Globalisation:Andhra Pradesh

Reform with a Human Face

Andhra Pradesh (AP) is a large, semiarid state in South Eastern India with a population larger than the whole of the UK. Like much of the subcontinent, AP is forced to cope with both poverty and inequality. Despite a dry climate, around 70% of people in the state rely upon the fragile proceeds of agriculture for their living. Since the mid 1990s, the Government of Andhra Pradesh has introduced a range of ambitious reform and regeneration programmes, designed to generate employment and attract investment to the state. The goal is to reduce the state’s dependency upon agriculture and foster in its place an efficient high-tech economy together with a modernised civil service. AP’s ambitious and innovative programme, aimed at reaching all members of society, has attracted considerable attention from the World Bank, DFID and other donors, and is regarded as the benchmark for state-level government throughout India.

Since the 1960s, successive governments in AP have poured large amounts of money into publicly owned enterprises and cooperative societies, covering a diverse range of sectors, from sugar to cars, textiles to electronics. Whatever the initial success of these enterprises, their performances in recent years had deteriorated significantly, to the point where they had become a serious fiscal burden on government resources.

In 1998, ASI was asked to set up and run a semi-autonomous body known as the Implementation Secretariat (IS). In 2003 the IS took responsibility for managing its own budget with ASI providing technical and operational support. This body was given the responsibility of reviewing the status of 87 state-owned enterprises and cooperative societies. Our remit was threefold:

• To remove the burden of loss-making enterprises on state spending and free up resources for use on health, education and infrastructure improvements
• To promote wider economic growth in the region, thereby increasing opportunities for employment
• To reduce the prospects of misuse of public funds, corruption and patronage by removing links between politics and business

ASI supported the Implementation Secretariat in evaluating which enterprises needed to be restructured, which needed to be privatised and which needed to be closed. The IS and ASI then worked together to bring these recommendations to fruition. Measures designed to improve long-term social well-being can have short-term adverse effects on employment. For this reason it was ASI’s responsibility to put measures in place to ensure that individuals and communities did not suffer as a result of the redundancies brought about by structural reforms. To this end, ASI designed and implemented a Social Safety Net programme. This had two components:

• A Voluntary Retirement Scheme providing pay-outs to workers based on length of service
• Counselling, retraining and redeployment services designed to ensure that workers are given the assistance necessary to find alternative employment. Retraining is entirely demand-led, with workers free to follow the course they choose

The first phase of AP’s enterprise reform programme was completed with considerable success. To date, more than fifty enterprises and cooperatives have been privatised, disinvested, closed or restructured, creating over US$110m of revenue for the Government of Andhra Pradesh and making fiscal savings of over $300m. Thousands of workers have benefited from the practical and financial support of the Social Safety Net programme. Indeed, the programme is now widely seen as the benchmark for state level privatisation in India with many other state governments turning to AP to take lessons from their experience.

Notes

Adam Smith International - Case Studies - Andhra Pradesh