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Monday, December 6, 2021

Tragedy of Andhra Pradesh State

This article attempts to highlight the plight of the state of Andhra Pradesh post bifurcation of the state into AP and Telangana in 2014. 

As per the AP Reorganisation Act, 2014, Polavaram irrigation project is declared as national project. Therefore, execution of the project and obtaining all requisite clearances including environmental, forests, and rehabilitation and resettlement norms become the responsibility of the central government. However, the state has volunteered to take up the task of execution of the project in order to expedite the works and complete the total project by 2019 since the projects executed by the central government are invariably found to be delayed leading to cost overruns.

The state government submitted the revised cost estimate in August, 2017 for Rs. 58,319.06 crores (at 2013-14 price level). Major share of project cost amounting to Rs. 38,000 crores is towards rehabilitation and resettlement where the cost increase is mainly due to the higher compensation to be paid for land acquisition consequent to the Land Acquisition Act, 2013 passed by the centre. 

The Technical Advisory Committee of CWC (Central Water Commission) has cleared the revised cost estimate of Rs. 55,548 crores only on 12th February, 2019. After almost 2 years in December, 2020 the Centre, through the Union Jal Shakti Ministry, has indicated that the cost of the Polavaram project is ₹55,548.87 crore (at 2017-18 price level) in its annual statement and has stated that additional funds will be released by NABARD.

The centre has informed that Polavaram project will be completed by April, 2022, as per the revised schedule.

 Benefits of Polavaram Project:

  • Enables irrigation of 23.20 lakh acres across the state covering major portion of 13 districts.
  • Diverts and utilizes the surplus waters of Godavari River into Krishna and other rivers to make the state drought free forever, meeting the demands for irrigation, drinking water and industrial purposes. Every year 2,500 TMC waters of Godavari River go waste into the sea and the Polavaram Project is expected to divert 2.27 TM Cum (80 TM cft) of Godavari waters into Krishna River.
  • Generation of 960 MW of hydel power.
  • Has the potential to transfer the surplus waters of Godavari River to Cauvery through Krishna and Penna Rivers.
  • Increase in agricultural production to the tune of 109 lakhs M.T. per annum.
  • Inland water transport for the mineral and forest products and other agricultural and industrial products.
  • Recreation facilities and pisciculture.

Resource gap

As per the 14th Finance Commission estimatesa total of Rs. 22,113 crores is to be paid to Andhra Pradesh as revenue deficit grant for the 5 year period (2015-16 to 2019-20). The centre says the state’s total entitlement is only Rs. 4,117.89 crore for the year 2014-15 under revenue deficit Whereas the state government, citing a CAG report, claimed the amount was Rs. 22,948.78 crore. Thus an amount of Rs.18,830.89 crore unresolved claim is still pending with the centre.

Education

The following institutions- IIT, NIT, IIM, IISER, Central University, Petroleum University, Agricultural University and IIIT are to be set up under the Act. For the above institutions the state government has already given 2,909 acres of land. In addition to the above 8 institutions, AIIMS, Tribal University and National Institute of Disaster Management are also to be set up in Andhra Pradesh by the centre.

Of the 11 Institutions promised, 5 Institutions viz., NIT and IITDM are functioning from temporary campuses since 2015-16, IIPE, NIDM are functioning from temporary campuses since 2016-17 and AIIMS is functioning from temporary campuses since 2018-19 and one Institution i.e. Tribal University has been established only in 2019 in a transit campus.

As per the provisions of the Andhra Pradesh Reorganisation Act, 2014, Government of Bharat should have established a Central Agricultural University but this is not done. Instead Government of Bharat has released Rs.135 crore to existing Acharya N.G. Ranga Agricultural University.

Infrastructure

As per the provisions of the Act, the following infrastructure is expected to be created in Andhra Pradesh.

  1. A new major port at Dugarajapatnam:

This port was to be completed in phases with Phase I by end-2018. This is a mandatory provision under the Act. However, since Niti Aayog has said this major port is not feasible, the centre has kept this issue in cold storage.

  1. An integrated steel plant in YSR District:

AP Government, has agreed to extend various incentives like providing captive iron ore mines, power subsidy, subsidised land, external infrastructure for the proposed steel plant. Preliminary feasibility report indicates a pre-tax IRR of 18.95%, which implies that the steel plant is highly feasible.

Due to lack of response from the centre, the State went ahead to establish the integrated steel plant on its own and laid foundation stone on 27.12.2018 for the same. The state is planning to select a joint venture partner to operationalize the steel plant by March, 2024.

It is ironical that instead of getting a new steel plant as per the AP Reorganisation Act, the state is now on the verge of losing its existing Vizag steel plant! 

  1. A greenfield crude oil refinery and petrochemical complex:

This Cracker and Petroleum Complex was to be set up in Kakinada. The 1 MMTPA complex with feedstock of Ethane, Naphtha and Propane is estimated to cost Rs.32,900 crore. The GAIL-HPCL consortium after discussions with Government of Andhra Pradesh suggested a viability gap funding of Rs. 1,238 crores per annum for 15 years from zero date, to be provided by the State Government, repayable  over the next 15 years. Government of Andhra Pradesh agreed to subsidize power (Rs 577 crore per annum), water (Rs. 51 crore per annum) and provide all external infrastructure support.

