****** Is Hyderabad falling out of favor for businesses? ************* The worst fears are coming true for Hyderabad. The Andhra-Telengana bifurcation may be finally starting to a take a toll on the city. According to a report in the Economic Times today, companies engaged in public private projects in Hyderabad are considering re-negotiating their terms with the state government as they expect the importance of the city to come down drastically over the period. The companies that are considering the move include engineering giant Larsen & Toubro, which is setting up the Hyderabad metro, and GMR group, which operates the international airport. Last year, the Telangana government had told the 14th finance commission that the state is likely to witness erosion in tax revenues, pitching for higher tax revenue share. “…The higher revenue collections in Hyderabad was entirely because of the practice of all major VAT dealers paying their tax in Hyderabad for sales taking place all over the State and not because of higher revenue potential. I request the Commission to appreciate the fact that the revenue potential of Telangana is quiet limited as majority of the districts in the State are economically backward and added to this, there will be erosion of tax base in the short to medium term,” K Chandrashekhar Rao had told the commission. His fears are not unfound. A research report by Ernst and Young in May 2014 had warned of such a repercussion. “Enterprises (public/private) operating in the combined state whose headquarters are in Hyderabad may stand at risk of paying a significant share of state taxes in Hyderabad. As a result, the division of such enterprises between the two new states, based on the location of their production facilities, will also divide tax revenues,” the report had said. According to data available from the government website, Andhra Pradesh had witnessed a tax revenue growth of about 20 percent on an average over the last four years. From a tax collection of Rs 35,176 crore in FY10, it grew to Rs 72,443 crore in FY14. In FY15, the Andhra budget estimates the tax revenue at Rs 37,397.67 crore, which is nearly half of last year’s. For Hyderabad, a larger ramification of the development is going to be a drastic fall in people visiting the city. This will impact the businesses there. According to the ET report, L&T has written to the Telangana government to raise their concerns that the metro project may not be viable after the bifurcation. The company has said that “the position of Hyderabad in drawing investments, both from the central government and private sector has altered”, the report says, citing the letter. For GMR too, the concern is a similar one given the state government may be building one more airport in the city, that too just about 150 km away from the existing one. If this plan materialises, the revenue of the one being run by GMR will take a major hit. No wonder the companies are trying to renegotiate the terms of their project contracts. If all these fears turn out to be real, the sector that will take a hit is real estate. After the bifurcation ordinance was promulgated last year, expectations were that the real estate sector will witness a revival of sorts as the political uncertainty over the state cleared. Kalyani Inampudi firstbiz.firstpost/economy/splitting-headache-hyderabad-falling-favour-businesses-103718.html
Posted on: Wed, 08 Oct 2014 13:11:43 +0000
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