Corruption and Identity Politics May Destroy Entrepreneurial Opportunity In India’s New Telangana State


Last week, India’s ruling Congress Party endorsed the creation of Telangana, the country’s 29th state, out of 10 Telugu-speaking districts in western Andhra Pradesh. But while many herald the new state’s creation as a potential economic boon in a region that has long received inadequate public funds from local government, in Hyderabad, where both states will maintain a joint capital for the next ten years, bureaucratic tensions and identity politics could potentially tamper gains from increased government investment.

Hyderabad has risen to prominence in recent years as a hub of Indian development, housing the Telugu film industry (Tollywood), the biopharmaceutical and high-tech Genome Valley business district, as well as numerous other enterprises, large and small (including Facebook India’s headquarters). Indeed, much of Andhra Pradesh’s admirable growth and above-average standard of living compared to other states can be attributed to the success of Hyderabad, a source of pride for Telegus.

Those advocating Telangana statehood, most vocally the Telangana Rashtra Samithi party, have long complained that, though the region is home to 41 percent of Andhra Pradesh’s population, it does not receive its fair share of state investment. If the additional attention from more local governance and increased per capita investment pans out—Hyderabad alone accounts for over 75 percent of Andhra Pradesh’s sales tax revenue and will no longer have to distribute this to coastal Andhra—the infrastructural expansion could help Hyderabad as it seeks to compete with other growing cities in southern India, namely the country’s tech capital, Bangalore.

But this all rests on the specious assumption that Telangana’s leadership can create a well-oiled state bureaucracy without the inherent drag that corruption, nepotism, and unnecessary regulation have proven across the rest of India. The fight for a separate Telangana identity has resulted in the deaths of over 400, including 370 from police fire in 1968 and 35 due to suicides during 2009, according to Vinod Jose of The Caravan. Areas in which identity politics dominate—the Shiv Sena-controlled Mumbai slums featured in Katherine Boo’s “Beyond the Beautiful Forevers” are a notable example—tend to reward patronage over technocratic prowess. Does anyone really believe that a single-issue separatist movement can convert itself into a fully functioning government without at least a temporary backlash? With new statewide bureaucratic and political positions to fill, Telangana may very well experience a minor brain and resource drain—a prospect which would not bode well for booming industry or new investment.

And of course, there’s the issue of rival bureaucracies, since both Andhra Pradesh and the new Telangana state will maintain Hyderabad as their capitals for the next decade. That means a new set of rival governments, including some understandably bitter coastal Andhra Pradeshis, bumping elbows and competing over jurisdiction, access, and resources. All of this points, you guessed it, to more corruption, nepotism, and patronage.

So, while the weak rupee and the loosening of Foreign Direct Investment regulation in a number of key industries all point to increased foreign investment for Indian entrepreneurs, it remains to be seen whether this money will pour into Hyderabad. Citizens of Telangana should demand a responsive state government and keep from counting their economic chickens before they hatch.