Government of Bharat was requested to fund the viability gap as the project was promised by Government of Bharat to the residuary State of Andhra Pradesh.  The centre is yet to take action on this proposal. Andhra Pradesh government has revived this project in November, 2019 and has drawn up VK-PCPIR Mater Plan (Visakhapatnam- Petroleum, Chemical and Petrochemical Investment Region) -2031 but it is still a distant pipe dream by any yardstick.

  1. Vizag-Chennai industrial corridor (VCIC) along the lines of Delhi-Mumbai Industrial Corridor: 

Asian Development Bank (ADB) is partnering with the Government of Andhra Pradesh in developing the VCIC. Government of Bharat was requested to consider VCIC also under the purview of National Industrial Corridor Development and Implementation Trust (NICDIT) to gain the benefit from the experience and expertise of planning and developing industrial corridors in Bharat and avail financial assistance from Government of Bharat.

State Government requested Government of Bharat for development of VCIC on the lines of DMIC through 100% grant funding by NICDIT. The matter is yet to be decided by the centre. This project is yet to cross the first baby step- Master Planning and Preliminary engineering phase. 

  1. Establishing a new railway zone: 

The Act has a provision for creation of a separate railway zone for the state of Andhra Pradesh. After much procrastination on 27th February, 2019 the centre has announced a new railway zone for AP to be headquartered at Vizag. The new zone known as South Coast Railway Zone will comprise the divisions of Vijayawada, Guntakal and part of Waltair divisions. The other part of Waltair will be merged with another newly formed railway zone known as East Coast Railway being headquartered at Bhubaneshwar in Odisha.

The splitting of Waltair division into two is likely to result in major portion of the freight revenue (around 70%) going to East Coast Railway (Odisha) whereas much lesser revenues mostly from passenger traffic (around 30%) coming to South Coast railway (AP).

While it is true that the income of the railways will go to the centre, states will get their share of GST from the direct and indirect commercial transactions generated in their states by the railways apart from generation of direct and indirect economic activity which will be a significant amount.

So effectively with this centre’s decision AP State has in fact lost the existing benefits rather than getting any additional benefits as envisaged in the Act. 

  1. Metro Rail facility in Vishakhapatnam and Vijayawada-Guntur-Tenali Metropolitan Urban Development Authority: 

Detailed Project Reports submitted by Andhra Pradesh for the Vijayawada and Visakhapatnam Metro Rail projects were given in-principal approval in 2015. However, Government of Andhra Pradesh has been asked to resubmit new Detailed Project Reports under new Metro Policy of 2017.

Under the new Metro Policy of 2017, burden of raising funds for the project will be on Government of Andhra Pradesh. Vizag Metro Rail project, proposed to be taken up in four corridors covering a total distance of 75.3 km at an estimated cost of ₹15,933 crore, is expected to be completed by 2028. The first phase, extending over 46.40 km, is expected to be completed by 2025. However, the ground reality is that this project is yet to cross the DPR stage. 

Vijayawada Light Metro is a Light Rail Transit (LRT) system with 2 lines and 51 stations proposed to be built in the city of Vijayawada and Amaravati, the new capital of Andhra Pradesh, by the Andhra Pradesh Metro Rail Corporation (APMRC) earlier known as Amaravati Metro Rail Corporation (AMRC).

The project was originally conceived as a heavy-rail based mass rapid transit system (MRTS), and the Andhra Pradesh government signed an agreement with the Delhi Metro Rail Corporation (DMRC) to execute its 26.03 km Phase 1 project in September 2015. The DMRC invited civil construction bids for both lines, but cancelled procurement due to its high cost and low ridership projections which were not in line with the Government of Bharat’s new Metro Rail Policy of 2017.

In 2017-18, the state government opted for a Light Rail Transit (LRT / MetroLite). It now plans to connect Gannavaram – Vijayawada – Amravati in 3 phases with a 66.2 km network at an estimated cost of Rs. 15,000 crore, based on a recommendation by the SYSTRA – RITES – GOPA JV which submitted its revised Detailed Project Report (DPR) in April 2019.

In budget 2020-21 AP State government has allocated Rs. 3.6 crores for Amaravati Metro Rail Corporation as urban development assistance to Vizag & Vijayawada metro projects. Therefore, the grounding of these two urban metro rail projects in the near future appears to be unclear.  

Schedule 9 and 10 properties division

Assets were allocated on location basis and debt and liabilities are divided on population basis i.e., 58.32 % to Andhra Pradesh and 41.68% to Telangana. 91 institutions mentioned in Schedule-IX institutions and 142 institutions mentioned in Schedule-X institutions in the Act have to be bifurcated. The assets value of this institutions comes to Rs. 1,97,280 Crore.

