The demand for special status has reached a high pitch in Andhra Pradesh with politics around the issue heating up. Special category status was promised on the floor of parliament by then Prime Minister Manmohan Singh, but without making it part of the Andhra Pradesh Reorganization Bill that created the new Telangana state. The issue was propped up during the division of Andhra Pradesh as an alibi to subside the rising anger of the people over the inevitable loss of revenue to coastal Andhra and Rayalaseema regions due to the separation of Telangana region.

The Congress made some noise about giving special status, but skipped it in the bill. The Bharatiya Janata party leader Venkaiah Naidu insisted on including special status in the re-organization bill but managed only to elicit an assurance from the prime minister. The bill has no provision to cover even the revenue deficit of the new AP state for a period of time. After the bill was passed, the local unit of BJP promised a ten year special category status to Andhra Pradesh if voted to power, though the party national manifesto only mentions a commitment to the development of both Andhra Pradesh and Telangana and not special category status.

Prime Minister Narendra Modi during his campaign tours in Andhra Pradesh promised help for the development of Andhra Pradesh and the construction of its new capital. The people in Andhra Pradesh are under the impression that assistance to cover the revenue deficit and special status are legal rights of the state since Manmohan Singh as PM declared so on the floor of parliament and BJP supported it when the re-organization bill was passed. The local media is not giving clarity on the issue but constantly provoking people with half-truths and fishing in troubled waters.

In the 2014-15 budget, Andhra Pradesh government declared Rs14,242 crores as revenue deficit after spending a good chunk of revenues on farm loan waivers, increased state government employees wages and other welfare schemes. Andhra farmers do need help but the bill for loan waivers can’t be passed as revenue deficit is to be met by the central government.

Based on population percentage, at 60per cent of undivided state, the current state of Andhra Pradesh has Rs 5,000 cores (approx.) crores less tax revenue compared to its share in the 2013-14 budget of united Andhra Pradesh. At 15 per cent tax collection growth per year, the tax loss for Andhra Pradesh on account of state division comes around Rs 11,000 crores (approx.) in 2014-15. In other revenue receipts, Andhra Pradesh got its legitimate share by population; also there is good increase in central grants to all states under the Modi government as compared to past governments.

Before the 2015-16 budget session, the 14th Finance Commission recommendations were accepted and Rs 22,113 crores allocated for Andhra Pradesh to fill the revenue deficit for the next five years along with higher devolution of central tax revenue to states. The state government projected revenue deficit for the state in 2015-16 is Rs 7,300 crores. If just state tax revenue receipts are considered, there is approximate loss of Rs 11,000 crores compared to undivided Andhra Pradesh. The 14th Finance Commission grants would cover part of this deficit at Rs 4,400 crores (approx.) per year. The increased share of states in central taxes can help Andhra Pradesh to maintain undivided state revenue levels, but the state can’t take any advantage of increased central revenue devolution of 14th Finance Commission like other states with surplus funds. There is a net yearly loss of Rs 7,500 crores at current revenue levels to Andhra Pradesh when compared with the advantage other states would get with increased central devolution.

On account of Rs 7,500 crores resource loss per year, Andhra Pradesh needs assistance from the central government to shore up its revenues in the next ten years to match other states. The state is lagging in industrial base as much of the industrial base of the undivided state was in and around Hyderabad. It is in this scenario that special category status is being sold as an attractive proposition to the people of Andhra by local media and opinion makers.

The local media, intellectuals and activists present special status as the only solution to all problems faced by the new state. There is much propaganda that special status would bring 90 per cent of central assistance as grants and not as loans that have to be repaid. Even a cursory glance at 2015-16 union budget shows that out of Rs 8,42,963 crores allocated to states only Rs 12,500 crores has been given as loans and the rest of the money has been allocated as grants. So this relatively small loan amount, distributed among 29 states and 7 union territories, if given as grants through special status would give little advantage to the new state.

Another much discussed aspect of special status is mandatory 30 per cent plan expenditure by the Union Government on special status states. Eleven states are so far accorded special status (seven northeastern states, J&K, Himachal, Uttarakhand). Thirty percent plan expenditure spent on these states is just a bit higher than regular allocation; Andhra joining these states brings no big advantage, but relatively under-developed states would lose, particularly the north-eastern part of the country.

