The Centre may give an indirect special status to Andhra Pradesh by agreeing to reimburse the state for the tax incentives it offers to prospective entrepreneurs for the next 10 years. The entire amount will be adjusted through funding revenue deficit and special assistance schemes.
AP Chief Minister N. Chandrababu Naidu, who met Prime Minister Narendra Modi in Delhi on Tuesday, is said to have been given an assurance on this. After a scheduled meeting with the PM on the drought situation in AP, both leaders held a one-on-one meeting for 20 minutes in the PM’s office and discussed the political tension in the state following a series of statements by Union ministers refuting the grant of special status. However, the PM assured CM Naidu that he would explore how to extend special status privileges to the state, sources said.
On the political front, PM Modi told CM Naidu that allies BJP and TDP should “work together” and “walk together” on all issues including the special status demand, a senior MP close to Naidu told The Sunday Guardian. Naidu told the PM that he was under pressure from within his party to quit the Bharatiya Janata Party-led National Democratic Alliance as the Centre was not willing to grant special status. Naidu is learnt to have told the PM that the TDP won’t quit NDA, but some positive signals should come from the Centre.
Senior officials in Hyderabad, who spoke to this newspaper, said that the report of the 14th Finance Commission, which devolved greater funds to states, ruled out granting special status to any state in future.
Seen from the right perspective, this new approach would give greater freedom to states to offer whatever concessions they want to their industrialists.
The promise for special category was made on the floor of the Rajya Sabha by former PM Manmohan Singh and was backed by BJP leaders Arun Jaitley and Venkaiah Naidu in February-March 2014, much before the submission of the report of the 14th Finance Commission.
Notably, special status does not find a mention in the AP Reorganization Act, 2014, and this is being used as the Centre to steer clear of the matter. The Centre has set up a special cell in the Home and Finance Ministries to fulfill all promises made to AP as per the Act. But as the statute is silent on the status, the Centre can do little about it, officials pointed out.
The public perception is that only a special status, which offers tax incentives to prospective industrialists for a decade, would be useful to AP. There were also allegations that Naidu has sacrificed the special status demand in order to get more funds from the Centre. Naidu denied the allegations.
Officials are now working out modalities to pass on the benefits of tax incentives to industrialists and entrepreneurs for the first 10 years through the state government. The tax incentives including 100% exemption of Central excise duty for the first 10 years, full exemption of income tax for the first five years and 30% and 25% for industries and other businesses respectively for the next five years.
The demands include a 15% subsidy on capital investment for new industries in plant and machinery with an upper cap of Rs 1 crore and the creation of a special fund of Rs 1,000 crore for training and skill development in the backward districts of Srikakulam, Vizianagaram, Visakhapatnam, Kurnool, Kadapa, Chittore and Anantapur for the next 10 years.
The state government is examining whether these sops can be passed on from its funds so that the Centre can reimburse it through funding the revenue deficit.
Sources said that a lot depends on the final report of the NITI Aayog which has been entrusted with finding ways to bail out AP from its financial crisis owing to its annual revenue deficit of around Rs 15,000 crore.