Telangana Formation – Net Positive for Hyderabad and Andhra Pradesh

The recent decision of the ruling United Progressive Alliance (UPA) coalition in India to establish Telangana as a separate state in Andhra Pradesh has evoked mixed political response, ranging from cheers in some quarters to resignation and protests in others.

From a global sourcing perspective, Hyderabad – the capital city of Andhra Pradesh – is one of the prominent Indian business centers that has attracted significant investments from giants such as Microsoft, Google etc.  During the past two years or so, however, the Telangana issue has raised fears of unrest and strikes in Hyderabad, creating uncertainty in the business environment and a distinct slowing of sourcing industry growth.

While a number of issues are involved, overall the decision is a net positive for Hyderabad:

1. Clarity on the long standing issue (which has been under consideration for over 12 years) removes lingering fear, doubt and uncertainty
2. The declaration of Hyderabad as the joint capital for 10 years should encourage investments and a positive business climate in the city
3. Similar decisions to create smaller states from other large states have in the past been generally considered successful.  There is concern, though, that such actions will further encourage these developments in other states (12 additional new state formations have already been discussed in the media at varying degrees of demand intensity)
4.  In the future, establishment of a new capital city of coastal Andhra Pradesh will likely result in promotion plans and potentially huge investments, creating an opportunity to set up new sourcing delivery centers in addition to Hyderabad. A smaller state will be easier to administer for welfare programs, managing state policies and providing benefits to inhabitants – at least in theory

Simply put, it appears to be a positive move for business in general and, in particular, for export business that leverages talent from the State. While s the break-up certainly creates additional political constituencies that can serve the interests of the political class hungry for power, time will tell if it also results in accelerating the economic goals of poverty reduction through higher GDP growth. Ultimately, cleaner public governance – rather than separation of territories – is needed for real impact.

About the author

Dinesh is a highly experienced and well-respected advisor in the outsourcing industry with more than 23 years of experience in management consulting and outsourcing. He works with enterprises to craft sourcing strategies, structure and negotiate complex sourcing transactions and design and implement sourcing governance organizations. Prior to joining ISG, Dinesh worked with Infosys and Accenture, where he led large transition programs and consulted on IT strategy and implementations, business process-reengineering and operational improvement programs. He is a published thought leader and a regular speaker at industry conferences. Dinesh manages the ISG India Business.