India’s Telangana State: An Investor’s Guide
Telangana is facilitating ease of doing business through progressive policy measures and industry-linked incentives that will encourage foreign companies to choose it as an ideal location to set up in India.
The state of Telangana is located in southern India, surrounded by the states of Maharashtra, Chhattisgarh, Karnataka, and Andhra Pradesh. (It is one of India’s youngest states, formally inaugurated on June 2, 2014, and carved out of the state of Andhra Pradesh.)
Telangana contributes to one-third of the total production in India and is responsible for one-fifth of the items produced for export in the overall pharmaceutical sector. Its capital city, Hyderabad, is as a major IT hub and the second highest contributor to India’s IT exports.
The state is also a leading producer and exporter of horticulture crops and contributes to sustainable sectors, such as sericulture and fisheries. The third largest pool of resources for inland fisheries in India is located in Telangana.
Telangana has friendly policies in place for foreign companies and in addition to its mature IT and IT-enabled services industry, the state has set up a number of manufacturing units in the pharmaceutical, food processing, and electrical equipment industries.
Telangana is the second ranked state in terms of ease of doing business and has maintained this position during the last three consecutive years. In the category of landlocked states, Telangana ranked second in India’s Export Preparedness Index for 2020.
This is due to the state’s well-built infrastructure of roads, national highway network, and international airports that connect Telangana to both domestic and international markets.
Special economic zones
Telangana is home to 67 notified special economic zones (SEZs) and 30 operational special economic zones, which is the second-highest number of operational SEZs in India.
In 2019-20, Telangana’s exports were worth US$7.3 billion, contributing more than 2.5 percent to India’s net exports. Foreign direct investment (FDI) inflows received during October 2019 and September 2020 stood at US$1.34 billion. Since 2015, Telangana has attracted FDI worth US$11.5 billion.
Contribution by economic activity
The state has also seen a pattern of rising growth in its gross state domestic product (GSDP), which refers to the market value of all finished goods and services that have been produced within the state in a specific amount of time. In 2019, contributions from the agricultural, fishing, and forestry industries under the primary sector rose to INR 1.35 trillion (US$18.43 billion) from INR 1.13 trillion (US$15.43 billion) in 2018 and INR 1.02 trillion (US$13.98 billion) in 2017. Per capita income, at current prices, rose to INR 228,216 (US$3,116) in 2019 from INR 91,121 (US$1,244) in 2011.
Telangana’s gross state value add (GSVA), which is the value of finished goods and services that have been produced after deducting the cost of raw materials utilized in producing them, rose to INR 8.74 trillion (US$119 billion) in 2019 from INR 7.74 trillion (US$105 billion) in 2018.
Industries from the primary, secondary and tertiary sectors contributed to this overall GSVA value. Primary sector industries, such as agriculture, fishing, forestry, and mining and quarrying activities, contributed INR 1.62 trillion (US$22.12 billion) or 18.6 percent. Secondary sector industries, such as manufacturing, water supply and construction, contributed INR 1.42 trillion (US$19.39 billion) or 16.2 percent. Lastly, tertiary sector industries, such as financial services, real estate professional services, and public administration services, contributed INR 570 billion (US$7.78 billion) or 65.2 percent.
Education and talent pool
Hyderabad is a well-established investment destination in India, resulting in its mature education ecosystem at all levels, including international schools, higher learning and technical institutions, and research-based institutions. In 2020, Hyderabad’s state government allocated INR 104 billion (US$1.42 billion) for school education and INR 17.23 billion (US$235 million) for higher education in a bid to improve maintenance of student residences, fee reimbursements and scholarships. This feeds into the creation of a diversified and highly capable local talent pool, besides attracting human capital from other parts of the country.
Below is a list of a few of the prominent educational institutions located in Hyderabad:
- The University of Hyderabad – established in 1974 and offers courses in science and technology, medical sciences, humanities and social sciences;
- Dr. B. R. Ambedkar Open University – established in 1982 and specializing in a variety of courses;
- English and Foreign Languages University – established in 1958 and specializing in language studies;
- Indian Institute of Technology – established in 2008 and with courses specializing in AI, design, engineering, liberal arts, mathematics, and pure sciences;
- International Institute of Information Technology – established in 1998 and specializing in technical research;
- Institute of Chartered Financial Analysts of India – established in 1984;
- Jawaharlal Nehru Technological University – established in 1972 and specializing in engineering; and
- Nalsar University of Law – established in 1998 and specializing in law.
Incentives for industrial projects
The government of Telangana is interested in facilitating mega projects. A mega project refers to an industrial unit of strategic importance that aims to either create over 1,000 jobs or procure capital FDI over US$30 million.
