Budget 2024: How zombie town Amaravati could rise again with TDP in Andhra

This piece was originally published on 30 June 2024. Finance minister Nirmala Sitharaman on 22 July 2024 announced a special package for Andhra Pradesh in her Union budget speech for fiscal year 2025. A financial package for Andhra was in the wish list of TDP's N Chandrababu Naidu, a key ally of the Bharatiya Janata Party at the Centre.

Amaravati/Chennai: Its design was drawn up by global architectural firms in 2014, inspired by Lutyens’ Delhi and New York’s Central Park. Urban forests and water bodies were to dot this 217 sq km sprawl on the south bank of river Krishna. And it was expected to be ready by 2024. But reality has turned out otherwise for Amaravati, the new capital of Andhra Pradesh.

In May, when this writer visited the proposed city area, there were no lush green manicured lawns or well-laid-out trees as the city plan had envisaged. Instead, thorny bushes, seven feet tall, dotted the landscape. Scrabble under them and you will find the foundation stone laid to build a permanent complex for the Andhra Pradesh high court. A few metres away, there is a large water body. A closer look reveals iron rods jutting out of the water’s surface. This is the submerged foundation of the high court complex, which was to have a stepped roof modelled on ancient stupas.

A few kilometres away, the state assembly, a building planned with a 250-metre-high conical roof, was to sit in the middle of a large freshwater lake. All one can see is the foundation, again flooded.

The roads are wide but empty. In places, they are lined with large unused pipes. The area is dotted with partly completed high-rises and other buildings meant to be occupied by bureaucrats, judges and members of the state assembly. In one of these buildings, a group of men are busy drinking alcohol and playing cards. Loud Telugu music, streamed from their phones, keeps them entertained.

Amaravati, in short, is a ghost city. The idea of a new capital for Andhra Pradesh, a city the world will look up to, has turned out to be a story of broken promises and virulent politics. It has stumped investors and contractors who have not been paid for work already executed. A decade after bifurcation, the state is still without a capital.

On 4 June, the city project got a new lease of life. The Telugu Desam Party (TDP), led by N. Chandrababu Naidu, returned to power in Andhra Pradesh with an overwhelming mandate. The city was Naidu’s brainchild. He fought the election promising to rebuild it. “Our capital is Amaravati; Amaravati is the capital,” Naidu asserted hours before being sworn in as the chief minister. In a symbolic move, he took the oath of office at a temporary venue erected in Amaravati.

The preliminary work of clearing the bushes and draining the water from the foundation pits has now begun. Despite the political will and a strong mandate, rebuilding the city will mean overcoming multiple challenges. The project cost has escalated over the last few years while Andhra Pradesh’s financial position has deteriorated. Investors who had burnt their fingers earlier will be deeply sceptical.

So, what are the odds the capital city project can be revived and quickly executed?

The dream plan

For the people of the Andhra and Rayalaseema regions, the bifurcation of erstwhile Andhra Pradesh and creation of Telangana in 2014 was an emotional blow. What added salt to the wound was the loss of Hyderabad to Telangana after the bifurcation, leaving Andhra Pradesh without a capital. Naidu, who became the first chief minister of Andhra Pradesh, announced the creation of a new capital, promising to build a smart city.

Amaravati was chosen as the location for many reasons; geographically, it is in the middle of the state and easily accessible. “Earlier, in undivided Andhra Pradesh, people had to travel 800 kilometres to reach Hyderabad from northern parts of the state. We wanted to consciously avoid that problem,” said Pattabhi Ram Kommareddy, TDP leader and its national spokesperson.

Also, Amaravati was on the south bank of river Krishna. Throughout history, across the world, large cities have sprouted around rivers, securing water for the citizenry and industry. A river winding around a city is also great for retail and entertainment.

London-based Foster + Partners and Singapore’s Surbana Jurong were tapped for the masterplan. A consortium of Singapore and Indian firms were roped in for urban design, infrastructure and industrial development planning. Together, they drew up the city’s blueprint.

