Andhra gains ground in auto sector as TN wrestles with political turmoil

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Andhra Pradesh has set its eyes on attracting investments to the tune of $2 billion, especially from automobile makers. The development comes even as neighboring Tamil Nadu, which is already a hub for the auto and auto-component industry, has been facing political instability.

 

For instance, Kia Motors, which is a part of the Hyundai Group, is in the advanced stages of finalizing its plans in the state, while auto major Hero is expected to commence construction of its new factory in the state at a cost of around Rs 600 crore. An e-mail sent to Hero did not elicit any response.

 

According to a senior official from the Andhra Pradesh government, companies like CEAT, Apollo Tyres, Bhart Forge, Ashok Leyland and others are also likely to invest in the state. Apollo Tyres recently announced that it would invest around Rs 500 crore in Andhra.

 

“In the near term, we are expecting around $2-2.5 billion investment in the sector in Andhra Pradesh. In 2017, you will see a lot of auto, auto-component project executions happening in Andhra Pradesh,” said the official on the condition of anonymity.

 

Kia Motors had conducted a comparative study between Gujarat, Maharashtra and Andhra Pradesh before finally deciding on whether to invest in Maharashtra or Andhra Pradesh. Over the past two-three months, teams from Maharashtra and Andhra Pradesh went to South Korea. Maharashtra’s principle secretary and industry minister, along with the state’s team, and the team from Andhra Pradesh both visited Seoul. South Korean auto major Hyundai Group expects to invest around $1 billion in its new plant in Andhra Pradesh.

 

For any investor, the key factors that attract them are what incentives the states are offering. Since the competition is growing among the states, the key is ‘ease of doing business’ and infrastructure. Andhra Pradesh is placed well in both these aspects. The state has ranked number one in the country and it is also located in two industrial corridors.

 

“The speed with which a company can execute supporting infrastructure and the existence of major infrastructure, which ensures connectivity to the port and better movement on highways etc, is higher (in Andhra Pradesh). While we talk about multiple industrial corridors, there are only three major industrial corridors in the country — Delhi-Mumbai Industrial Corridor, Visakhapatnam–Chennai Industrial Corridor and Chennai-Bangalore Industrial Corridor. We are lucky that we host two of them. That is a big advantage in terms of infrastructure,” noted the official.

 

Further, for an automobile maker, immediate access to the entire south Indian market is another advantage. The companies would be looking at locating themselves in the triangle of Bengaluru, Chennai and Andhra Pradesh. The other option would be to locate themselves in Gujarat, Maharsahtra or Delhi NCR.

 

According to reports, by 2020, Indian vehicle production is expected to touch 46 million units and south India expects to contribute at least a third of this output.

 

Tamil Nadu, which is one of the largest automobile hubs in the country, will have a tough fight ahead to retain its status. Already, the state has lost some of the investments to its neighbour. For example, Japan-based utility vehicle manufacturer Isuzu Motors’ Rs 3,000 crore investment and the Mahindra facility which Tamil Nadu lost to Andhra Pradesh. Now, new investments from Hero; Apollo, which already has a big facility in Chennai; possibly CEAT and Kia, whose parent company Hyundai is also already in Chennai; and others have moved to Andhra Pradesh.

 

Senior industry officials, who spoke to Business Standard on the condition of anonymity, said that the recent political developments in Tamil Nadu, after the demise of the late chief minister J Jayalalithaa, have caused uncertainty. Adding fuel to the fire, the recent political drama halted the state’s administration for nearly two weeks. Last but not the least, access to the decision making authority in the government and corruption are further strikes against Tamil Nadu’s image.

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