Building the Abode of Gods...From Scratch

In 2014, a southern state of India, Andhra Pradesh, was bifurcated to form the separate state of Telangana. Economically speaking, Andhra Pradesh was left with literally nothing. It did not have a major metropolitan city. Nor did it have the financials to develop one. Overnight after bifurcation, the state was deep down in debt. It had lost its capital and major source of revenue, the high-tech city of Hyderabad. Section 5(1) of the Andhra Pradesh Reorganization Act, 2014 mandates that Hyderabad will be a common capital for a period not exceeding ten years (i.e. till 2024). However, the geographical location of the city made it inconvenient for the new Andhra Pradesh government to govern from Hyderabad. Now, without a capital, how does a government function and make plans for the state? After all, state capitals are centers for administrative activities and policy formulations. Most importantly, a capital gives the state a sense of identity. Thus began plans for the construction of a new, world-class capital city of ‘Amaravati’- the Abode of the Gods. The ambition as grand as the name.

In the 2014 Assembly elections, N Chandrababu Naidu of India’s Telugu Desam Party became the Chief Minister of the state. Soon, the government set up committees to finalise the area for capital construction. Amaravati was chosen by the end of 2014. There are many reasons for this selection. First, the proposed region is at the centre and is equidistant from every corner of the state. The second reason is the availability of water. The proposed capital city is situated on the banks of the river Krishna. It also has a barrage constructed which could hold up to 1 TMC of water. The third is the ease of connectivity. Amaravati is not more than 400 km from Hyderabad, Chennai and Bengaluru, capital cities of states that neighbour Andhra Pradesh.

Upon deciding the capital, the government constituted the Andhra Pradesh Capital Region Development Authority (APCRDA) in 2014 for planning, supervising, executing, financing and developing the capital region of Andhra Pradesh. Its tasks include finalising designs, calling for tenders and administering capital construction. Right from the beginning, the state drew its inspiration from Singapore to build a world-class city. Mr Naidu always talked about how Singapore too had developed from scratch and Andhra Pradesh was in the same position. APCRDA even signed an MoU with the Singapore government for the development of a master plan for Amaravati, which was finalised recently in 2018.

One interesting thing to be noted here is that land for the capital was pooled rather than acquired. This was done to avoid the financial burden that would arise in the form of compensations against land acquisitions. Under this land pooling scheme, the landowners (mostly farmers) who surrendered their lands to the government would get a portion of the developed plots in the capital city after a period of 10 years. A huge 33,000 acres (133.5 square kilometers) was pooled for the construction of the capital city. It is a commendable achievement because the land was pooled in a very short period, that too without a single court case. Mr Naidu played a key role in assuring the fearful farmers that they would lose nothing by sacrificing their lands. To attract investments into the capital (and the state), the Andhra Pradesh government introduced a slew of measures. It eased its industrial policy by introducing a ‘single window clearance’ for industries, under which one can easily obtain all the necessary approvals for the setting up of a business, and avoid red tape thereof. Not only did this place Andhra Pradesh at the number 1 spot in the ‘Ease of Doing Business’ index of India but also helped the state in signing a $500 million deal with the World Bank.

Building a city from scratch is an uphill task. For a state with finances like Andhra Pradesh, it is an economic nightmare. The state is so deep in a financial crisis that a recent White Paper released by the government stated that the state has to go for an overdraft almost every month! Yet, there seems to be non-cooperation from India’s central government. When the Andhra Pradesh Reorganization Bill was up for discussion in the Rajya Sabha, the upper house of the Indian Parliament, the then Prime Minister Dr Manmohan Singh said “for the purpose of central assistance, Special Category Status (SCS) will be extended to the State of Andhra Pradesh for a period of five years. This will put the state finances on a firmer footing.” What SCS means is that the state would get preferential treatment in the transfer of funds from the central government.

However, SCS money never seems to come. It is estimated that construction of the new capital would require a massive sum of ₹330 billion. Out of this, a mere ₹25 billion has been allocated by India’s central government, and only ₹10.5 billion has been released till date. The administrative help from the Indian central government has been delayed too. One example of the central government’s neglect is worth mentioning here. Emirates, a world-renowned airline, sought to fly from Andhra Pradesh and establish a training facility there. It requested the state to provide the requisite land. As aviation is regulated by the central government according to India’s Constitution, this required the centre’s approval. Unfortunately, that approval never came.

Given all these troubles, wouldn’t it have been more feasible for Andhra Pradesh to select an already existing city rather than build a capital from scratch? All this said, building a new capital boosts aggregate demand. A huge amount of money is invested and employment opportunities are generated. However, the government needs to take appropriate steps to invite private investment into the state. Given the high fiscal deficit of the state, 4.5% of the GSDP or Gross State Domestic Product, it is imperative that the state goes hand-in-hand with the private sector because a further increase in fiscal deficit would put the state in a financially critical position. Infrastructural development needs huge investments with a generally long gestation period. It would be burdensome for the crippled economy of Andhra Pradesh to finance such investments. Private investments would ensure that there is no stoppage in the fund flow and the projects are completed duly.

In the erstwhile Andhra Pradesh, excessive economic centralisation took place in and around Hyderabad. Even today, a lion’s share of Telangana’s (the newly formed state) revenue is generated by Hyderabad. It is because all major developmental activities were planned in Hyderabad and less emphasis was placed on the development of other cities and towns. Bearing this experience in mind, the new Andhra Pradesh should be diversified in its development trajectory. Single-city centric development will cost the state dearly (like it did during its bifurcation). The capital should be restricted to administrative uses. Necessary infrastructure should be built in other cities to transform them into major centres in the state.

For instance, Visakhapatnam, or Vizag, in its anglicised form, is a happening port city with a notable presence of the software industry. It has the potential to emerge as a major IT hub and the government should take steps to harness the said potential. Rayalaseema, the southern part of Andhra Pradesh, receives scarce rainfall and is not as feasible for agriculture as the other regions are. On the other hand, southern India is not a manufacturing power in the country. Andhra Pradesh could fill this gap by developing the Rayalaseema region into a major industrial and manufacturing hub. Like the existing Sri City Special Economic Zone (SEZ), a rising industrial hub in the southern part of the state, more of such initiatives can be taken up for the same purpose. The lawmakers should learn from their earlier experiences. They should make plans in such a way that development is spread throughout the state rather than being concentrated in Amaravati. Andhra Pradesh should not repeat its mistakes. And using its scarce funds to create a grand city of Amaravati would be doing so, in fact, one could say it’s already doing so.


Kartik Balaji Kundeti

A low-key individual with keen interest in Economics and Policy making. Currently pursuing Economics from SRCC, University of Delhi.

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