Independence, IT and Irrigation: The economic prospects of India's wanna-be state

Simon Harding

A great debate is raging in the giant south-eastern state of Andhra Pradesh (AP). A powerful movement in Telangana, a large region in the north-west of the state, has long campaigned to break away from AP and form a separate Telangana state within India. In recent months, these dissenting voices have become a mass chorus. Violent street protests, crippling strikes in AP's capital, Hyderabad, and a pro-Telangana politician's pledge to 'fast until death' have brought the Telangana issue to the attention of the nation and the Government of India in Delhi. After initially appearing supportive of the new state, the ruling Congress government has responded to intra-party discord on the issue by stalling the process and calling for talks with the myriad of parties involved. The future of Telangana hangs in the balance.

In the past India has divided its territory along linguistic lines. The 1956 State Re-Organisation Act saw fourteen states created on the basis of common languages. These states, like Orissa, Kerala and Tamil Nadu amongst others, form the basis of today's map of India. But Telangana and AP share a common language: Telugu. The differences between the state and it's upstart region are more historical and cultural. Until 1947 AP was under direct British rule, but Telangana was an independent princely state ruled autocratically from Hyderabad by the Nizam. British influence did not extend far into the Nizam's domain. After independence, the Nizam wanted to remain autonomous or, being an Islamic ruler, to join Pakistan. However, India's size and military might prevailed and the area was merged with AP in 1953. Yet Telangana retains its own culture and a Telugu dialect heavy with Urdu words unheard in coastal AP. Since the merger with coastal Andhra, pro-Telangana activists complain, Telangana's resources - its coal, forests and minerals - have been exploited by a small Andhra elite, depriving the region of the benefits of its own natural abundance. Telangana, they claim, is exploited and remains under-developed by the Andhra-centric state government: 70% of AP's river catchments are in the Telangana region, argue pro-Telangana activists, yet less than 10% of the water is allocated for the Telangana region. The vast majority goes to coastal Andhra. Education spending paints a similar picture with coastal Andhra receiving six times the funding given to Telangana, even though the two areas have roughly equal populations. In terms of business, one Andhra businessman, it is alleged, controls 65% of industry in the break-away region. Whilst both camps may disagree on the causes, that Telangana is poorer than coastal Andhra is beyond question.

Since independence India has been dividing itself up in ever more intricate ways. The national map now resembles crazy-paving. Telangana is not the only region currently campaigning for statehood: Bundelkhand wants to leave UP, Gorkhaland is trying to break away from West Bengal and guerrillas have long fought for a separate Bodoland in the north-east, but Telegana is the most vocal, has the highest profile and is most likely to succeed in the near future. However, the economic performance of new states is variable to say the least. Statehood has been no guarantee of economic development and the economic viability of Telangana is hotly contested.

Statehood proved to be a lifeline for Harayana and Himachal Pradesh, which were carved out of Punjab in the 1960s. Independence allowed these formerly backward regions to grow into two of India's richest states today. For Jharkhand and Chartisgarh, separated from Bihar and Madhya Pradesh in 2000, self-government has made little difference as they had long been quasi-separate entities within their former states with their own resources, metropolitan centres and banking practices, which saw their funds circulate via Calcutta rather than the state capitals in Patna and Bhopal, respectively. Separation was swift, smooth and business was not unduly disrupted by the transition to statehood. The splintering of Assam into no less than seven states in the 1970s has, however, been economically disastrous for the whole north-east region. Most of the new states are too small to generate a viable internal market and have few native entrepreneurs. They are reliant upon Bengali businessmen moving from Calcutta and hand outs from the Central Government in Delhi.

How would an independent Telangana fare economically? This question has fueled heated debates between the pro-Telangana and pro-United Andhra camps. The answer depends on the future of the rural economy and of the bustling state capital Hyderabad, which sits deep within Telangana territory.  

Rural Telangana is dry and arid. Neither rice nor wheat, India's two staple crops, will grow. Despite two major rivers, the Godavari and the Krishna, and their numerous tributaries, little of the farmland is irrigated. Faced with barren land, poor crop yields and mounting debts, many farmers commit suicide (150 in August 2009, according to farmer's groups). The stagnating rural hinterlands, argue critics of independent Telangana, cannot provide enough revenue for a fledgling state and may decay further during the upheaval of the separation process and the inevitable lengthy aftermath.

