The state of Telangana, the country's newest and 10th largest, emerged from its bifurcation with erstwhile Andhra Pradesh with a challenge: one of deep economic divide and low growth -- the reasons why the division took place in the first place.

But the TRS government has pulled out all stops in order to boost growth, using technology as a key enabler to improve productivity, transparency and ease of doing business, says a report by brokerage firm Religare.

Economists from the firm recently undertook a three-day road trip to the state (visiting districts Hyderabad, Nizamabad and Zaheerabad) meeting companies, dealers, farmers and government officials. The takeaways: consumption is strong, the government has a strong industrial policy in place, and technology is playing a big role in the state's transformation.

"The slowdown that one has seen [in broader rural India] hasn't played out as much for Telangana. The state effected a 43 percent hike for government employees. This helped boost consumption," Religare Institutional Research Chief India Economist Jay Shankar told CNBC-TV18 in an interview.

Jay Shankar Chief India Economist & Director|Religare Capital Markets

He said that Hyderabad's rise as a technology and business hub has helped policymakers frame pro-investment rules.

"This will go a long way in industrialising other districts of Telangana," he said.



Below is the verbatim transcript of Jay Shankar's interview with Sonia Shenoy & Reema Tendulkar on CNBC-TV18.



Reema: Could you walk us through what your key takeaways are from the three day road trip to Telangana?



A: First, the kind of slowdown that one would expect because of not-so-good monsoon in the last two consecutive years, it is not that bad. So at least in the districts that we visited and feedbacks and the channel checks that we did, demand is slowing down that significantly as one would have expected.



There are different dynamics to the state, and in particular to some of these districts that we visited. For example, Telangana had huge salary increases last fiscal, effective from April 1, 2015. The salary hikes were 43 percent.

Latha: Salary hikes in what. Was it private sector, public sector?

A: I am talking about the state government. They have state Pay Commission Revision Committee which recommended less than 40 percent, around 35-38 percent but the government gave 43 percent salary hike. So that has translated into-not really boom but significant increase in demand for typical durable goods; two-wheeler demands, four-wheeler demands and surprisingly when we met the Maruti Suzuki dealers, Alto is no more an entry level car because of aspirational thing. We discovered that Swift and Swift Dzire have become the new entry level cars. However, similarly for the Hero Motocorp dealer that we met, Glamour is the best selling bike for his business. More than 50 percent of his volume turnover is coming from Glamour rather than Splendor or Splendor Plus. So that is the kind of "premiumisation" that is happening.

Latha: When the two states were bifurcated, the big fear was that Telangana is the poorer cousin which us why they were asking for bifurcation and the investments in Telangana had come from Andhra Pradesh guys. Is there any fear that Andhra Pradesh will deindustrialise Hyderabad or Telangana?

A: Highly unlikely because the political dynamics have changed to the extent that when we visited Hyderabad and the secretariat, the secretariat as of now housed in the same block and people are the same, at least in the administration. Obviously, they have given different portfolios and different states but quite unlikely because Hyderabad is the business hub followed by Ranga Reddy and Medak is one of the most industrious districts wherein you have a lot of industries specially Mahindra's tractor plant and several other industries in that particular district. So Telangana of the ten districts, it is fair to say that the focus of the policy makers historically has remained focused only on two or three districts. The rest of the districts have not got that focus and that is the focus which the government is having. However, when we met the policy makers, they have come out with industrial policy which is one of the best in the country because they have advantage of late coming and hence learning from other states. So the lessons that they have got especially from states like highly pro investor friendly states like Gujarat and off late even West Bengal and several other states like Tamil Nadu etc, for example when I wanted to setup a plant in Telangana, I apply online. There is a single window concept which is called Telangana State Project Approval and Self-Certification System (TS-iPASS) and the onus is on the government to give them all the permissions and clearances within 15 days for large projects, for large scale industry. If I am not getting that permission from the government then it is deemed to be approved and I can go ahead by self certifying myself. So that is the kind of pro investor friendly industrial policy which the government has come up with. So that will go long way in industrialising the remaining seven-eight districts.



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Reema: That is really good to hear the kind of role technology as well as the pick up that we have seen in business, the ease of doing business in Telangana but when you speak to your colleagues in the team which is the best way to play this Telangana consumer demand story in terms of sectors as well as stocks?

A: The two-wheeler and the four-wheelers are obvious choices and then the paint companies. So, there is a huge significant demand which we came across when we did the dealer checks, for example the guy whom we met, he is a dealer for Berger Paints and the story goes for other paint companies like Asian Paints and all and specially in the premium segment. So, we were surprised to see that the demand for the higher grade and the better quality in terms of pricing as well as premiumness, the demand for those particular products are increasing.

I do acknowledge that the selection of the district as well as the meetings may not be as randomised as you would want to; well it is not a survey but we just go and meet people randomly. Not that randomly as one would want to. However, the kind of feedback we got from other dealers as well, for example the cement demand; cement demand has picked up significantly; demand for pipes also, so we met the Finolex people, the distributor over there. Cement demands especially from institution; the institutional part of the demand has picked big time versus the retail demand.

Latha: I have two questions. One, the real estate space in Hyderabad, it was at one point in time the haven for real estate guys and thereafter prices plateaued even dropped. Has that market improved? Could you see those signs and separately cement a lot of cement demand was expected from both the states of Andhra Pradesh and Telangana. Did you notice those strengths?

A: Yes, so it remained in a limbo for quite a long time you are right and that was because of the confusion which ensued before the bifurcation itself. So, for almost two to three years there was hardly any real estate activity. I guess from 2011 to 2014 was a lull. Thereafter, after the bifurcation and especially during our visit we did encounter anecdotal events and narration by people.

Both the users as well as the dealers of, for example the TMT iron rod and also cement. There is a lot of demand which is now picking up especially from the builder community. So, the prices have not really started picking up that dramatically but there is a sense of pickup in demand and hence the prices, what they were expecting in the next 12 months is to increase by 10-15 percent over the next 12-14 months.

Latha: You have done a lot of rural state trips. What is the sense you are getting, after two poor monsoons, is rural demand showing extremely weak signs, at least in Telangana you seem to be giving us a sense that demand is very robust.

A: I think as vast and as diverse our country is, you will have these havens and you will have these pockets of anti-consensus if you like in terms of slowdown in demand led by poor monsoon due to lower agricultural prices. There are different dynamics in states like Telangana, for example the dependence on agriculture itself, if you look at the macro level data also of the state, is lower than the national average. It is about 12 percent of the total gross state domestic product (GSDP). However, when you look at the district level data also, you will see that there is a predominance of services.

Among the crops also, there is a lower weightage of food grain crops where you have the impact of procurement prices being announced and hence the prices are not freely market determined, if you like, but if you look at prices for turmeric; the turmeric mandi that we visited, the prices have shot up from Rs 6,000 per quintal to Rs 8,000 per quintal and hence the price realisation by the farmers is much higher and that in some sense cushions the lower output if you like.

On top of that, as one of the finding that we have is the role of technology itself. So, for example, the mandi that we went to in Nizamabad, there we could see that there is an online market. You cannot sell offline turmeric, offline in the sense that face to face. So, you have to put your supply, so, farmers come to the mandi, they get it weighed by government appointed person and then that gets uploaded on the portal and if you are a licensed user then you can bid for that from anywhere in the world. So, that leads to better price realisation and price discovery. Hence, I would believe that they would be getting some better pricing vis-à-vis the earlier regime.