Although 14th Finance Commission did not distinguish between special category and general category States while determining the norms for devolution, it did consider the cost-disability and fiscal-capacity of the States separately.
After due consideration of the fiscal capacity of the States, the 14th Finance Commission has stated categorically that ‘Andhra Pradesh would continue to be revenue deficit even in 2019-20 financial year’ and awarded special revenue deficit grant for the five year period from 2015-16 to 2019-20.
Moreover, the Central Government has not abolished the distinction between the special and general category States so far and 11 States continue to enjoy the Special Category Status receiving special financial assistance. For example, Himachal Pradesh not only gets revenue deficit of Rs 8,000 cr every year but also special status.
Further, the case for considering Andhra Pradesh on par with Special Category States for the purpose of Central allocations and externally assisted project (EAP) financing became stronger following Central Government’s decision to discontinue eight Central schemes from Central assistance and transfer the revenue expenditure of another 13 schemes to the States. The fiscal situation of AP Government would not permit financing these schemes over the next five years.
While the Government of India announced special assistance measures to AP saying that the 14th Finance Commission has not made any distinction between special category and general States, it is pertinent to note that Central Government is continuing to give 90:10 funds under CSS and EAP like previous practice, to those Special Category States.
The Central Government announced a special assistance measure for Government of Andhra Pradesh for five years, which would make up for the additional Central share the State might have received during these years, i.e. 2015-16 to 2019-20, if the funding of CSS would have been shared in the ratio of 90:10 between the Centre and State. The special assistance will be provided by way of repayment of loan and interest for the Externally Aided Projects (EAP) signed and disbursed during 2015-16 to 2019-20 by the State.
Andhra Pradesh requested the Government of India to provide statutory status to these assurances. The Union Cabinet has given its approval on 15-3-2017, for the Special Assistance Measure for the successor State of Andhra Pradesh by way of special dispensation in funding of Externally Aided Projects. As per the approval of the Union Cabinet, the modalities for implementation of the announcements for providing Central assistance to the State of Andhra Pradesh are as follows:
“The Central Government will provide special assistance measure to Government of Andhra Pradesh, which would make up for the additional Central share the State might have received during 2015-16 to 2019-20, if the funding of Centrally Sponsored Schemes (CSS) would have been shared in the ratio of 90:10 between the Centre and the State. The special assistance will be provided by way of repayment of loan and interest for the Externally Aided Projects (EAPs) signed and disbursed during 2015-16 to 2019-20 by the State.
However, clear and detailed set of guidelines/method for implementation of the above assurance of drawing the special assistance measure has not been shared with the State till now.
Estimation of the amount of assistance
Accordingly, the State government computed the amount that the State might have been receiving in the ratio of 90:10 under CSS and arrived at Rs 2,951 crore in 2015-16 and Rs 2,992 crore in 2016-17. Government of India arrived it as Rs2,516 crore for 2015-16 by deducting the Central Sector Schemes and other schemes for which sharing pattern is same for special status and other States. Thus it is tentatively arrived at Rs15,000 crore for five years i.e. 2015-16 to 2019-20. The State Government was expecting this amount under EAP as a grant from GoI and a provision of Rs3,500 crore was also provided in the Budget 2017-18. State Government also presumed that this would not form part of FRBM Act. However, the Central Government provided this amount under EAP in the ratio of 70:30, that too, by including under the FRBM Act. However, even till today, hardly any amount has been disbursed under this provision.
Historical disbursement of EAP loans
In this connection it is pertinent to note that the loan under EAP during the last two years received was – Rs685.17 crore in 2016-17 and Rs873.81 crore in 2016-17. As a special category State, AP would be eligible 90% as grant instead of loan (70%) as received. This would be Rs881 crore for 2015-16 and Rs1,124 crore for 2016-17 i.e. average it would be Rs1,002 cr and five years it would be Rs5,010 crore. With this historical rate of disbursement, it is clear that by this alone, the State is not in a position to achieve the expenditure of Rs15,000 crore in five years.
AP’s request to GOI on June 3, 2017
As the State Government may not be in a position to spend this amount on EAP projects in the stipulated five years, Government of AP requested the Government of India to permit the State Government to provide Special Assistance in 90:10 ratio for externally aided projects as being given to Special Category StatesPermit the State Government to clear other outstanding loans towards EAPs, Small Savings and NABARDPermit borrowing from internal lender like NABARD, HUDCO, and other commercial banksUse the gap to pay interest commitments to Government of India, NABARD and EAPsNot to make the Special Assistance as part of State’s FRBM Limit since the repayment responsibility of the EAPs will be taken up by the Government of IndiaReply by GoI on July 10, 2017
GoI intimated that the special assistance measures will be given to the State by way of repayment of loans and interest under EAP signed and disbursed during 2015-16 to 2019-20.
The EAP loans will be given to the State in the present procedure only i.e. within in the FRBM limits. It is also stated that the special assistance will not be given for other purposes such as repayment of loans. It is also pertinent to note that in the designated period of five years, three years have already elapsed and hardly any amount has been disbursed under the same.
