The need for revenue of India's state of Andhra Pradesh: The Statesman columnist

Andhra Pradesh Chief Minister Chandrababu Naidu.
Andhra Pradesh Chief Minister Chandrababu Naidu.PHOTO: ST FILE

(THE STATESMAN/ASIA NEWS NETWORK) - In February 2016, Prime Minister Narendra Modi had assured the Andhra Pradesh Chief Minister Chandrababu Naidu that he would consider conferring the special category status to his state.

Apart from this privilege, Mr Naidu has been demanding a special package for the residuary state of Andhra Pradesh after it was carved out from the erstwhile composite state in June 2014, and an additional 16,078 crore rupees (S$ 3.2 billion) to bridge the budget deficit arising from the bifurcation of the State.

The Special Category Status allows a state to avail Central funding on liberal terms for the centrally sponsored schemes (90 per cent grant and 10 per cent loan), apart from various tax sops and incentives to industries. 

The erstwhile composite state of Andhra Pradesh was divided with effect from  June 2, 2014, by the Andhra Pradesh Reorganisation Act, 2014.

Of the 23 districts of undivided Andhra Pradesh, nine  in the coastal region and four in the backward Rayalseema region remained with the residual state of Andhra Pradesh, while the remaining ten  including the most prosperous Hyderabad district with the capital city of Hyderabad and the contiguous Ranga Reddy district, also equally prosperous, went to Telangana.

As per the Act, the total liabilities of the undivided state were to be shared by the two successor states in the ratio of their population, i.e. 58:42. 

The division had left the residual state of Andhra Pradesh much poorer.

As per the 2012 to 2013 accounts, the residuary Andhra Pradesh with its own revenue of 11,627 crore rupees and expenditure of 60,750 crore rupees had inherited a total liability of 90,910 crore rupees, while Telangana with revenue of 56,476 crore rupees and expenditure of 42,376 crore rupees inherited a debt liability of pnly 65,832 crore rupees.

But the asymmetry in the whole arrangement becomes striking, once we consider that the combined revenues of the two prosperous districts of Telangana, Hyderabad and Ranga Reddy, were 51,478 crore rupees, or 91 per cent of the total revenues of Telangana.

These  two districts together accounted for expenditure of 23,302 crore rupees or 48 per cent of the total expenditure of Telangana during 2012 to 2013.

It was anticipated that this would lead to increased impoverishment of Andhra Pradesh as its own revenue would be too inadequate to meet even one-fifth of its expenditure requirements.

The huge debt inherited in addition would impose a further heavy repayment burden on the poor state, and consequently stymie its growth with gaping fiscal deficits.

Given the need to establish a new capital at Amaravathi, according a special category status giving it access to liberal Central aid at least for the first few years thus seemed imperative.

The latest accounts of the Government for the first completed year 2014-2015 after its formation, placed in the Legislature last month has, however, allayed these fears to some extent.

The state's revenue did drop from 1.10 lakh crore rupees in 2013-2014 when it was undivided to 90,672 crore rupees in the full year 2014-2015, while its expenditure had gone up from 1.10 lakh crore rupees to 1.14 crore rupees.

This left a revenue deficit of 24,194 crore rupees and a fiscal deficit of 31,716 crore rupees for 2014-2015, in which the contributions of the last ten months of the state's existence as a residuary state were respectively 13,777 crore rupees for the revenue deficit and 20,745 crore rupees for the fiscal deficit.

In contrast, Telangana had a revenue surplus of 369 crore rupees and  fiscal deficit of only 9,410 crore rupees for these ten months. of course the higher revenue deficit and hence the higher fiscal deficit of Andhra were partly the state's own creation; in fulfilling its election promises, it waived the agricultural loans of farmers to the extent of 7,070 crore rupees and increased the amounts under Indiramma Old Age and Disabled Pension Scheme to 3,344 crore rupees, which together accounted for 76 per cent of its revenue deficit of 13,777 crore rupees.

The previous year, the composite state had a revenue surplus of Rs 344 crore and a fiscal deficit of 18,041 crore rupees. 

The revenue of a state comes partly from its own resources and partly from Central transfers that includes the state's share in the divisible pool of Union taxes, besides Central grants.

As a result of the bifurcation, during the ten months of its existence as a residuary state, Andhra's own revenues, tax plus non-tax combined, from its 13 districts amounted to 38,038 crore rupees. The central transfers, including the state's share in the divisible pool and Central grants, amounted to 27,657 crore rupees, bringing the total revenue to 65695 crore rupees during the period, against which the revenue expenditure was 79,471 crore rupees, leaving a deficit of 13,777 crore rupees in the revenue account, even with the election-promised sops.  

In contrast, the total own revenues from Telangana's  ten districts were almost the same as Andhra's (35,735 crore rupees), which means the loss of Hyderabad and Ranga Reddy districts did not affect Andhra's revenue position as drastically as anticipated - in fact the total revenue receipts of Andhra exceeded that of Telangana by over 14,600 crore rupees, though it was because of the Central transfers, in which Telangana's share was only 15,306 crore rupees compared with Andhra's 27,658 crore rupees.

Andhra commands a larger share in Central transfers, partly due to its higher population  which  has 25 percentage weightage in the divisible pool transfers. 

Instead of total expenditure, per-capita developmental expenditure is a better and more reliable proxy for actual expenditure spent on development.

Andhra, with 2011-population of 4.9 crore, had a per capita developmental revenue expenditure of 12,226 rupees, and per capita capital outlay of 1,331 rupees, making up the total per capita developmental expenditure of 13557.

In contrast, Telangana with population of 3.52 crore had a per capita developmental revenue expenditure of 10,340 rupees and per capita capital outlay of 2,379 rupees, making up a total of 12,719 rupees, which was lower than that of Andhra.

In the context of the  financial results of the State, it thus seems improbable that Andhra Pradesh is getting the special category status anytime soon.

While replying to the debate on the Andhra Pradesh Reorganisation Bill in Parliament during the last days of UPA-II, the then Prime Minister Manmohan Singh had assured that the resource gap likely to arise in the successor state of Andhra Pradesh in the very first year would be compensated in the regular Union Budget 2014-2015.

The new Government, apart from flagging the issue to the Niti Aayog (The National Institution for Transforming India - a government think-tank) which apparently had submitted its report, has not yet taken any concrete step so far on this promise.

Special category status could have helped in attracting industries into the state by creating a congenial ecosystem for industrial growth through tax incentives.

As of now, industries seem more interested in setting or expanding their units in Hyderabad which is in Telangana rather than in Amaravathi, which is not yet ready.

In fact readying it would need massive capital investments and resources, which the state lacks presently.

It  remains to be seen if Chandrababu Naidu succeeds in getting at least some assistance from the Centre towards this end.

The writer is a senior civil servant. The  views are personal and not the government's.