In Andhra Pradesh, India, New Economic Corridors Create Path to Prosperity | Asian Development Bank

In Andhra Pradesh, India, New Economic Corridors Create Path to Prosperity

Project Result / Case Study | 18 April 2018

Economic corridors can tap India’s huge unrealized potential for manufacturing, spurring industrial development and creating millions of urgently needed jobs.

Atchutapuram, India – For generations, the lush farmland along India’s southeast coast has supported rural communities. Today, some of it is being turned to a very different purpose—leveraging the country’s rising industrial might to forge a new economic growth path.

The township of Atchutapuram is at the center of this effort. The reason—its location.

“More businesses will come. They like the availability of land and the connectivity.” 

Madinem Nagaraja, CEO Atchutapuram Business Association

It’s only 50 kilometers (km) from Visakhapatnam, popularly known as Vizag, the biggest city in Andhra Pradesh state and a vibrant industrial hub serviced by a world-class port, an international airport, and road and rail links. There’s also abundant labor, and land offered at reasonable cost by a state government that is determined to attract investment and create jobs.

These and other incentives have convinced nearly 50 businesses to set up at the Andhra Pradesh Special Economic Zone (APSEZ), which covers 2,500 hectares of land around Atchutapuram.

“More businesses will come,” predicts Madinem Nagaraja, the chief executive officer of the local business association. “They like the availability of land and the connectivity.”

Corridors to connect India with global markets

When they come, the benefits will resonate far beyond Andhra Pradesh. Atchutapuram is the first step in a grand plan to connect India with the global production networks of Southeast Asia and East Asia. It is one of nine industrial clusters making up the Vizag-Chennai Industrial Corridor (VCIC), which will ultimately stretch 800 km from the state’s far north to its southern border.

Economic corridors can stimulate industry by providing infrastructure, logistics, and enabling policy frameworks to connect producers within the corridor with urban centers and international markets. India plans to carve out four corridors nationwide. The VCIC is the initial phase of the first coastal corridor, the East Coast Economic Corridor (ECEC).

The ECEC will run 2,500 km from Kolkata in West Bengal to Tuticorin in Tamil Nadu, opening gateways for Indian goods to such markets as Thailand, Viet Nam, the People’s Republic of China, and beyond.

The Asian Development Bank (ADB) is supporting the VCIC with $631 million in loans and grants to clear infrastructure bottlenecks through new roads, power substations, water supply systems, effluent treatment plants, and drainage systems. ADB also supports the development of reforms to improve industrial policies and business promotion, and to enhance the skills of workers and entrepreneurs.

“Job creation comes mainly from having a globally competitive manufacturing sector.” 

Manoj Sharma, Chief of ADB’s Urban Sector Group

The goal is to tap India’s huge unrealized potential for manufacturing, spurring industrial development and creating millions of urgently-needed jobs.

“Job creation comes mainly from having a globally competitive manufacturing sector,” explains Manoj Sharma, Chief of ADB’s Urban Sector Group.

“By delivering world-class infrastructure and helping to craft pro-business policies, the VCIC can trigger jobs-rich growth for India. This will help the country reap the economic benefits of its overwhelmingly young population.”

Successful economic reforms since the 1990s have unleashed rapid economic growth in India, expected to reach 7.3% this year. But demand for decent jobs is rising too, as 12 million young people enter the labor market each year. Manufacturing is a proven creator of jobs, but has been hamstrung by inadequate infrastructure, complex regulations, poor access to land and credit, and a lack of skilled workers.

The sector contributes only 17% of India’s gross domestic product (GDP), around half the level in Thailand. India’s share of world trade reached just 2.1% in 2013, due largely to low engagement with global production networks used by neighboring countries to manufacture and sell product components, rather than the finished products themselves.

The VCIC could close these gaps in combination with the national government’s “Make in India” campaign to boost manufacturing investment. It will also support the government’s Act East Policy, which seeks to integrate India’s economy with export markets in Southeast Asia and East Asia.

Jobs for a young population

Manne Satyananayana Prasad is counting on those efforts to succeed. He spent 27 years as a product manager at leading Indian pharmaceuticals company Dr. Reddy’s before taking the plunge to set up his own factory at Atchutapuram, making raw materials for medicines.

The site is ideal because it will provide ample clean water and an effluent treatment plant, he says, adding that availability of these amenities is the first question he’s asked by prospective international clients.

“We’re close to cargo ports and Atchutapuram township is only a few kilometers away, so we don’t have to look far for workers,” says Prasad. “Small companies depend on manpower, so we have the ability to create employment.”

KNP Saradhi, zonal manager at the Andhra Pradesh Industrial Infrastructure Corp., which manages the Atchutapuram site, predicts as many as 100,000 jobs could eventually be created there alone. Companies are required to ensure at least 20% of their labor force is from local communities.

“The demand from business is there; everything is already in place,” says Saradhi. A tour of the site takes an hour, along palm-fringed roads where leading Indian companies like Asian Paints and Sundaram Alloys have already built factories.

VCIC to trigger industry boom

The VCIC’s nine industrial clusters are grouped into four so-called “nodes”, each with a slightly different focus. Vizag, which includes Atchutapuram and two other clusters, is the anchor node and shaping as strong in sectors including pharmaceuticals, textiles, chemicals, and petrochemicals as well as steel. A short distance south, the Kakinada node is set to focus on ICT hardware, and investments are planned in food processing and paper.

Further down the coast at the Gannavaram-Kankipadu node, agriculture, food processing, and textiles are among the key industries. Srikalahasti-Yerpedu, the southern-most node, could service the area’s thriving tourism industry as well as manufacture electrical equipment, and is close to Chennai port.

Works along the VCIC will include 138 km of state highways and roads, effluent and water treatment plants, nearly 500 km of piped drinking water, almost 50 km of storm-water drains, 10 power substations, and around 300 km of power transmission lines.

“Industrial output along the corridor will jump fourfold to around $64 billion a year over the next 10 years if investment opportunities can be maximized,” says ADB’s Sharma.

Business-friendly reforms build on new infrastructure

“We are changing fast because we want to change. We must protect the jobs already there and create new ones.” 

Siddharth Jain, Andhra Pradesh Commissioner of Industries

The Government of Andhra Pradesh laid the groundwork for the corridor through reforms making it easier for businesses to set up and operate. In addition to tax and duty exemptions under national SEZ policy, investors can also enjoy streamlined approvals for business ventures and support in gaining access to industrial land, infrastructure, and connectivity.

India is becoming more business friendly, rising from 130 to 100 in the World Bank’s Ease of Doing Business rankings released in 2017. Andhra Pradesh’s investor-friendly stance is one reason for this. In 2016 it jointly topped with Telangana state a ranking of states’ reform performance by the World Bank and the Government of India’s Ministry of Commerce and Industry.

To remain competitive, Andhra Pradesh needs to build on this strong track record. Rich in resources, its economy grew by an average of 7.1% per year between 2005 and 2015. But industrial output is comparatively low. Manufacturing contributes 12% of the state’s GDP, lagging the national average of 15%.

“We are changing fast because we want to change,” says Siddharth Jain, the state’s Commissioner of Industries. “We must protect the jobs already there and create new ones.” He envisages a “boom everywhere” once the VCIC is up and running.

For Prasad, the pharmaceuticals entrepreneur, the corridor’s emergence has already changed everything. He now dreams of running a successful business and eventually employing hundreds of people.

“I will definitely expand more,” he says confidently.

John Larkin is a Senior Communications Specialist in ADB’s Department of Communications. Learn more about ADB’s work in India.