Total assistance required from Central Govt
In place of Special Category Status, a Special Assistance Measure has been cleared by the Union Cabinet on 15.03.2017. Based on this decision the State Government has tentatively arrived at an amount of Rs16,447 crore for five years i.e. from 2015-16 to 2019-20 towards additional Central share for Centrally Sponsored Schemes in the ratio of 90:10 and also made special request to Government of India to permit it to
i) Clear other outstanding loans towards EAPs, small savings and NABARD;
ii) Borrow from internal lenders like NABARD, HUDCO, and other commercial banks;
iii) Use the gap to pay interest commitments to Government of India, NABARD and EAPs;
iv) Since the repayment responsibility of the EAPs will be taken up by the Government of India, the liability of EAPs be taken out from the accounts of Government of Andhra Pradesh, so that it will not form part of the State’s FRBM limit;
v) Apart from this, the Special Category States are eligible for grants under CSS as well as Externally Aided Projects in 90:10 ratio.
Hence, it is requested that special assistance in 90:10 ratio for Externally Aided Projects as being given to special category States may also be awarded to the State of Andhra Pradesh.
During discussions with senior officials of Finance Ministry, Government of India on 07.02.2018, the officials from the State Government have specifically requested to extend all the three components of Special Category Status, including industrial incentives under Special Assistance Measure. Further, the Chief Minister addressed a letter to Minister of Commerce & Industry, GoI, to extend incentives necessary for industrialisation such as Capital Investment Subsidy, Central Investment Subsidy, Excise Duty Exemption etc.
Quantification of potential resource gap by Joint Committee in 2014
Based on the request of the Governor, the Ministry of Home Affairs, Government of India, constituted a Joint Committee – comprising representatives of erstwhile Planning Commission and the Ministries of Home Affairs and Finance – to quantify the potential resource gap that would arise in the residuary Andhra Pradesh following bifurcation of the State in 2014-15 fiscal year. Unfortunately, Andhra Pradesh was not made a part of the Joint Committee.
On May 27, 2014, the Government of India was requested by the Principal Finance Secretary of AP to provide Rs15,691 crore in the Union Budget for the Finacial Year 2015.
However, the Government of India did not make any provision in the Union Budget 2014-15 for bridging the resource gap as mandated under Section 46 (2) of the Act. Therefore, the State was left with no option but to manage within its means duly drawing up on the reserves in the Public Account and through open market borrowings.
Finalisation of Financial Accounts for AP by CAG
The Comptroller and Auditor General of India has finalised the Financial Accounts for the State of Andhra Pradesh for the period from June 2, 2014 to March 31, 2015 and certified that the total resource gap amounted to Rs13,775.76 crore after taking into account the receipt of Rs2,303 crore released by Government of India in 2014-15, as ad hoc grant to bridge the gap.
Hence, the total resource gap accumulated by AP State due to bifurcation in ten months of 2014-15 financial year (June 2, 2014 to March 31, 2015) stands at Rs16,078.76 crore, which is closer to the gap of Rs15,691 crore estimated during the President’s Rule prior to reorganisation. This massive resource gap sustained in 2014-15 financial year has been impacting negatively the pace of development of the new State.
Funds released by Centre to bridge Revenue Deficit
GoI released Rs2,303 crore in 2014-15 as Revenue Deficit grant. The Accountant-General of Andhra Pradesh has furnished the audited finance accounts for 2014-15 FY, indicating a Revenue Deficit of Rs13,775.76 crore. This is after including the grants of Rs2,303 crore from GoI in 2014-15. Without these grants, total revenue deficit comes to Rs16,078.76 crore. Government of India released Rs500 crore in 2015.GoI released Rs1,176.5 crore in 2016. Thus the total amount released by GoI was around 4,000 crores (Rs3979.5) in 2015 and 2016.
Government of India in their announcement on September 8, 2016 mentioned that “Under the Andhra Pradesh Reorganisation Act, the commitment for the resource gap for the year 2014-15 is being met on the basis of standardised expenditure for that year. The revenue gap has been tentatively quantified subject to further adjustment on account of figures relating to certain pension schemes. A part of the revenue gap compensation amounting to Rs3,979.5 crore has already been paid and the balance is being paid in annual instalments.”
Union Finance Minister intimation dated May 4, 2017
The Union Finance Minister intimated to the CM on May 4, 2017 that only J138.39 crore more will be released to Andhra Pradesh which was arrived after disallowing certain expenditure incurred by the State treating them as New Schemes. It is also intimated that PRC arrears will not be considered.
According to GoI, the expenditure under New Schemes was
1. Debt Redemption (J7,069.67 cr),
2. Old age pensions (J3391.2 cr),
3. Financial Restructuring Package to DISCOMs (J1,500 crore)
This total comes to J11,960.87 cr. Thus the entitlement was J4,117.89 crore only. #KhabarLive
