New financial package for Andhra, focuses on external aided projects

The announcement comes after a hard bargaining by N Chandrababu Naidu, it's still going to be an uphill task to convince the people about its merits as the special category status

The financial package announced for Andhra Pradesh (AP) in lieu of special category status (SCS) by Finance Minister Arun Jaitley on Wednesday promises to extend the monetary advantages of the special status on top of the measures already incorporated in the AP Reorganisation Act.

While the announcement comes after a hard bargaining by AP Chief Minister N Chandrababu Naidu, it was still going to be an uphill task to convince the people about its merits as the special category status was projected as the ultimate panacea to overcome the disadvantages being faced by AP in areas of revenue generation, job creation and industrialisation post bifurcation, according to observers.

Periodic demand for special category status being raised by AP government and the opposition parties over the past couple of years had built strong expectations around the special status among people, especially among the youngsters in the state.

According to the new package, the Centre would extend a monetary compensation equivalent to the monetary advantages available under the SCS for five years up to 2020 by way of funding the externally aided projects. This was one of the major concessions derived from the Centre in place of SCS though the analysts point out at certain limitations in this regard.

"The quantum of monetary compensation was not spelt out as yet by the Centre. And the compensation was offered only by way of support to the externally aided projects whereas under the special category status a state would get special treatment with regard to all the Centrally sponsored programmes," opined Political Analyst and Senior Journalist K Nageshwar.

Among the other decisions, the state would get a 100% funding for the mega Polavaram Multipurpose Irrigation Project. Under the earlier plan, the state was supposed to share the cost to the extent of 30% even though Polavaram was accorded the national project status by the state bifurcation act. The Centre has also entrusted the construction of the project to the state government.

The move comes as a major relief for AP government considering the high relief and rehabilitation costs required for the implementation of the project. While welcoming the gesture, Naidu, however requested the Centre to ensure continuous flow of funds for a speedy execution of the project by 2018. Government said that at least Rs 20,000 crore is needed to complete the remaining works of the project, which was coming up on River Godavari.

In addition to Polavaram funding, the Centre has also offered to take care of the construction of Vizag-Chennai Industrial Corridor project, which was taken up with Asian Development Bank loan of close to $400 million in addition to the state's contribution.

Funding to the external aided projects as promised in the new package may also partly the state in construction of Amaravati as the state government is looking for external loan assistance to build the infrastructure. With the Centre taking some of these loan obligations upon itself AP will have a scope raise debt for other requirements within the limitations of the FRBM Act, according to Naidu.

Naidu said that he had also extracted a promise from the Centre to support the development of four industrial nodes proposed along the Vizag-Chennai industrial corridor, each requiring about Rs 2,000 crore to Rs 3,000 crore investment. The Centre has also promised to create a special fund to provide incentives to new industries, according to Naidu.

Among the already agreed measures, the Centre has decided to issue notification for accelerated depreciation benefit and the investment allowance for industries in the backward areas in AP and Telangana. "Except for these two incentives that were there in the Act, AP was unlikely to get any additional incentives for industrial sector as there was a remote scope for tax incentives in the GST regime, This was a clear negative for AP," said Nageshwar.

The provision to compensate the revenue deficit for a fixed period of time, annual grants for the development of backward districts that were mentioned by the Finance Minister were already there in the bifurcation act.

While there were different views on the merits of the new financial package announced by the Centre, some believe that the lack clarity on the promises already made to AP in the state reorganisation act has had much larger ramifications than the denial of special status.

"Several big projects like steel plant in Kadapa, petrochemical complex by IOC and HPCL, construction of a major port at Duggirajapanam were promised in Schedule 13 of the Act. The Act also talked about the construction of an express way between the new capital Amaravati and Hyderabad and to other locations in Telangana. But there was no movement on any of these projects in the last two and half years even though the Act says all the projects have to be initiated within six months of the state bifurcation," an senior entrepreneur, who hails from Andhra region, told Business Standard  who requested anonymity.