Special Category Status panacea for fiscal woes of Andhra Pradesh

The State will escape debt-trap if Special Status accorded

The sentiments of the people of Andhra Pradesh have soared to the level of not being able to be contained, unless the Central government concedes the demand in according Special Category Status (SCS) to the State. The Centre has been consistent in maintaining the stand that it is no longer in a position to accord SCS to any State including Andhra Pradesh.

It has promised AP to give more than that would accrue through the SCS. Still, the people and the agitating parties are not satisfied with the announcement of ‘Special Assistance’ by the Central government. Though the Government of India has not come out with any figures, an estimate is in currency that the financial benefit accruing to the State would work out to about Rs 2.25-2.65 lakh crore.

The detailed statement issued by the Centre is being criticised as a just review of the past and recitation of the promises already incorporated in the Andhra Pradesh Reorganisation Act, 2014.

Lame excuse by the Centre

• Granting SCS purely an administrative decision
• It is not based on the recommendations of FFC
• NITI Aayog can grant it and NDC can endorse it

Why people are demanding SCS

• Significant concessions in excise and customs
• AP with a long coastline of 972 km can benefit a lot
• Assistance to backward areas
• 90 per cent share as grant in case of foreign loans
• Centrally sponsored schemes allocated

Rs 2,26 lakh cr in FY17

• SCS States will receive significant amounts

State heading for a debt-trap

• Centre yet to fully reimburse revenue deficit of Rs 16,050 crore for 2014-15
• Public debt already stands at Rs 1,90,000 crore
• It will touch Rs 3,05,364 crore by 2021-22
• It will account for about 30.26% of GSDP
• As per FRBM rules, this percentage should not exceed 25
• Fiscal deficit shall not be above 3% per cent of GSDP
• Cash-strapped AP wants the limit raised to 3.5%
• It is trying to raise Rs 81,163 cr foreign loans

The question is why is it that the feelings of the people are not getting subsided, even though the Centre is said to have committed itself to keeping all the promises made through the Act and the assurance given by the then Prime Minister in the Rajya Sabha. It is to be noticed that the PM’s assurances include SCS also for a period of Five Years.

During the discussion, M Venkaiah Naidu representing BJP, then in opposition, demanded the SCS for 10 years. Now the government is quoting certain technical reasons for its inability to accord the SCS to Andhra Pradesh. More specifically, the Centre is drawing into discussion, the Fourteenth Finance Commission (FFC).

It is to be understood that FFC has nothing to do with the grant of SCS to any State. It is the Planning Commission (now NITI AYOG), which is to examine the issue and make a recommendation, based on which, the National Development Council (NDC) can take a decision. In effect, granting SCS to a State is purely an administrative decision and not based on the recommendation of the FFC.

People of the State are demanding for the SCS for a variety of reasons like significant concessions in excise and customs, assistance to backward areas, 90 per cent share as grant in case of foreign loans and carry forward of the earlier year sanctions. In view of the fact that Andhra Pradesh has a long coastline of 972 km., customs reliefs and other benefits would go a long way in promoting exports and imports from the State.

The development of major and minor ports along the coastline of Andhra Pradesh would be possible with the priority treatment. That could be made possible by according SCS to Andhra Pradesh. As a matter of fact, port development is the key to transform Andhra Pradesh into an industrial hub and an international destination.

Further, the Centre’s promise of reimbursing the revenue deficit of Rs 16,050 crore for 2014-15 also has not come true. Against this, the State received only Rs 2,303 crore. The public debt also is growing to high proportions and already stands at Rs 1,90,000 crore and is expected to rise to the level of Rs 3,05,364 crore by 2021-22, accounting for about 30.26 per cent of the GDP.

As per the FRBM rules, this percentage should not exceed 25. Similarly, the entire fiscal deficit of the State shall not be above 3 per cent of the GDP at any point of time. Now, the State government is requesting the Centre to raise the bar from 3 per cent to 3.5 per cent, as was done for Telangana. This measure would only aggravate the ‘debt trap’ situation of the State. Therefore, if the State is to come out from all these financial difficulties, SCS will only be the panacea.

In addition, the Andhra Pradesh State is trying to mobilise foreign loans to the extent of about Rs 81,863 crore from various international funding bodies. If Andhra Pradesh gets SCS, 90 per cent of these loans would be converted as grants; thus a huge relief to the State. In spite of the fact that the number of centrally sponsored schemes (CSS) is reduced during the Budget for 2016-17, an amount of Rs 2,26,820 crore was sanctioned to CSS projects. Very easily, all the States having SCS would get directly about Rs 90,000 crore, which is a significant sum.

It is therefore, believed that the fulfillment of all these promises would go a long way in changing the ‘Economic Profile’ of the new State. If the governments in power at the Centre and in the State do not react immediately and keep the promise of according SCS to Andhra Pradesh, they may face severe hardships in the ensuing 2019 elections. (Writer is former Vice-Chancellor, Acharya Nagarjuna University)

By Prof K Viyyanna Rao