However, India has a vast seed bank. There are 400,000 varieties of Indian rice alone. Given some research and some investment, the parched lands of rural Telangana could be made to bear fruit. This may mean looking beyond the basic rice-wheat dichotomy towards hardier crops like millet. Coastal Andhra is criss-crossed by irrigation canals; Telangana relies on a scattering of rudimentary bore wells: invest in irrigation and there is no reason why farming cannot take off in the region and contribute to growth

Whilst agriculture is important to inclusive economic growth, it is the fate of Hyderabad, the state capital of four million inhabitants, which arouses the fiercest debates. Hyderabad is the Telangana region's only significant urban centre. It is also the state capital of Andhra Pradesh and the source of 60% of the state's revenue. Both sides are fighting for the city, which in the last two decades has emerged as a hub for ICT, bio-tech and pharmaceutical companies. Microsoft, Dell, Google and GlaxoSmithKline are among dozens of multi-national companies with a presence in the city. They join local IT giants Infosys, Wipro and HCL. Contributing 18% of India's ICT income, Hyderabad is second only to Bangalore in the service sector. Pro-Telangana activists insist that Hyderabad must be the capital of the new state whilst the opposition claim that the city must stay with AP because much of the domestic investment comes from areas of AP outside the Telangana region. Without Hyderabad, an independent Telangana would be doomed to economic ruin.

Even if Hyderabad were to be gifted to a new Telangana state, its economic future is far from secure. Any incoming state administration would have to take active measures to calm investors, local and international alike. The service industries upon which the city depends are 'footloose'. Violence, unrest or difficult new regulations could drive business from the city, most likely to arch-rival Bangalore, just five hundred miles to the south or Chennai, the rapidly expanding capital of neighbouring Tamil Nadu.

Most of Hyderabad's businessmen are from other parts of India: they have few ties to the city and would happily follow their money south. Telangana has few native entrepreneurs to take their place and, as yet, an economic 'plan B' is neither imminent nor in the pipeline. Dependence on outsiders, their money and entrepreneurial skills means that Hyderabad can ill-afford a repeat of the recent two-day pro-Telangana strikes, which paralysed the city. The shutdown cost local businesses Rs. 1 billion (GBP 13.5 million), the brunt of which was born by small enterprises. The whole urban economy was affected by the disruption to traffic transport services. “We have requested the political parties to ensure law and order,” said JA Chowdary, President of the Hyderabad chapter of Indus Entrepreneurs, “students are going in for violent agitation and do not allow buses to ply and creating problems for people trying to reach their offices”.

The strike also caused significant falls in the share prices of several major Hyderabad-based ICT companies. Following the shutdown, property companies in Chennai reported interest from a number of high-profile ICT firms, fed up of interruptions to their operations in Hyderabad. “Six companies, including top five in ICT operating in Hyderabad want to shift by the end of January”, said Chennai-based property developer, M Murthi.

The negative impact of the strike has the potential to reach far beyond the state. Pharmaceutical companies in Hyderabad manufacture around 90% of the medical requirements of African markets. Disruptions in production cost money and jobs at home, but could cost lives elsewhere. Another strike-related hit on the stock market may prompt even more large businesses to reassess their operations in Hyderabad. If a few major players re-locate scores more companies, investments and events could follow suit. 

With careful planning Telangana has the potential to become a viable state. Independence from AP could provide the opportunity to harness unfulfilled capabilities, just as Harayana and Himchal Pradesh boomed after breaking away from Punjab. In the capital of the potential new state, a smooth and speedy transition is vital. The onus would be on the new state government to actively reach out and provide assurances to both local and international businesses, squash anti-Andhra and anti-outsider sentiment and secure Hyderabad's place as an ICT powerhouse and a stable and business-friendly place to invest. But, it must not overlook rural Telangana, else one of the cries of the pro-Telangana movement – against rural underdevelopment in Telangana at the hands of the AP government – will become an old and empty slogan. Irrigation, diversification and sensible environmental policies would need to be rolled out in rural areas in order to ensure that the rural economy is not left behind as Hyderabad booms. With some shrewd planning, Telangana might just do more than sustain itself. It may prosper.