Volume: 93

Undivided Andhra Pradesh (AP) was the fourth largest state in India in area and fifth in population. It was ranked third in absolute size of gross

domestic product (GDP) and 11th in the country on per capita income. The gross state domestic product (GSDP) in 2012-13 at current prices was

Rs 738,497 crore. Per capita income was Rs 77,277. In the 11th Five Year Plan (2007-12), AP registered an annual growth rate of 8.18 per cent

against the national GDP growth of 8.02 per cent (at constant prices).

However, this story is likely to be different from now, when it splits into Telangana and residual Andhra Pradesh (the coastal Andhra and

Rayalaseema regions). As of now, Residual Andhra ranks 13th in GDP and is 10th in per capita GDP (same position as that of Telangana)

For the remaining 10 months of 2014-15, residual Andhra Pradesh, home to 58 per cent of the 84 million population (2011 Census) of the

undivided state, will have a non-plan revenue deficit of Rs 10,000 crore. This excludes pending financial commitments like the Rs 7,000 crore

reimbursements for power and sales tax concessions to industries.

Excise and stamp duty were the other two important revenue generators in the undivided state, budgeted to collect Rs 7,500 crore and Rs 6,414

crore, respectively, though overall tax growth fell short of target last year. These two streams provide immediate hope for residual AP as 55 per

cent of excise came from Seemandhra. Though contribution from stamp duty is high in Telangana because of relatively large property transactions

in and around Hyderabad, this is expected to balance out once residual AP starts work on its new capital city. Others, however, believe this gap

will widen as Seemandhra misses on the 18-20 per cent average annual growth in stamp duty collection from Hyderabad.

However, a special status as well as the promise to provide funds to build essential infrastructure in the new state capital are targeted to

compensate the loss of Hyderabad to residual Andhra.

On the other hand, the Telangana region, which has 10 of the 23 districts in AP, has prospered from economic benefits of having Hyderabad and

manufacturing base of Ranga Reddy close by, which attracts investors from Coastal Andhra Pradesh and Rayalaseema regions. Post bifurcation of

Andhra Pradesh, the information technology and pharmaceuticals manufacturing sectors may become backbone of Telangana economy, leaving

power production, ports and oil and natural gas to play a pivotal role in driving prosperity in the residuary state.

However, if Hyderabad’s contributions were not included then Telangana’s share of the GSDP pie falls drastically. Other districts in the Telangana

region had registered low per capita income than other parts of the state. Manufacturing activity in Telangana has not seen much progress except

in Hyderabad, Rangareddy and the adjoining Medak and Nalgonda districts.

Telangana Formation: Economic Impact

Telangana, is likely to have a non-plan revenue surplus of Rs 7,500

crore in the same 10 months when residual AP will be having

deficit. This means the plan size of residual Andhra would be

under Rs 10,000 crore while that of Telangana could be Rs 18,000-

20,000 crore.

Difference between economic conditions of Telangana and residual

AP is HYDERABAD.

In Telangana, Hyderabad, with a large concentration of economic

activity, is going to be the main source of revenue. In 2012-13, of

the state's own tax revenue of Rs 51,441 crore, as much as Rs

11,730 crore came from Hyderabad. Revenue from the rest of

Telangana was Rs 17,577 crore, while residual Andhra accounted

for Rs 22,134 crore.

Hyderabad also accounts for 99 per cent of the total of Rs 55,000

crore information technologies (IT) and IT-enabled services (ITeS)

export from the state. Of the 72 notified special economic zones

(SEZs) in AP, 37 are in Hyderabad and its surrounding Rangareddy

district. With an international airport, world-class educational and

scientific institutions, a growing industry and the upcoming Rs

16,500-crore metro rail project, a central location and suitable

weather, experts say Hyderabad will grow on its own. But if there

has to be all-round progress across Telangana, the people in power

have to ensure the development of other districts.

Given the indications, there will be a lot of physical and social

infrastructure development in both the states in future which in

turn would enable industrial development.