Coming to the most discussed advantage of special status, central excise tax concessions to businesses in AP would attract investment companies, lead to more employment and generate revenue for the state. This looks attractive at first, but if a middle size and decent per capita income state like Andhra Pradesh gets special status it would impact central revenues, 62 per cent of which are passed to states in 2015-16 budget with 42 per cent direct allocation of taxes after the 14th Finance Commission recommendations. So, Andhra Pradesh would also lose revenue along with other states. Nor would there be any big relocation of big industries from other states for tax gains.

The neo-con economic propaganda presents tax-benefits to corporations as the key driver of economic growth and employment. Some Chanakyan intellectuals flaunt similar opinions like taxes discourage productivity; they obviously ignore the difference between state during the Chanakya era and the modern state. The modern state is also a provider of services like education, health, infrastructure and welfare. Tax is the fee it charges for the services and infrastructure use. Partial tax concessions often distort the economy, create loss to people, particularly poor, through revenue loss, and enrich only big corporations that escape taxes after extracting much from the region’s resources.

Andhra Pradesh is a resourceful state with good connectivity and infrastructure; it doesn’t need tax concessions to attract businesses. It doesn’t have to attract all kinds of polluting and extractive industries through blanket tax concessions for economic growth and jobs. The state needs to focus on the businesses best suited for its strength and resources.

The country and state need huge public investment and the Modi government has plans to invest heavily into core areas like infrastructure, renewable energy and defense in coming years. If Andhra can corner a good share of this investment in the next five to ten years it would grow on its own strength and generate revenue to offset much more than the losses caused by division.

The AP re-organization bill has promised national status to Polavaram irrigation project on the Godavari, and a feasibility study for a mega steel plant in Rayalaseema by SAIL. The state should insist on implementing the projects promised in the Bill and ask for royalty on Krishna-Godavari gas from offshore wells, just as coal generating states receive royalty for coal extracted.

Concrete and well-focused investment in heavy industry from PSUs, a few more ports, defense-related industries and projects can help Andhra Pradesh recover fast, rather than the imaginary abstract gains through tax concessions with special status. One mega project and few good projects per year in the central budget can transform Andhra Pradesh like no special status can. Vishakhapatnam developed into a major city with public investment in a port and a mega steel plant; Andhra Pradesh needs more such projects.

The central government has special responsibility to Andhra Pradesh and needs to be generous with public investment. Private investment always follows public investment and there will be no dearth of private investment in next decade if public investment is realized in time.

With this approach, both the central and state governments will not lose any revenue and in a virtuous cycle more resources will be available for more public investment, education, health, welfare. This approach would maximize job creation in both public and private sectors - a win-win situation for all. The apparent benefits of special status are ephemeral and won’t help the state to realize its potential in a holistic, sustainable manner.

But politics is again driving passions in Andhra Pradesh. Some vested interests are trying to push the state into mindless agitations and conflict with the central government. They want the TDP out of the centre on the special status issue and to teach the BJP a lesson in the 2019 elections.

How would a BJP government with full majority suffer if the Telugu Desam Party withdraws from the NDA? Those giving these mindless suggestions of fighting with Delhi are enemies of the state’s progress. The NDA’s approach is reasonably better than that of the UPA government and Andhra would benefit with a constructive approach. The state government should insist on getting more concrete projects from the central government. Special status is a losing proposition for all and, given the precarious situation of the Indian economy and need for more revenue to stimulate the economy through public investment, the Centre is unlikely to heed the demand for it.

References:

http://www.apfinance.gov.in/uploads/budget-2014-15-books/Volume-VI.pdf

http://www.apfinance.gov.in/uploads/budget-2015-16-books/Volume-VI.pdf

http://indiabudget.nic.in/ub2015-16/bag/bag3a.pdf

http://articles.economictimes.indiatimes.com/2015-02-24/news/59460887_1_finance-commission-revenue-deficit-revenue-deficit