Naidu shifts into top gear for Andhra auto hub, gives tough fight to TN

The dynamic CM has an investment pitch based on subsidies and cutting red tape

“A couple of years ago, we met at my house for dinner and in that one hour, he managed to convince me to change my decision to invest in a different state in south India. And that decision had already been taken,” Pawan Munjal, chairman and managing director of two-wheeler major Hero Motocorp, recently said at the foundation stone-laying ceremony for a factory at Chittoor in Andhra Pradesh.

Munjal was referring to the commitment Andhra Pradesh Chief Minister N Chandrababu Naidu had shown to bringing the company's  Rs 16-billion auto project to his state. His story is likely to be one among several told by other industrialists whom Naidu is wooing to attract investments. In the process, he is making his state a putative automotive hub at the expense of neighbouring Tamil Nadu and Karnataka.

Automobile majors poured over Rs 250 billion into the state in 2017-18. These included Kia Motors (Rs 110 billion), HeroMoto Corp (Rs 16 billion), Apollo Tyres (Rs 18 billion), Ashok Leyland (around Rs 3.50 billion), apart from Sundaram Brakes Lining, a TVS Group company, Bharat Forge and 16 memorandum of understandings between  Korean automobile ancillaries and the Andhra Pradesh government worth Rs 47.90 billion. In addition, Suzuki Motorcycle is said to be exploring investment opportunities in the state.

Significantly, many of these companies have green-field facilities that are currently operational in Tamil Nadu. Kia Motors' parent, Hyundai Motor Group, through Hyundai Motor India Ltd, has a big facility near Chennai. Yet they have picked Andhra Pradesh for new investments.

Naidu’s investment pitch is based on three elements: high-level government involvement, cutting red tape and subsidies. “When I was asked to cough up money for an electricity connection for my plant, I decided to approach the Andhra Pradesh government. Since then,  I get regular calls from the chief minister’s office to check if I need any help,” said an industrialist on condition of anonymity, adding that this attention was despite the fact that his project was worth only a few millions.

Others echo is view. Naidu and his team take even the smallest projects seriously. His office personally calls and follows up on projects, said a CEO of an automobile company that is stepping up investments in Andhra Pradesh.

“When we announced that we are planning to expand capacity, the first call came from Andhra Pradesh, instead of Tamil Nadu where we already have a plant. It was sad that even after we announced our intention to expand in Andhra Pradesh, nobody from Tamil Nadu approached us and asked us why,” added the CEO. Easy accessibility to the chief minister and the state’s bureaucrats, industry-friendly policies, faster clearances, proximity to ports and Original Equipment Makers (OEMs) and availability of necessary infrastructure are the key attractions.

“We have some proposals which are being examined. These are predominantly in South India, with Andhra Pradesh and Telangana proactively leading the way,” said Sajeev Rajasekharan, executive vice-president, Suzuki Motorcycle India, the local arm of the Japanese parent.

The state’s good road and rail network are an added draw. “We don’t have water problems. We have a wide network of rail and road connectivity, land and power for industry, and we are also close to ports,” Naidu has said in the past. He has also promised quick clearances for projects through a web-based system.

Andhra Pradesh, according to Naidu, works well for all automakers regardless of their market focus. It is close to Chennai and Bengaluru, has good road connectivity to West Bengal in North India and manufacturers can access the world market via the Krishnapatnam Port in the state.

The state in direct competiton with Andhra Pradesh for auto investments is Tamil Nadu. Studies by Hyundai, Nissan and Ford had earlier found Tamil Nadu to be the most cost-effective destination for manufacturing cars. Between  2007 and 2009,Chennai accounted for 53.41% (worth around Rs 47.33 billion) of India's automobiles export of Rs 88.61 billion. Chennai has the capacity to produce about 1.4 million passenger cars a year, which means three cars every minute. The commercial vehicle manufacturing capacity at 3,61,000 translates to one vehicle every 75 seconds. However, the political instability that followed Jayalalithaa’s death in 2016 has hurt investor sentiments. In the past 24 months, Tamil Nadu has seen only two new investments— a Rs 7-billion powertrain plant in Hosur from a joint venture between French auto major PSA and the CK Birla Group; and a proposed Rs 8 billion investment by Royal Enfield.

Andhra Pradesh, on the other hand, has forged ahead with a number of big-ticket projects. Now, with an eye on the future, Naidu has proposed setting up an electric vehicle park with a plug-and-play infrastructure for manufacturing units to start production right away.He has set a target of Rs 300 billion in investments from electric vehicle manufacturers.

Naidu has put together an elaborate incentive package to realise this goal:land at concessional rate, subsidied power, reimbursement of full state Goods and Services Tax and special incentives for battery manufacturing. Industry captains peg the overall benefit from subsidies at 25 to 50% of the capital cost. The long-term benefts could be even higher.