Plan for new state hits business

Mumbai: A unit of global drugmaker GlaxoSmithKline temporarily halted operations in India's Andhra Pradesh state yesterday as the fallout from a government plan to carve up the southern state mounted.

India's Congress-led government approved a plan on Thursday to create a new state called Telangana out of Andhra Pradesh, home to high-tech Hyderabad city, after more than a week of violent protests and a hunger strike by a leading politician.

GlaxoSmithKline Consumer Healthcare, a unit of the global drugmaker, yesterday said it was temporarily closing its factory in the state due to political protests.

Shares in several Indian realty firms based in Hyderabad fell, and a local branch of HSBC bank was attacked by a mob of protesters who have shut down the city for more than a week.

Investors worry whether the tug-of-war over the creation of a new state will affect investments, as well as where it will leave the status of Hyderabad, home to companies like Microsoft, Google and Dell.

The central government in New Delhi has not yet decided the fate of Hyderabad, once seen as an example of Indian cities fast becoming hubs for global companies looking to cut costs.

"Even though it's been years in the making, the decision [to split the state] was quite sudden, so there's been quite a bit of turbulence and uncertainty," said Dipankar Mitra, an economist at Noble Group.

"That doesn't send very good vibes to investors."

In a sign of nervousness, shares of Hyderabad-based realty firms fell for a second day, with Nagarjuna Construction and GVK Power & Infrastructure down more than 2 per cent, trailing the benchmark BSE index, which was down 0.5 per cent.