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Andhra Pradesh: Prosperity through ports

By Revendra (@adj_r_squared)

The pre-bifurcation Andhra Pradesh governments focused extensively on the Hyderabad-centric development of IT, pharmacy and manufacturing sectors, and overlooked the potential offered by the vast 940-kilometer coastline. In 2014, the successor state was left with one major port — Visakhapatnam, and though 14 non-major ports were notified —  only 4 non-major ports — Kakinada (deep and anchorage), Gangavaram, Krishnapatnam and Ravva are operational. The ports were operating at 65% of their total capacity, and their snail-paced expansion coupled with the failure to add the complementary facilities did not provide distinct advantages to tap this sector, and generate immediate revenues.

Coastline and the distribution of Ports in States of India

Coastline and the distribution of Ports in States of India

Cargo handled

In 2013–14, the Vishakhapatnam Port and the non-major ports handled cargo of 59 and 58.94 MT respectively. Based on the cargo handled state-wise, the non-major ports of Andhra Pradesh stood second and the Visakhapatnam port stood fourth in India, together handling 12.25% of (117MT) of the total cargo moved through the sea in India. The total cargo handled by non-major ports from the state was increased to 71.3 and 72.7 MT in FY2014–15 and FY2015–16 respectively. While the current capacity of these non-major ports is 180 MT, over the next few years, the projected 707 MT of total capacity will be added these ports.

Total Cargo handled

Vision to develop economy through the ports

Dr. Arvind Panagariya, Vice Chairman, NITI Aayog proposed a Shenzhen-style Coastal Economic Zone (CEZ) on the eastern coast near deep-draft ports. Fortunately, the state has three deep draft ports — Vishakhapatnam (16.5 m), Krishnapatnam Port (18.5 m) and Gangavaram Port (20.2 m) — which can attract bulk cargo. If the opportunities are exploited, the cargo movement for ports in Andhra Pradesh is estimated to constitute 10% GSDP by 2024 and 12% GSDP by 2030. The Government of Andhra Pradesh (GoAP) is planning to develop 18 ports — 6 currently operational, 6 under development, and 6 identified, to act as a gateway to East and South East Asian regions, and is envisaging to compete with Singapore as a ‘Logistics Hub’. In addition to handling cargo throughput of over 1000 MT a year, GoAP is working towards developing few ports for ship building and repairs.

To realise this vision, the GoAP passed the Andhra Pradesh Maritime Board Bill that was pending since 2005. After drafting policies, and getting the legislative and cabinet approvals, the focus has shifted on short- and long-term activities to boost quantum of cargo conveyed, and encourage associated sectors to invest and grow in the state. Four of the initiatives pursued by GoAP are worth mentioning.

  • First, connect and improve existing railways and roadways (four lanes and two lanes) to these ports.
  • Second, attract existing domestic manufacturing firms to export from these ports, especially from the neighbouring states of Telangana, and Chhattisgarh, and promote export-oriented domestic industries in the state. Kakinada port, the nearest to Telangana, is poised for growth in petrochemicals sector, and will be benefited from the dry port sanctioned at Bibinagar in Nalgonda district. The Visakhapatnam Port Trust is planning to set up dry ports in Telangana and Chhattisgarh, and the highway between Raipur and Visakhapatnam is being widened to four-lanes.
  • Third, the country is dependent on import of petroleum products, coal, iron ore, fertilizers, and other shipments through containers. Development of refineries, Floating Storage Re-gasification Units (FSRU), LNG terminals, etc., along the Andhra coastline, will facilitate the imports from these ports.
  • Fourth, develop multi-modal connectivity, supply chain and logistics infrastructure for efficient usage of ports. To achieve the same, the GoAP is planning to attract investments of Rs. 84,000 crores for ports and shipping industry in the state. Further, GoAP has promised to help acquire land — own or lease, provide fresh water, and power supply to these investing companies.

These initiatives are in line with the priorities of Sagarmala identified by the Ministry of Shipping, Government of India.

Scenario of ports in Andhra Pradesh. Source: Andhra Pradesh Port’s Department

Seizing the opportunities

The ports in Andhra have the potential to become hubs of transshipment for cargo headed towards Myanmar and Bangladesh. The Government of India is also promoting trade between the states on the East Coast and North-Eastern states through Bangladesh. The ports from Andhra are seizing these opportunities. The Krishnapatnam Port is already facilitating the shipments carrying cotton to Chittagong, whereas the Food Corporation of India has shipped 35,000 tonnes of rice from Visakhapatnam port to Tripura via Bangladesh.

The investments, opportunities, and initiatives will undoubtedly transform the trade and commerce activities on the coastline. It will also create jobs, and contribute significantly to the economy of Andhra Pradesh. However, the economy of ports are tightly coupled with the global economy, and a recession may have debilitating effects on the sector. A small shock was experienced by both ports in Kakinada due to fall in the exports. An optimal composition of imports and exports should be identified, trade activities with stable and growing economies must be promoted, and the government should sponsor research in this sector to keep track of trends, risks, and opportunities. Andhra Pradesh is poised to prosper through the developments of ports.

