Hyderabad: The city of Hyderabad, once a symbol of the new emerging India and home to information technology (IT) giants such as Google Inc. and Microsoft Corp., is mired in protests, threatening its future as an investment-friendly hub.

Andhra Pradesh has been rocked for weeks by violent demonstrations for and against the division of the state into two entities.

Crippled: Students shout slogans during a meeting by those demanding the creation of Telangana. Mahesh Kumar A. / AP

Chief minister K. Rosaiah told reporters last week that firms, including metals group Bharat Forge Ltd and French auto maker PSA Peugeot Citroen, had relocated projects or deferred planned investment on account of the turmoil.

“The image of Hyderabad as an investment destination and a hub of information technology, pharmaceuticals and other industries has taken a beating because of the unrest," said Rosaiah.

Hyderabad’s star rose during the 1990s and last decade as India established itself as a global IT hub, offering low-cost services to multinational firms for a fraction of the cost in their domestic markets.

A proposed new state called Telangana would be carved out of Andhra Pradesh’s poor tribal belt, a drought-prone region which supporters say has been neglected by the state government for too long.

Hyderabad is located in what would become Telangana, but neither Telangana supporters nor those in the rump of Andhra Pradesh are willing to give up the capital and its spoils.

The 400-year-old city boasts a mix of tall glass buildings amid its many minarets and historic temples, a sign of the software boom which began when US software giants Oracle Corp. and Microsoft first planted themselves on Indian soil. Hyderabad has since attracted several Fortune 500 and Indian companies, including the disgraced outsourcing giant Satyam Computer Services Ltd, once the city’s pride.

Analysts say the political turmoil has created a sense of uncertainty among investors, many of whom might look to the rival, larger Indian IT hub of Bangalore.

“Foreign investors are following the wait-and-watch strategy before making any financial commitment in the region," said Deepak Kher, an IT analyst working in Hyderabad.

The state government has created a task force to protect the city’s business interests after industry representatives and corporate executives conveyed their concerns to the state government.

Rosaiah appealed to protesters “not to subject industries to hardship as the latter are no way concerned with their demands".

He said Hyderabad’s pharmaceutical industry had suffered a loss of Rs500 crore in the past one month, and that hotels had registered a 40% drop in reservations. He also said the world’s largest steel maker, ArcelorMittal, and Japanese pharmaceutical company Eisai Co. Ltd have put proposed investments on hold.

Hyderabad accounts for software exports of $7.55 billion (Rs34,881 crore) and pharma and bulk drugs exports of $3.23 billion annually, according to local and national government estimates.

J.A. Chowdary, former president of the Hyderabad Software Exporters Association, said companies were being disrupted by the strikes and street protests, though losses could not be quantified yet. “All IT exports and businesses are definitely taking a beating due to the agitation," he said.

The Telangana Rashtra Samithi party, which is spearheading calls for the new state, accused the state government of using fear to discredit the movement.

“Several industries did not come to Hyderabad because of the faulty policies of the government. Why blame the Telangana movement?" party member T. Harish Rao said.

Communication experts say the image of Hyderabad as the modern face of India—cosmopolitan, fast-paced and professional—was under threat.

“Both sides are fighting to get Hyderabad but they are failing to realize that this political mess will dampen Hyderabad’s image all over the globe," said Madhukar Sabnavis, an executive with advertising firm Ogilvy and Mather.