Likewise the property of AP Bhavan at New Delhi is to be shared between the States. Of the 91 institutions listed under Schedule IX, the Telangana government gave its acceptance to the recommendations on de-merger of 68 institutions made by expert committee headed by retired bureaucrat Sheela Bhide and orders relating to majority of institutions were issued accordingly whereas the Andhra Pradesh government gave its nod to recommendations pertaining to de-merger of 53 institutions. This exercise is a work in progress. 

Refund of taxes

Refund of taxes was given on population basis whereas tax recoveries are given on location basis, this alone has caused a huge loss of Rs.3,820 Crores to the Andhra Pradesh State affecting financial stability of the State.

Tax rebates for seven districts notified as backward areas

In September 2016, the Central Government announced tax rebates for seven districts of Andhra Pradesh (notified as backward areas)  — Anantapur,  Chittoor,  Cuddapah, Kurnool, Srikakulam, Vishakhapatnam and Vizianagaram, under the Andhra Pradesh Re-organisation Act, 2014. 

This tax rebate covers 15 percent of higher additional depreciation and 15 percent of investment allowance on the cost of plant and machinery acquired by any manufacturing undertaking setup during the period 1st April 2015 to 31st March 2020 in these seven districts. 

However, the state government has requested the centre for the following incentives (in line with the incentives that are being provided to 11 Special Category States):

  1. GST-Reimbursement up to the extent of Central Govt. share of CGST and IGST for 5 Years;
  2. Reimbursement of Centre’s share of income tax for first 5 years;
  3. 30% of the investment in Plant & Machinery with an upper limit of Rs.5 Crore;
  4. 3% on working capital credit advanced;
  5. Reimbursement of 100% insurance premium on insurance for 5 years; and
  6. Transport and Employment subsidy etc.

There is no positive response so far from Government of Bharat for the above.

Special Development Package

Government of Bharat has agreed to release an amount of Rs. 350 Crores every year for six years as special development package for the above mentioned 7 backward districts of AP as per the recommendations of Niti Aayog. 

Blame game on Special Category Status

The Center reiterated several times that special category status could not be accorded as per the rules of the 14th Finance Commission. Mr. M. Govinda Rao who was a member for the 14th Finance Commission categorically said that the terms of reference to the 14th Finance Commission did not require it to deal with the classification of the states into special category and non- special category nor is the Finance Commission empowered to make any recommendations on the same as per the Article 280 of the Constitution. 

He says, “According special category status is purely an executive decision and neither the constitution nor the Finance Commission have anything to do with this.” Therefore, it is evident that the centre is playing the blame game to avoid this issue since other states like- Bihar, Odisha, Rajasthan and West Bengal have been seeking Special Category Status and this leads to opening the Pandora box. 

Uncertainty of Capital City

For the capital city of Amaravati, the centre has so far released Rs. 2,500 crores. However, after the change of the government in Andhra Pradesh in 2019 general elections the new government has decided to trifurcate the capital into executive, legislative and judicial centres at Vizag, Amaravati and Kurnool respectively. This has triggered unrest in Amaravati region since nearly 25,000 farmers from 29 villages had given 33,000 acres of land under land pooling for the development of the state capital at Amaravati. 

Though the Act says that Hyderabad would be common capital for both AP and Telangana for a period of 10 years the entire revenue collections of Hyderabad is not shared between the states but only by Telangana. As the Hyderabad city was developed in the undivided AP at the cost of totally neglecting rest of the state and it contributes a lion’s share in state’s revenues, in all fairness the Act should have provided that the revenues of Hyderabad to be shared by both AP and Telangana for a period of 10 years post bifurcation of the state. 

By doing the state bifurcation in the most unscientific way, the then UPA led by Congress has incurred the wrath of the people of AP and was completely decimated in the 2014 general elections. BJP and TDP after coming to power in 2014 in the centre and state respectively for more than 4 years have been under alliance in NDA.

On 16th March, 2018, TDP parted alliance with NDA (BJP). If the loosely framed Act in 2014 by UPA government with lot of loopholes is the root cause of the entire issue, post general elections in 2014 conflict of political interest between BJP and TDP appears to be the main reason for gaps in implementation of the various major provisions of the Act.

The only way out is for the parliament to amend the Act to incorporate specific timelines for implementation of various provisions of the Act and designate a nodal agency for coordination and resolution of differences between the state and the centre. Hope some sense will prevail on the law makers and they will take the required remedial measures at an early date.


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Dr. B.N.V. Parthasarathi
Ex- Senior Banker, Financial and Management Consultant and Visiting faculty at premier B Schools and Universities. Areas of Specialization & Teaching interests - Banking, Finance, Entrepreneurship, Economics, Global Business & Behavioural Sciences. Qualification- M.Com., M.B.A., A.I.I.B.F., PhD. Experience- 25 years of banking and 14 years of teaching, research and consulting. 100 plus national and international publications on various topics like- banking, global trade, economy, public finance, public policy and spirituality. One book in English “In Search of Eternal Truth”, two books in Telugu and 20 short stories and 27 articles published in Telugu. Email id: [email protected]

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