In the masterplan, the city was divided into three regions—core capital, capital city and the capital region. The government complex, comprising the legislative assembly, high court and secretariat buildings sat in the middle. Nine zones or mini cities were planned to focus on governance, sports, health, knowledge, electronics, tourism, finance, justice and media. A 22-kilometre-long riverfront had to house the central business district. Tree-lined avenues and dedicated cycle tracks were planned for the entire city. Almost 60% of the area was earmarked for greenery or water bodies.

“We wanted Amaravati to be the most sustainable city in the world and it was designed to tap solar power in a big way,” said Tenali Sravankumar, a TDP politician from Tadikonda. Most of Amaravati falls in his constituency. The total project cost, back in 2014, was estimated at ₹50,000 crore.

Land and money

Any city needs land. A normal acquisition process would have been both costly and time-consuming. A system of voluntary land pooling was therefore adopted.

“When Naidu made an appeal for land, over 29,000 farmers, across 29 villages, came forward to give 33,000 acres. Not a single rupee was paid as compensation,” said Kommareddy. The entire acquisition process was done in quick time—just 100 days, he added.

In return, farmers were promised 1,200 square feet of land for residential use and another 450 square feet for commercial use in the developed capital for every acre (43,560 sq ft) of wetland given. For dryland, it was 1,000 square feet and 250 square feet, respectively. Well-irrigated land is classified as wetland.

Farmers were also promised an annual payment of ₹50,000 for wetland and ₹30,000 for dryland for a period of 10 years. The agreement was made in January 2015.

The foundation stone for Amaravati was laid by Prime Minister Narendra Modi in October 2015. Construction began. An interim state assembly and high court were established. Foundations for permanent buildings were laid. Work on housing quarters for government employees, members of the assembly and judges began. Roads were built. And about ₹9,000 crore was spent by 2019.

“Apart from being a new capital, Naidu wanted Amaravati to be the growth engine of Andhra Pradesh,” said Kommareddy.

The new capital evoked a lot of interest from investors and global multilateral institutions. The Andhra Pradesh Capital Region Development Authority (APCRDA), the nodal agency for building Amaravati, raised ₹3,840 crore through 10-year municipal bonds in August 2015. “The bonds were oversubscribed in just 30 minutes,” said Sravankumar.

The World Bank sanctioned funds worth $300 million and the Asian Infrastructure Investment Bank (AIIB), $200 million (the funds, however, weren’t disbursed). A consortium of Singapore-based firms—Ascendas-Singbridge and Sembcorp Development—came in to develop part of the city.

“As many as 132 institutions, including government, quasi-government, the Reserve Bank of India sought land in the capital,” he said. That apart, a lot of private players came in to establish educational institutions, hospitals and hotels.

One to three

The 2019 state assembly election brought about a change in government. Naidu was voted out; the Yuvajana Sramika Rythu Congress Party (YSRCP), under the leadership of Y.S. Jagan Mohan Reddy, formed the new government.

Reddy reversed many policies of the earlier government; Amaravati wasn’t spared.

In December 2019, he announced in the state assembly that Andhra Pradesh will have three capitals—Vishakapatnam (executive capital), Kurnool (judicial capital) and Amaravati (legislative capital)—in a bid to provide a more decentralized administration. “Decentralization is the real concept. We should also change. Countries like South Africa have three capitals (administrative capital Pretoria; legislative capital Cape Town; judicial capital Bloemfontein). We may also have three capitals,” he had said at that time.

The future of Amaravati, the grand city Naidu planned, looked bleak. Partially built, the foundation of many buildings began to rot and it began its descent into becoming a ghost town.

The fight

The farmers who gave their land for the new capital started protesting.

“We were cheated,” said M. Venkateshwar Yadav from Sakhamuru village, a neighbourhood in Amaravati. He had given three acres for the capital.

When this writer met him, he was at a protest site, a large rectangular pandal with pictures of various freedom fighters, at Thulluru town in the region. It was the 1,599th day of the stir, Yadav said. The farmers ended their protest once Naidu returned to power and after being assured that Amaravati would be rebuilt as the sole capital of Andhra Pradesh.

V. Madhu from Lingayapalam village gave half-an-acre. “A ‘Singapore startup area’ (an area dedicated to startups), was supposed to come up there. It is barren now,” he said.