Economic Cost of Bifurcation

1) Industrial Parks: About 27 new industrial parks to come up in Andhra

Pradesh are now hanging in balance. Out of 27 IPs, 15 are proposed to be

set up in residual Andhra (Rayalaseema) regions, while the remaining is

in Telangana. This also includes industrial parks exclusively for women

entrepreneurs.

2) Real Estate: Real Estate prices, which haven’t moved since 2009, due to

the Telangana agitation, were driving investors to other cities such as

Bangalore and Chennai. CRISIL Research said in a report that investor

sentiment is likely to improve in the immediate term, which will in turn

lead to demand for commercial office space in the medium term. This will

provide a boost to job creation and residential real estate demand, the

research report said.

3) Land Acquisition: The projects are likely to run into rough weather as

issues such as acquisition of land, revenue and investments would have

to be dealt by the respective state governments. The bifurcation of the

state is also expected to delay execution of National Investment

Manufacturing Zones (NIMZs). The state government has received in-

principle approval for three (NIMZs) in Chittoor, Medak and Prakasam

districts.

4) Power Condition: According to experts, Telangana is likely to face power

shortage of up to 2,000 MW after the state is formed. Of the 8,924.86 MW

installed capacity of state power utility APGenco, about 54 per cent (4,825

MW) is located in Telangana, while 46 per cent is in the Seemandhra

region. However, 52 per cent capacity in Telangana lies in hydro power,

which is available only when reservoirs receive good inflows, while just 48

per cent capacity is available through coal-fired power plants.

Term Loan

Term Loans are asset based long-term (usually for more than one year to ten

years) loan payable in a fixed number of equal installments over the term of the

loan. Term loans are generally provided as working

capital for acquiring income producing assets (machinery, equipment, and

inventory) that generate the cash flows for repayment of the loan. They typically

carry fixed interest rates.

Term Loans are classified into two categories:

A) Intermediate-term loans - Usually for one year to three years, these loans are

generally repaid in monthly installments (sometimes with balloon payments)

from a business's cash flow.

B) Long-term loans. These loans are commonly set for more than three years.

Long-term loans are collateralized by a business's assets and typically require

quarterly or monthly payments derived from profits or cash flow. These loans

usually carry wording that limits the amount of additional financial

commitments the business may take on and they sometimes require that a

certain amount of profit be set-aside to repay the loan.

Term loans are most appropriate for established small businesses that can leverage sound financial statements and substantial down payments

to minimize monthly payments and total loan costs. Term loans require collateral and a relatively rigorous approval process but can help reduce

risk by minimizing costs.

While granting loans banks look for many things like how the borrower has managed other loans, there business experience, ability to pay back ,

Collateral security involved (which should be larger than the amount borrowed ,in most cases), alternate repayment source, condition of economy

etc.

INTEREST RATE = Base Rate + Around 3 points

(*Rates vary from bank to bank depending upon the amount of loan , tenure , credit rating of the company and other factors)

The world’s first bank was The Monte di Paschi Di Siena, Founded in 27 February 1472 and headquarter in Tuscany, Italy. Today it stands out as the oldest existing bank in the world by far, and remains an esteemed bank that has branches throughout Italy.

The Monte di Pietà, or Monte Pio, was established by resolution by the General Council of the Republic, for the purpose of granting loans to “poor or miserable or needy persons” at a minimal interest rate.

Sensex Gold (10 gm)

MCX Metal MCX Agri

Crude Oil ($/barrel) Dollar/INR

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Team Chronicle

Akanksha Srivastava akanksha@investeurs.com

Nidhi Gogia nidhi@investeurs.com

Sonali Yadav sonali@investeurs.com

Harpreet Kaur harpreet@investeurs.com

Disclaimer: Investeurs Chronicles is prepared by Research & Analysis Team of Investeurs Consulting Private Limited to provide the recipient with relevant information pertaining to the world economy. The

information contained in the document is based on the releases made by various newspaper & publications; hence, we are not responsible for any inaccuracies in the information provided.