The Hunt for the Special Category Status

The Story of the New Andhra Pradesh  

    1. Glimpse  Of Special Status – Part 1
    2. Current Status In Andhra Pradesh – Part 2
    3. Prediction Of Andhra Pradesh Over Special Category Status- Part 3
    4. Broken Promises By The Government – Part 4

Andhra Pradesh is located on the shores of the Bay of Bengal, on the southeast coast of India and is a gateway to abundant natural resources (Barytes, Limestone, Bauxite, and other minerals). It has fertile land and river basins, full of water resources and extensive canal system with great agro conditions.

With the bifurcation of Andhra Pradesh into Telangana and Andhra Pradesh, newly formed Andhra Pradesh has lost revenue generating capital of Hyderabad to Telangana. Andhra Pradesh has been divided by then Union Government of India with a promise to give a special category status to newly formed Andhra Pradesh. The promise to award a special category status has been given by then prime minister of India Dr. Manmohan Singh in Rajya sabha. The promise has been given with a view that newly formed Andhra Pradesh is going to lose it revenue generating capital and would run in to huge revenue and fiscal deficits.

With Andhra Pradesh having mainly agricultural based economy, with no industrial infrastructure, industrial ecosystem and not having any cities that would compensate the revenue loss from hyderabad it is essential that Andhra Pradesh should be provided with special category status as it provides special assistance in the form of grants from the Government Of India which would be helpful in bringing down the revenue and fiscal deficits. The different types of tax exemptions that special category status provides will help the state to attract industrial investments and help the state to build industrial ecosystem rapidly. With Andhra Pradesh having to build its new capital from scratch, it would be enormous burden to build capital without the central government assistance as state by itself is running with huge deficits.

The provision of providing special category has not been added in the Andhra Pradesh reorganisation bill. It was only a promise given by then prime minister of India Dr. Manmohan singh to provide special category status for 5 years with by then opposition BJP requesting for a 10 years of special category status. BJP and TDP formed an alliance and went in to elections with a promise of giving special category status.  But after almost 4 years of coming in to power BJP at central and TDP at state, Andhra Pradesh has not been accorded with special category status.

With the maximum limit of outstanding liabilities to be 25% of GSDP as recommended by fourteenth finance commission. It is clear from above figures that Andhra Pradesh is running in to huge debts.

High capital expenditure for 2015-2016 accounts to initial infrastructure spending to shift the entire administration from Hyderabad to Amaravati. Capital expenditure of Andhra Pradesh is less than the Capital expenditure of its neighboring states.

Financial Status of Andhra Pradesh

The Figure below shows the Revenue deficit & fiscal deficit in Andhra Pradesh:
Source: SOCIO-ECONOMIC-SURVEY-2016-17

The laid down maximum limit for fiscal deficit is 3% of Gross State Domestic Product (GSDP). Andhra Pradesh has been maintaining the maximum limit every year.

Source: SOCIO-ECONOMIC-SURVEY-2016-17
  • With special status sanctioned, the water projects will be built by the center. Accelerated Irrigation Benefit Programme (AIBP) of the central Government offers funds to the water projects in the states. If the states without special status receive grants from this program, a maximum of 25-50% grants may be given.

Andhra Pradesh Reorganisation Act

Section Description
Section 46 Provides for a reference to be made to Fourteenth Finance commission to take into account of all the resources available to the successor states and make awards to them. It further provides for a developmental package to be given to backward areas of Andhra Pradesh
Section 90 Declares Polavaram Project as a National Project, where the central government would bear the cost of project
Section 93 Details the institutions and infrastructure that should be developed in the state
Section 94 Provides for appropriate fiscal measures, including tax incentives to the newly formed states to boost industrialization and economic growth. In addition it provides for special financial support for the creation of essential infrastructure in the capital city of newly formed Andhra Pradesh

Fourteenth Finance Commision

  • Fourteenth finance commision which is introduced in 2015 for the period of 5 years in its report has not distinguished between special states and general states. They recommended that class of special status ceases to exist.
  • The Commision has also recommended for increased tax devolution of 42% of central government taxes to the states for the 5 year period of commision. If revenue cannot alone cover that assessed gap,  revenue grant should be provided. Andhra Pradesh was determined to be a revenue deficit state, and commision has recommended the central government provide revenue deficit grant for the period of 5 years. The amount of deficit grant as mentioned by commision that has to be paid to Andhra Pradesh for a period of 5 years is Rs 22,100 Crores.
  • Andhra Pradesh has been suffering from revenue and fiscal deficits. With the low capital expenditure spending there is a very slow progress to develop infrastructure which would hamper the investment processes from industries. It is widely accepted that a good infrastructure development is necessary to attract investment opportunities and is a sign of development.

Report of NITI Ayog

  • NITI Aayog Vice Chairman has studied the various aspects of support to be given to Andhra Pradesh and made recommendations regarding effective implementation.

Based on Above Documents The Commitments Made By Central Government Are

Funds allocated Project
Rs.4000 crore To compensate the resource gap for the year 2014-2015
Rs.16447 Crore Special Package for AP
Rs.2500 Crore Development of new capital city
Rs.24350 Development of backward regions
Rs.6000 Crore Development of Visakha-Chennai corridor
Rs.5000 Crore Development of Kakinada Petro Complex
Payment of 100% since 01/04/2014 Irrigation costs for Polavaram Project
Rs.11673 Crore Educational Institutions

·         IIT Tirupati

·         Petroleum University

·         IISER Tirupati

·         IIM Visakhapatnam

Rs.3820 Crores In order to  cover the loss due to  taxation
  • Cabinet committee has given in-principle approval for the construction of new port in Andhra Pradesh on PPP basis subjected to feasibility.
  • Proposals with regard to the Steel Authority of India, Indian Oil Corporation/HPCL to set up units in Andhra Pradesh are being examined as provided in the Reorganisation Act.
  • Central government  along with the government of Andhra Pradesh decided to expand the airport terminals of visakhapatnam, vijayawada, tirupati and development is under processes.
  • Central Government is been actively looking into the proposals to build metro rails in vijayawada and visakhapatnam.
  • Central government has claimed that with increase in tax devolution there is a growth of 55% in the transfer of funds from 2014-2015 to 2015-2016.
  • To compensate for the advantages of special category status, the central government has proposed special assistance measure, where central government would help state government in externally aided projects by paying loans and interests.
  • According to information given by government, till now it has assisted the state with Rs 10,500 crores till the financial year 2016-2017.    

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