Financial Distress in Andhra Pradesh
Andhra Pradesh faces significant financial challenges, necessitating a special dispensation by the Finance Commission. The bifurcation in 2014, where Telangana was formed, left Andhra Pradesh without Hyderabad, its major tax revenue hub. This prompted demands for a 'special category' status to mitigate the fiscal impact.
Special Category Status: Historical Context
Despite assurances from former Prime Minister Manmohan Singh, the division act did not include provisions for a special category status. The subsequent NDA government, led by Narendra Modi, did not fulfill this parliamentary assurance, citing the discontinuation of the scheme based on the 14th Finance Commission's advice.
Current Fiscal Challenges
- The state's fiscal health is compromised due to structural handicaps and funding pressures from previous government schemes.
- Current Chief Minister N. Chandrababu Naidu is contending with near-empty state coffers.
Approaches to Financial Relief
Andhra Pradesh seeks alternatives to the conventional 'special category status,' which now offers only limited benefits such as softer-term external loans.
Possible Solutions
- A more viable option than the diluted special status is a special assistance package.
- Precedents exist for politically motivated special packages, like those in Odisha's Koraput-Balangir-Kalahandi and Bundelkhand in Uttar Pradesh and Madhya Pradesh.
- Bihar received a special 'pre-election' package in 2015.
Role of the Finance Commission
A recommendation from the Finance Commission would carry significant weight due to its apolitical and constitutional standing. The Commission should consider Andhra Pradesh's fiscal loss post-bifurcation.
Indicators of Fiscal Capacity
- State's own revenue is a robust fiscal capacity indicator.
- Post-2000 state divisions show per capita revenue gains for new states at the expense of rump states, notably in Andhra Pradesh and Bihar.
Proposed Formula for Assistance
- If a state's fiscal capacity loss exceeds 10% post-division, it should receive a special package.
- This formula qualifies both Bihar and Andhra Pradesh for assistance.
Conclusion
The Finance Commission should develop an objective, apolitical formula to address fiscal challenges faced by states like Andhra Pradesh due to bifurcation, reinforcing fiscal federalism.