central's help to ap is not enough

J.Vishnu Shankar:

The YV Reddy-headed 14th Finance Commission has recommended a revenue grant of Rs 22,113 crore over a five-year period to Andhra Pradesh. This is primarily to offset the revenue deficit that AP will undergo over the next 5 years. On the face of it, it does look like a good proposition. But consider the following.

  • AP is not alone to get a revenue grant from the 14th FC. There are 11 states in all and AP is one among them. In fact states like Himachal Pradesh and J&K get approximately Rs 40,000 cr and Rs 60,000 cr respectively from the same 14th FC. AP figures here because its revenue deficit has arisen out of the unscientific bifurcation.
  • The 14th FC also notes that Telangana is revenue surplus by 818 cr. This surplus is even before the devolution of central taxes to Telangana. The picture changes substantially once the devolution is factored into. For 2015-16, the revenue surplus would be to the tune of Rs 15,003 crore eventually rising to Rs 34,252 crore in 2019-20.
  • For AP, the grant of Rs 22,113 cr is calculated in such a way that, after the receipt of this amount, the state will still be just revenue neutral. (You can read the following Eenadu report for details).

Which simply means that while Telangana will have a surplus to the tune of Rs 15,000 cr without any central help, AP on the other hand, will just be revenue neutral even with central help. In other words, even after this 14th FC grant, AP will be at a dis-advantage compared to Telangana, which enjoys an unfair advantage. ( It is a different matter altogether, if Telangana fritters away this initial advantage by fiscal profligacy or if its expected revenues do not materialise in the coming years due to flight of capital from the state.)

Bifurcation incentive promises such as additional central help / special category status etc were made purely to ensure that both the states stand on an even platform after bifurcation. This 14th FC grant of Rs 22,113 crores still does not ensure that. Which also makes us come to the conclusion that the centre still has to do more, much more, to do justice for Andhra.

Those of you wanting to read the 14th Finance commission report in detail, may download a copy of it HERE.