[Views in this article belong to the author. It is part of a blog series tracking governance in the reorganised Andhra state]

By Revendra (@adj_r_squared)

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How is Reorganised Andhra Pradesh doing on the economic front?

By Revendra (@adj_r_squared)

Soon after the formation of a new state government in July 2014, the Government of Andhra Pradesh (GoAP) made a careful assessment of the weaknesses, strengths, and opportunities in the State, and noted that

The bifurcation of Andhra Pradesh has compounded the problems of the residuary State as it is now not only a revenue deficit State but also without an adequate industrial base as well as physical, social and educational infrastructure. Hence, the plan of the new Government is to generate large scale employment and wealth for the people, create a stable industrial ecosystem for sustainable development and catalyse the agriculture sector by bringing synergy with industry for inclusive growth.

In short, Andhra Pradesh is starting from the scratch for becoming an investments destination. Since then, GoAP came up with attractive policies, promoted the brand Andhra Pradesh, and created a conducive business environment. Further, an ambitious target was set — to create 5000 start-ups and establish 100 technology incubators in the state by 2019, and  bring down the approval time for businesses to an average of 14 days in 2016–17, as compared to an average of 21 days in 2015–16. GoAP is aggressively promoting agro & food processing, life sciences (pharma, bio-tech & medical equipments), textile & apparel, electronics & IT, aerospace & defence, automobiles & auto-components, petroleum, chemicals and fertilizers, energy, mining, and leather sectors.

The efforts of the state government have not all been in vain; the Department of Industrial Policy & Promotion (Govt. of India) ranked Andhra Pradesh second in the ease of doing business index. Few months after this ranking, in March 2016, National Council of Applied Economic Research (NCAER) published a State Investment Potential report and ranked Andhra Pradesh third among the 30 states in India. In the report, AP was ranked 18th in demand for electricity, 12th and 14th in rail and road density, 14th on ICT readiness index, and 17th on net annual ground water availability. Though the state is limping on poor infrastructure, it was ranked 2nd in the overall economic performance. On political and governance the state confronts the challenges of the Maoist insurgency, increasing economic offences, political leaders with serious criminal charges, and lack of police strength. Most of these governance limitations stem from the post-bifurcation fiscal and administrative issues which will take few years to improve.

While competing well on political and economic indicators, the human resources are ready, offering a huge potential for growth of the state. The recent India Skills Report — 2016  noted that Andhra Pradesh has the best performers in English skills, logical and numerical ability, and computer skills in the age group of 22–25 years. Andhra Pradesh also has the largest pool of employable male and female candidates, and also those willing to take internships, and interest to work within 0–2 lakhs of annual salary. However, the report observed

Though Andhra Pradesh has lot of available, employable talent the industry presence is not that high.

The lack of opportunities to the skilled personnel is visible.

On the ability to attract the investments, a recent article on Times of India noted that between 1991 and 2014 (prior to the dismemberment), Andhra Pradesh has received 4.67% (41,860/ 8,96,000 crores) of total proposed investments. Since 2014, GoAP signed MoUs worth 6 lakh crores for investments of which only 1% of total promised investments were realised. The GoAP’s version is that 800 firms with 5 lakh crore proposals were received in the last 2 years, of which 417 firms with an outlay of 1.23 lakh crores are work in progress. Officials claim that 25,000 crores of investments in health and education sectors are in the pipeline, and 2,000 crores were disbursed for bailing out sick MSMEs in the state. Further, Andhra Pradesh State Investment Promotion Board (SIPB) has recently approved proposals worth Rs 9,200 crore (US$ 1.35 billion). Though the GoAP has been toiling and trying all the tricks, the realised investments are disappointing but not disheartening. These lower levels of realised investments may have three implications.

  • First, the political. The opposition has questioned the accuracy of the information on investments, and demanded the release of a white paper on investments flow into the state. The foreign tours of the Chief Minister and other government officials have been criticised widely, and the credibility of the current dispensation will be at stake if the proposed investments fail to materialise.
  • Second, the credibility of the brand Andhra Pradesh. Despite the 2nd rank on ease of doing business index, the investor-friendly policies, and development and growth-oriented government, the lower levels of the realised investments cast doubts over the potential of the brand Andhra Pradesh and the boastful claims of politicians on the investments.
  • Third, the migration of the skilled labour. The slower pace of realised investments suggests that the industrial formation in the state is low leading to the migration of skilled labour to other states or countries, which is further creating a shortage of manpower for the proposed firms recruit and start the operations in the state.

While not questioning the current strategies of pursuing the national and international investors, the administration should improve the bureaucratic capacity to facilitate the investing businesses to start operations and create the jobs. The enthusiasm shown in signing the MOUs for investments will have an impact only when the strategies are executed to materialise the proposed investments.

[Views in this article belong to the author. It is the first part of a blog series tracking governance in the reorganised Andhra state]

By Revendra (@adj_r_squared)

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