Given a 3-day ultimatum by CM Naidu, FM promises ‘monetary equivalent’ of title
As Andhra Pradesh (AP) chief minister N Chandrababu Naidu issued a threat to the Centre saying his Telugu Desam Party would walk out of the ruling NDA coalition unless special-category status (SCS) and a host of attendant and other financial succours are extended to the resource-starved state, finance minister Arun Jaitley on Wednesday sought to avert a political rupture. Though the minister denied SCS to AP — this tag is practically confined to the eight states in northeast and the hilly states of Jammu and Kashmir, Himachal Pradesh and Uttarakhand — he promised AP “monetary equivalent” of what the title would entail.
Speaking at the state assembly earlier in the day, Naidu had demanded “the Centre come out with a clear stand on the state’s demands in the next two-three days”.
To be specific, Jaitley reiterated that the 9:1 ratio between the Centre and states for the funding of centrally sponsored schemes (CSS), a key advantage that SCS states have — in case of other states, the CSS funding ratio is 6:4 at present — would indeed apply in case of AP during the 14th Finance Commission period (2015-20). The minister added that if the state agrees to set up a special purpose vehicle for CSS funds to be routed through Nabard — Naidu had demanded Nabard funds for specified projects, instead of external aid (from the World Bank, ADB and the like) — then the Centre is willing to repay 90% of the Nabard loan taken by the state. The idea, he said, is that the largesse won’t adversely impact the fiscal situation of either the Centre or the state.
Jaitley also offered an additional Rs 1,600-crore revenue deficit grant for the state for the 22-month period between June 2014 and March 2016. This, however, is far lower than Rs 12,100 crore demanded by AP as extra revenue deficit grant for just the 10 months between June 2014 and March 2015. In fact, in pre-Budget letter to Jaitley, AP’s finance minister Yanamala Ramakrishnudu had claimed that the Centre had agreed to provide an additional Rs 3,520 crore — over and above Rs 3,979 crore already released — as revenue deficit grant to the state for the 10-month period (before the 14th FC Finance Commission award came into play). So Jaitley’s latest promise is even less attractive than what the state claims he had earlier agreed on. The finance minister said the tax sops for industrial investments — 15% additional accelerated depreciation and 15% additional investment allowance — for AP were meant for five years till March 2020, but did not commit to extend it. The minister noted an SCS tag to AP might encourage others like Bihar also press their similar demands, a situation that the Centre can ill afford. (In fact, Bihar, Chhattisgarh, Jharkhand, Odisha, Rajasthan and Uttar Pradesh had in the past clamoured for special-category status.) So is the case of state-specific tax sops to promote investments (even the existing such schemes are being phased out).
Jaitley, however, sought to pacify the agitated state. “We have a positive attitude. We stand by all commitments made under the Andhra Pradesh Reorganisation Act, 2015… AP is resource-constrained and I firmly believe that the state needs assistance,” the minister said.
For its under-construction capital city Amaravati, AP has already received Rs 2,500 crore from the Centre, and is expecting another Rs 1,000 crore. The city’s infrastructure is being built with various tax incentives, like capital gains tax exemption for land pooling, etc.
According to the 14th Finance Commission, which awarded post-devolution revenue deficit grants to 11 states, AP is estimated to receive Rs 22,113 crore during 2015-20. AP’s poor financial health can be gauged from the fact that the revenue deficit of the state stood at 5.5% of the gross state domestic product in the first 10 months of FY18 against the full-year target of 0.1%. Similarly, the state’s fiscal deficit stood at 5.3% during April-January this year against the full-year target of 3%.