The lands farmers gave away were fertile agricultural plots—they grew a wide variety of crops like cotton, fruits, chilli and other vegetables. “From landowners we have become landless labourers,” said P. Poorna, another farmer, who gave away five acres. “The annual payment that the government promised has also stopped. We are struggling to make ends meet,” he added.

The farmers did not stop at just protesting. They filed a case against the state government for not honouring the agreement drawn up in 2015.

“Farmers gave the land without any compensation to benefit from related development. The government cannot go back on its word,” Anumolu Raghaviah, an advocate helping the farmers, said. The Andhra Pradesh high court, in March 2022, upheld the farmers’ stand and asked the state government to honour its commitment of building the capital at Amaravati. The Reddy Government next appealed in the Supreme Court. With the change in government, this appeal will soon be withdrawn, TDP politicians told Mint.

Second life?

So, what’s the plan, going ahead? Details are sketchy as of now and new promises being made appear too optimistic. “We will complete the construction of the capital city in two and a half years,” P. Narayana, the new minister for municipal administration for Andhra Pradesh, told the media after taking charge.

The preliminary work of surveying the area, taking stock of the work already done and estimating the damage due to neglect in the last five years, has started. The government is also collating details of all outstanding payments. Mint couldn’t ascertain how much Andhra Pradesh owes to contractors.

A new commissioner, Bhaskar Katamneni, has taken over APCRDA, the nodal agency to build the capital. “All work will be restarted as soon as possible, and the masterplan shall be implemented as was originally envisaged,” he told this writer.

These are the easy first steps. The challenge will be in funding the project. Minister Narayanan estimates the revised project cost will be ₹1 trillion—in the last five years, the cost of building materials alone has gone up by over 35%.

Andhra Pradesh’s finances are not healthy. The YSRCP government devoted its focus to welfare measures and over its five-year rule, spent ₹4.56 trillion on them. Of this, ₹2.71 trillion was spent on cash handouts and ₹1.84 trillion on various other schemes. With the state’s revenue not rising commensurately, it faced cash-flow problems, leading to delays in payment of salaries, pensions and other dues. As its ability to borrow was limited by law, the state government resorted to off-budget borrowings. The Centre admonished the state for this move and added these amounts to its borrowing limit, further exacerbating its financial position.

“Andhra Pradesh’s finances do not allow much leeway for more welfare spending than what is being spent now,” Paras Jasrai, economist at credit ratings agency India Ratings & Research, had told Mint earlier.

Nonetheless, Naidu, in a bid to get re-elected, promised ‘six super guarantees’, which will only burden the state’s already fragile finances. Experts estimate these welfare schemes will cost an additional ₹1.21 trillion over the next five years. Also, the ₹3,840 crore APCRDA municipal bonds issued in 2015 will come up for redemption next year and they need to be paid back.

Clarity on funding options will emerge in the next month or two, said TDP’s Kommareddy. “We are sitting on a land bank that is valued at over ₹2 trillion. We will monetize it to fund the capital,” he told Mint.

Land prices around Amaravati, according to the Confederation of Real Estate Developers’ Associations of India’s Andhra Pradesh chapter, have risen from ₹13,000 per square yard in 2020 to ₹40,000 per square yard after the elections. This will be helpful for the government. The state government will also need to re-apply to the World Bank and AIIB for the loans that the multilateral institutions had originally sanctioned.

Funding apart, convincing investors will be a big task. Will they show the same enthusiasm as before? Various stakeholders, who had shown considerable interest earlier, will be cautious owing to concerns about policy continuity, said Anshuman Magazine, chairman and chief executive officer, India, South-East Asia, Middle East & Africa, at CBRE, a real estate advisory.

In an interview with The Hindu, Singapore foreign minister Vivian Balakrishnan also emphasized on building a consensus. Speaking on the probability of Singaporean companies returning to work on the Amaravati project, he said: “It is important for long-term projects and collaborations to have bi-partisan support... to give investors an assurance that rules are predictable.”

While there are many challenges, Naidu’s ace could be his role in the National Democratic Alliance (NDA). The NDA needs the TDP’s support to keep the coalition government strong at the Centre. Naidu, a shrewd politician, is expected to secure a special financial package for the state to tide over its financial crisis and rebuild the capital, political pundits believe.

That may just be what it takes for Amaravati to shake off its ghosts.