To realize this goal, the government has implemented the ‘Meet or Beat Policy’, wherein it will match or offer better incentives than any other states in the country to attract the foreign investment.
The government will also offer incentives to separate industrial units (mega projects) directly in order to procure specific investments from them.
Success from these mega projects is meant to realize the overall goal of industrialization that will further drive industrial innovation in Telangana, as well as aid in creating a business regulatory framework that will make it easier for new businesses to enter into and invest in the state.
The following table describes the particular incentives that Telangana will offer and their details.
The food processing industry is one of the state’s 14 key industries. Telangana has a strong agri-food material base that contributes 25 percent to the production of agricultural output. With its additional capacity in the seed and poultry segment, Telangana has the potential for the establishment and promotion of organized meat processing and cultivation of exotic vegetables. It can also further develop its inland fisheries sector and develop greenhouses.
Currently, Telangana has over 40,000 food processing units worth US$32.75 billion, four major food parks worth US$67.37 million, and seven integrated cold chain projects worth US$28.48 million.
Major multinational companies invested in Telangana’s food processing industry include Coca-Cola, Hatsun Agro Products, Plant Lipids, and ITC Limited.
Telangana’s IT sector has experienced quick growth, the state’s contributions to information technology and its services are fundamental to India’s global appeal in this area.
To continue further growth via foreign investments, the government is setting up a number of export-oriented units (EOUs), software technology parks (STPs), and SEZs that will interest foreign investors.
Recently, the formation of an Information Technology Investment Region (ITIR) near Hyderabad was announced, which will be responsible for the creation of 1.5 million direct and 5.3 million indirect IT jobs in the coming five years.
Currently, the IT sector is made up of over 1,500 companies that employ over 580,000 persons and provide indirect employment to 700,000 persons.
In 2019-20, Telangana’s IT exports rose by 17.93 percent and were worth US$17.63 billion.
Just recently, the Telangana government announced Amazon Web Services will establish data centers in Hyderabad with a capital investment of US$2.77 billion.
In 2019-20, Telangana’s manufactured electronics contributed US$10.46 billion to the total production of electronics in India. Currently, Telangana contributes six percent to India’s total electronics production and employs over 50,000 persons in over 250 electronics manufacturing companies.
To further grow the electronics sector, the Electronic System Design Manufacturing (ESDM) Policy was launched in Telangana. Currently, two ESDM clusters, the e-City Manufacturing Cluster Limited and the Maheshwaram Science Park, spread across 602 acres and 310 acres, respectively, are trying to gain foreign attention.
Recent multinational investments in this area have come from Apple, HFCL, Micromax, and Resolute. Mobile makers OPPO and OnePlus are working towards establishing design and development centers in the region that will create over 1,000 technical jobs in the sector.
Besides support for foreign investors, the Government of Indian government has also launched three polices to facilitate growth in the electronics sector. The table below summarizes these policies.
Additionally, there are four sub-sectors that operate under the electronics sector. These sectors and their functions in brief, are as follows:
- EV and power electronics industry
- component production for electric vehicles, drones, and energy storage systems
- Fabless chip design industry
- conducts electronic design automation and prototyping
- Medical electronics devices industry
- the Medical Devices Park in Telangana, the largest in India, is also home to the largest coronary stent manufacturing facility in Asia
- Strategic electronics industry
- avionics manufacturing and sourcing for the defense industry
Textiles and apparel
Telangana is the third largest producer of cotton in India, producing five million bales of cotton that account for 15 percent of India’s total production. Accessible resources have also enabled the growth of the spinning industry.
Telangana’s textile industry is empowered by the efforts of its native locals who have a historical association with this industry. The industry accounts for 50,000 power looms, 17,000 handlooms, 120,000 handloom weavers, 627 weaver cooperative societies, and two textile parks: Kakatiya Mega Textile Park and Sircilla Apparel Park.
Investments from major companies, such as Welspun, Sitaram Spinners Pvt. Ltd., Ganesha Ecosphere Ltd., and Kundana Technotex Pvt. Ltd. are responsible for the industry’s further growth.
Currently there are also plans proposed to establish nine leather parks across the state.
Incentives for start-ups
Telangana is also interested in the development of an innovative start-up ecosystem that will support its industry and R&D capacity.
Telangana is working towards implementing exporter-friendly policies and developing necessary modernized infrastructure.
Telangana has adopted the following strategies to increase its exports:
- Liberalization of the current export regulatory framework;
- Optimum utilization of resources in building excellent infrastructure;
- Creating an effective monitoring system;
- Ensuring institutional coordination;
- Further development of key sectors; and
- Preparing an institutional export framework.