More Satyams in a new Telengana?

Carving small states (Jharkand, Chattisgarh and Uttrakhand) out of larger ones (Bihar, Madhya Pradesh, UttarPradesh) has so far proved an economic success. Not only have the new states grown faster economically, even Bihar and Uttar Pradesh have experienced much faster growth after the separation (though not Madhya Pradesh). This appears to strengthen the case for creating more small states such as Telengana.

Yet a short visit I made to Andhra Pradesh showed dramatically that a separate Telengana could result in problems that other newly-created states have not experienced. The biggest is a problem of land ownership, and this could conceivably create new Satyams.

In Hyderabad, some (though by no means all) businessmen talk with trepidation. The fears are highest among the Andhras, folk from the coastal districts, who fear they will be adversely affected and maybe even forced to flee by the local folk or mulkis.

One such businessman told me, “My driver, a local mulki, said to me, quite gently, that when I left Hyderabad after the separation of Telengana, could I please gift my car to him?” Another businessman trumped this with a better story. “My domestic servants”, he said, “requested me to hand over my house to them as and when I leave!”

Is it really possible that a new Telengana will spark the mass exit of outsiders? No, says economist CH Hanumantha Rao. There is some fear among coastal Andhras, but not among people from other parts of India. Obviously mulkis will get a much larger share of government jobs, but not of business. The real fear of businessmen is not of physically being expelled. Rather, it is about land, in which businessmen have sunk enormous sums, and which they might now lose.

Businessmen have a second, and more credible fear. They say that the Maoists who were tamed by YS Rajashekhara Reddy will make a comeback in the new Telengana, since a small state will not have the resources to tackle the Maoist menace. That could affect business prospects and land values.

The big difference between a separate Telengana and other newly created states like Jharkand, Chattisgarh and Uttrakhand relates to the state capital. In the three earlier cases, the state capital remained with the original state. But Hyderabad, the capital of Andhra Pradesh, will go to Telengana. This horrifies coastal Andhras who claim to have created 90% of Hyderabad’s wealth.

A compromise could be to make Hyderabad and the surrounding Rangareddy district a Union territory housing the capitals of both Telengana and residual Andhra Pradesh. This solution worked when Haryana was carved out of Punjab. However, politicians leading the Telengana movement are dying to lay their hands on the lucrative land of Hyderabad, and will never give up this golden goose from which they hope to get a thousand golden eggs.

Vast amounts of land around Hyderabad have been grabbed in questionable ways. In a new Telengana, many existing landowners—including major industrialists—may lose enormous tracts of land worth thousands of crores. Illegal land grabbing has till now been very lucrative, but may become the kiss of death after Telengana’s creation.

All Indians love land, but in Andhra Pradesh it is a veritable passion. Coastal Andhras have engaged in an orgy of land speculation in the last decade. This passion for land ultimately caused the fall of Ramalinga Raju of Satyam: he lost his company because of his forays into real estate, through Maytas and other channels.

Like many other Andhra businessmen, Raju borrowed enormous sums for buying land, and prospered as land prices went through the roof. But then prices collapsed with the onset of the global recession, catching many speculators—including Raju– with their pants down. As India emerged out of the recession, land prices started recovering everywhere. But with the announcement of a separate Telengana, real estate prices have fallen once again in Hyderabad and surrounding areas.

This has hit the state government’s finances. It had hoped to raise Rs 12,000 crore through land sales, a figure that is now looks impossible. Far worse hit are thousands of land speculators, including a host of top businessmen. Nobody knows for sure who controls how much land in Hyderabad and Rangareddy districts, since much of the land is occupied illegally or through dubious means. But the risk is clear: land debacles could create new Satyams.

The risk should not be exaggerated. Most businessmen who survived the Great Recession should be able to survive the separation of Telengana too. But some may collapse. Many politician-speculators will suffer too, and so are among the strongest opponents of division. However, division is inevitable: it is only a matter of time.

Many mulkis resent what they see as the obscene prosperity of outsiders, especially coastal Andhras, who dominate not only land and business but also professional jobs and government employment. In many states migration has ocurred from poorer to richer areas, but in Andhra Pradesh farmers moved from the prosperous coastal areas into Telengana, a region that used to be part of princely Hyderabad under the old Nizam, and was terrible backward in education, agriculture, roads and everything else.

The Andhras brought in improved agricultural practices, skills and capital. They helped develop Hyderabad and the rest of Telengana, which is no longer backward compared to the state as a whole. Public sector investment, especially in defence industries, brought in many new skills and services. And more recently the information technology companies came roaring in, many run by coastal Andhras.

But although the newcomers greatly improved and enrichened Telengana, they also aroused resentment and accusations of quasi-colonialism. Being better educated, they dominated government jobs. Osmania Unversity’s students are at the fore of the Telengana agitation because they hope to dominate government jobs in the new state.

However, there is no reason to think that more land and jobs for mulkis will mean the expulsion of coastal businessmen. The real risk lies elsewhere: in the continuing fall of land prices, leading possibly to new Satyams.