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Andhra Pradesh Bifurcastion - a perspective

 Andhra Pradesh Reorganisation Act, 2014 for bifurcation of Andhra Pradesh received the President's assent on 01
March 2014.
 The Andhra Pradesh Reorganization Bill, 2014 was introduced in Lok Sabha on 18 February 2014 by the Minister for
Home Affairs.
 The ''appointed day'' for the new States' formation is 02 June 2014.
 The new Andhra Pradesh and Telangana will have a common capital, Hyderabad, for a period of 10 years.
 The Central Government has constituted an expert committee headed by former Union Urban Development
Secretary K Sivaramakrishnan to suggest and study various possible options regarding capital for new state and give
their recommendations by 31 August 2014.
 The cash balances and credit balances of the existing state of Andhra Pradesh will be divided between the two new
states on the basis of population ratio.
 The Polavaram Irrigation Project has been declared as a national project.
 The Andhra Pradesh Reorganization Act, 2014 (hereinafter referred to as the Reorganisation Act), which is commonly
called the “Telangana Bill”, is an act of the Indian Parliament proclaiming the bifurcation of the Andhra Pradesh state
into Telangana and the residuary Andhra Pradesh (collectively referred to as two new States).
 The two new States will come into existence with effect from 02 June 2014 (Appointed Date)2
 The Andhra Pradesh Reorganization Bill was passed in the Lok Sabha on 18 February 2014 and in the Rajya Sabha on
20 February 2014.
 The Bill has been approved by the President of India and was published in the official Gazette3
 As per the Reorganisation Act, the two new States will comprise territories of the existing districts, as indicated
below4
 Hyderabad is an information technology/business hub. The city isestimated to have contributed over `34,000 crore7 to
the state’s total revenues of `70,548 crore during 2012–13. This collectively includes the contribution of citizens and
companies of both of the States. Of the 44 state-level public enterprises, the headquarters of 40 are located in
Hyderabad.
 Non-tax revenues, following mainly the principle of location,will also be differentially affected. The division of mineral
resources including coal and oil and gas will affect royalties. Furthermore, offshore resources will go to new Andhra
Pradesh,while Telangana will stand to benefit from land-based mineral resources.
 At the center of this bifurcation is the capital city of Hyderabad, which has been declared as the common capital of
the two new States for 10 years5.
 Population ratio is the key determinant in the division of assets and liabilities and the flow of Central transfers.

2 Gazette of India No 560 - Notification dated 4 March 2014

3 Gazette of India No 06 - Notification dated 1 March 2014
4 Section 3 and 4 of the Reorganization Act
5 Section 5 of the Reorganization Act
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 The bifurcation of Andhra Pradesh will have significant implications on the transfer of resources from the Centre to
the two new state governments. These transfers shall take place under the aegis of three main channels:
• The Finance Commission
• The Planning Commission
• The Central Ministries

A. The Finance Commission

The Fourteenth Finance Commission is presently deliberating on the issue of the sharing of sharable central taxes
and the determination of the principles and the flow of grants from the Central Government to the respective
state governments. The period of recommendation of the Fourteenth Finance Commission will be from 2015–16
to 2019–208 .
The Finance Commission relies on a number of factors, inter alia, for determining the transfers and flow of
grants; some of these are:
• Distance of the per capita Gross State Domestic Product Ratio(GSDP) of a state from a selected
benchmark per capita GSDP (which is usually close to the highest per capita GSDP of all the States)
• Area
• Index of fiscal discipline
• Index of tax effort

2 Gazette of India No 560 - Notification dated 4 March 2014

3 Gazette of India No 06 - Notification dated 1 March 2014
4 Section 3 and 4 of the Reorganization Act
5 Section 5 of the Reorganization Act