautioned Jagan against the arbitrary review of power purchase agreements in renewable energy sector and also raised concerns over the investment climate in the state.

The missive reflected a general sense of unease gripping business circles. “Many foreign investors, including Japanese companies, are now watching closely the situation unfolding in your state regarding the renewable energy sector,” Hiramatsu told the CM in his letter.

Advocating prudence, Naidu tweeted that Jagan should give up his “obduracy and at least listen to what foreign countries are saying”.

The decision to reopen renewable energy contracts has drawn criticism, not just from the central government but also from the governments of France, Canada and Japan. The investors claimed that it could put at risk 5.2 gigawatts (GW) of solar and wind energy projects, with an estimated debt exposure of more than ₹21,000 crore. The global investors in Andhra Pradesh’s clean energy space include Goldman Sachs, Brookfield, SoftBank, Canada Pension Plan Investment Board and World Bank’s International Finance Corp.

Centre unhappy

The Centre has conveyed its displeasure over cancellation of contract for a major component of Polavaram irrigation project. Union Jal Shakti minister Gajendra Singh Shekawat had said that it would delay the project. The Polavaram Project Authority (PPA), a body of experts appointed by the Centre, also voiced concerns over possible delays and escalation of costs.

The PPA did not concur with the state government’s argument that there were irregularities in the works awarded by the previous government and gave a clean chit to the Navayuga Engineering Company Limited (NECL), causing a major embarrassment to the government.

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