Reproduced from Business Standard:

The emergence of a new auto hub in southern Andhra Pradesh, mainly in the integrated business region, ‘SriCity’, is posing a new challenge for the neighbouring state of Tamil Nadu. For OEMs, in the backdrop of proposed GST implementation, it will be strategic and cost-effective location, says experts. AP’s Chief Minister N Chandrababu Naidu, seen as an industry-friendly leader, is going all out to sell the zone, especially SriCity. The business region is around 55 kilometers from Chennai, and was established during the previous Congress government by SriCity (P) Ltd.

Last week, Japan-based Isuzu Motors inaugurated its Rs 3,000 crore facility at SriCity. Hero MotoCorp will be laying the foundation stone for its Rs 3,000 crore facility, adjacent to SriCity, this month. Crane manufacturer Kobleco and dozens of Japanese auto component makers have set up units in SriCity.

Advantage Andhra
Access to administration including CM and bureaucrats is easier
Land is cheaper by 50-75 % in SriCity; in Hero’s case it was given almost free
Connectivity to four ports (Krishnapatanam, Vizag, Ennore, Chennai); in contrast, congestion, strikes at port have been a huge challenge for in and around Chennai
Located on NH-5, SriCity is well connected to other parts of the country
Uninterrupted and cheaper power and water for both OEMs and suppliers. In TN, OEMs get power supply round the clock, but suppliers face power cuts
Incentives offered to OEMs are extended to suppliers

It may be noted that Isuzu, Mahindra & Mahindra (tractor division), and Hero MotoCorp had looked at Tamil Nadu and Karnataka, but both states lost out to AP. The Karnataka government even cleared a land parcel of 500 acres for Hero. But Naidu’s incentives and free land prompted Hero MotoCorp to drive into AP instead.

Kartikeya Misra, director Industries,Andhra Pradesh Government said another around Rs 12,000 crore worth of investments will materialise in the next 12-18 months. In 10 years, AP wants to create a strong auto cluster in this region and become a hub and export gateway for south India, said Misra. Masanori Katayama, president and representative director, Isuzu Motors Japan said he was impressed with the motivated bureaucrats in the state. Hiroyasu Miura, chairman, Isuzu Motors India said infrastructure, connectivity and management of SriCity, and hassle-free environment are key reasons that led Isuzu to choose AP.

During Isuzu’s plant inauguration, when Naidu was asked to consider road tax exemption for Isuzu vehicles in the state, he readily agreed. He also extended the incentives available to Isuzu, to its suppliers.   In contrast, one complaint against TN has been the difficulty approaching the state administration. Misra said auto is one of the eight focus sectors for AP for its huge employment generation potential, and added that apart from incentives, a key factor attracting OEMs is ease of doing business.

He claimed that the World Bank ranked AP as number two in India for ease of doing business, way ahead of Tamil Nadu and Karnataka. He added that other factors favouring the state include land cost, quality power for OEMs and suppliers, water, ready made infrastructure, port and airport connectivity and peaceful labour environment.

Land cost in SriCity is lower by 50-75 per cent than the cost in auto clusters of Sriperumbudur, Oragadam and Mahindra World City, in and around Chennai.

While Chennai and Tirupati airports are in close prximity, ports of Krishnapatnam, Ennore and Chennai are just few hours drive. SriCity is located on NH-5 and is close to rail network. Kumar Kandaswami, senior director, Deloitte Touche Tohmatsu India. said once the GST in force the cross border issue will become irrelevant. OEMs will not only be in a location where land is cheaper, but will also be part of an eco-system within 40-50 km from the auto components hub in Chennai.

The challenge for Andhra, however, will be attracting talent and building social infrastructure, whivh may happen over a period of time. On whether it will hurt TN, Misra said at some stage companies intend to look for the second and third option for brownfield expansion as part of their de-risking strategies, while still seeking to be close to customers. He said there are over 70 criteria that a company looks into while evaluating a site.

Tamil Nadu has a lot of catching up to do in terms of power availability to suppliers of OEMs. Andhra Pradesh offers electricity at a highly subsidised rate of 75 paisa a unit. Experts say Tamil Nadu, though it is a power-surplus state currently, cannot afford to slash prices due to the poor state of its discoms.