A special fiscal package for Andhra Pradesh

• Andhra Pradesh, a rump state, demanded a’special category’ status after Telangana was carved out of the larger state in 2014.

• Despite Prime Minister Manmohan Singh’s assurance, the Act dividing the State did not provide for a special category status.

• The division of the State took effect in June 2014, with N. Chandrababu Naidu becoming the first Chief Minister.

• Naidu’s plea for the parliamentary assurance was stonewalled by the Narendra Modi government, citing the discontinuation of the’special category’ scheme.

• Naidu, who returned as Chief Minister in 2024, is facing near-empty coffers due to structural fiscal handicaps and pressure to fund unaffordable freebies.

• The Centre has a definite obligation to compensate Andhra Pradesh for the structural fiscal losses it suffered due to the bifurcation of the State.

• The Centre could make an exception and accord’special category’ status to Andhra Pradesh, but this may not be an attractive choice for Andhra Pradesh as the status has been watered down.

• A more generous option for Andhra Pradesh is to seek a special package of assistance.

• The Finance Commission could recommend a special package for Andhra Pradesh, as it is an apolitical, professional body with constitutional status.

• The case for Andhra Pradesh should be considered, considering the state’s own revenue as a robust indicator of fiscal capacity.

• A possible formula for a special package could be that if the loss in fiscal capacity of a State on account of division is more than 10%, the Centre would give a special package spread over a limited period to compensate for the loss.