Demand for Andhra Pradesh's special status could lead to economic rejig in Southern states

With less than a year before the 2019 elections and nearly 4 years after the erstwhile state of Andhra Pradesh was bifurcated to create two new Indian states, Telangana and Andhra Pradesh, the spotlight on a 'special status' demand for the state is back. Political analysts watching the developments feel the BJP government at the Centre perhaps does not want to earn the displeasure of Andhra's neighbouring states including Karnataka, Tamil Nadu and even Maharashtra by granting that special status. This is primarily because it will lead to potential migration of industrial investments from one region to another.

Also, for the ruling Telugu Desam Party (TDP), the matter becomes politically sensitive and therefore even though four years have elapsed since the bifurcation, the state may be politically compelled to make all the right noises about this demand.

There is of course an economic rationale for the special status or why else would there be any need to announce it in the first place, says a former bureaucrat from the Naidu government, who now does not wish to be identified.

So, what is the economic rationale for the demand and how serious are the economic challenges for Andhra?

Consider this - when the state was divided, Andhra not only lost a capital but also an important industry hub, which was in and around Hyderabad. The contribution of agriculture to state GDP is higher for Andhra than its neighbouring states. In fact, today it is arguably the highest in South. This is also a reflection of a lower level of industrialization and along with it a lower per capita income and again, the lowest in South. Much of this is because of Hyderabad, which political analysts argue has gone on to make Telangana, a city-centric state, with the city still an important growth engine and revenue source for Telangana. Today, the per capita income for Telangana is at par with states like Maharashtra and Tamil Nadu, and many see this as largely on account of Hyderabad.

How did Hyderabad become important? Part of the reason for the industrialisation and the boom in the pharma sector in and around Hyderabad was due to Indira Gandhi, opting to contest from Medak in 1980 near Hyderabad. The city and its surrounding regions saw lot of industrial estates coming up and industrial incentives given.

How will a special status help? Typically, the big attraction is all the industrial incentives such as tax exemptions for 10 years and others that come with it. Think of Baddi in Himachal Pradesh and how it emerged as an important pharmaceutical hub. It was largely on account of such incentives.  Other than this, it is also important to remember that the 14th Finance Commission award provided for a deficit grant to cover the revenue deficit of Andhra for a five year period. This was, of course, with guidelines but amounted to around Rs 22,000 crore.

An added benefit under the special status is that all the borrowings from other countries for the externally aided projects in a state, about 90 per cent is repaid by the government of India for special status states. Part of this is to be addressed in the special package that the Centre wants to give but here apparently there is need for clarity in terms of how it will pan out in the context of the FRBM (Fiscal Responsibility and Budget Managememt) Act provisions.

Then, for any loans from the central government, the share of subsidy component is higher. Though, these would be for old loans as such schemes are more or less done away with today.

Other than the economic implications, there is yet another political angle - about getting additional assembly seats approved. The reorganization provides for additional seats following reorganization of Assembly seats wherein Andhra would go up by 50 seats and Telangana would get another 30 to 40 seats. The reason to up the ante on the special status issue, some political analysts feel, could be triggered by the need to get a bargain on this demand at least.