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Indian and AP Economy — Mains Depth · Chapter 10

AP Economy after 2014 and the Reorganisation Act

What to remember

  • The Andhra Pradesh Reorganisation Act, 2014 created Telangana from the appointed day, 2 June 2014. Residuary Andhra Pradesh lost Hyderabad's large service economy and revenue base and had to build a new capital.
  • The Act promised central help for revenue gaps, backward regions (Rayalaseema and north coastal Andhra), the Polavaram project, institutions, and capital building. The demand for Special Category Status grew because many promises were seen as incomplete.
  • Polavaram (irrigation and power on the Godavari) and Amaravati (capital city on the Krishna) are the two large economic projects of the new state.

Bifurcation and structural features

Parliament passed the Andhra Pradesh Reorganisation Act in early 2014. Telangana became a new state on 2 June 2014, called the "appointed day". Hyderabad was made a common capital for a period not exceeding ten years (Section 5), after which it became the capital of Telangana alone.

Structural features of the residuary state (qualitative):

  • Agriculture and allied sectors stay very important for livelihood: rice in the deltas, groundnut and pulses in dry Rayalaseema, commercial crops, horticulture and a strong fisheries and aquaculture base.
  • Services form a large part of the state's output, but the state lost Hyderabad's IT, finance and real estate hub, which had supplied much of the tax revenue of the united state.
  • Industry is concentrated in clusters such as Visakhapatnam (steel, refining, shipbuilding, pharmaceuticals), Sri City, and coastal ports. Industrial base needs expansion.
  • Long coastline gives scope for ports, the blue economy, petrochemicals and tourism.
  • Regional imbalance: coastal and delta districts are more developed; Rayalaseema and the north coastal areas are more backward and drought- or cyclone-prone.
  • Fiscal stress: the state started with a revenue gap, large debt inherited under a population-based sharing, and needs to spend heavily on a new capital and projects.
  • Resources: water from the Godavari and Krishna, minerals, forest, and gas basin of the Krishna-Godavari region.
  • Shared institutions: assets and liabilities of state corporations, employees and higher education institutions had to be divided under the Act, and some issues took years.

Reorganisation Act provisions on assistance

The Act is long. Important matters (check the sections in the original text before the exam):

SubjectProvision (section)Idea
Common capitalSection 5Hyderabad as common capital for up to ten years
Revenue gapSection 46Central Government to give grants to meet the resource gap of the successor state
PolavaramSection 90Declared a national project; Centre to execute and bear cost of the irrigation component; a Polavaram Project Authority
Backward regionsSections 46(3) and 94(2)Special development package for Rayalaseema and north coastal Andhra, like the earlier plan for backward districts
Thirteenth ScheduleSection 93Centre to take the measures listed in the Thirteenth Schedule (institutions, infrastructure) within ten years
Incentives and institutionsSection 94Fiscal incentives for industrial growth and infrastructure; creation of educational and other national institutions; support for capital facilities
CapitalSection 94(3)Central assistance for essential facilities in the new capital

The Thirteenth Schedule (the last schedule of the Act) lists central institutions and infrastructure to be set up (for example higher education institutions, a major port at an identified place, a steel plant study, a railway zone). Check the latest official updates on how much of this list has been completed, because that changes with time.

Special Category Status (SCS) debate

  • Meaning: a status given earlier to certain states for central help, based on the Gadgil formula (named after D.R. Gadgil, adopted by the National Development Council around 1969). Criteria: hilly or difficult terrain, low population density or large tribal share, strategic border location, economic and infrastructure backwardness, and non-viable state finances.
  • Benefits in the older system: a larger share of grants in centrally sponsored schemes (grant-heavy) and tax concessions to attract industry.
  • Why AP wanted it: the revenue gap after bifurcation and the promise made in Parliament during the debate on the Bill.
  • Why it was difficult: the Fourteenth Finance Commission made no distinction between special and general category states in its devolution, increasing the share of states in the divisible pool and asking states to use that share. The Commission did not recommend special treatment by category; it gave some revenue deficit grants for a time period. The Centre then offered a special assistance or special package for AP instead.
  • Debate: AP argues the Act promised help, and the amount of money is large; the Centre argues that the Finance Commission's approach and constitutional norms limit it. Other states also seek the same status.
  • Today: the issue is a political and fiscal debate. Support is given through special assistance for specific projects and external-aided project routes. Check the latest official release for current arrangements.
AspectSpecial Category Status (older)After the Fourteenth Finance Commission
BasisGadgil formulaHigher tax devolution to all states
Grant shareHigher for centrally sponsored schemesLess category-based difference
RecipientsHill and north-eastern states and a few othersSame list continues for a few; others get package-based help
AP positionNot given SCSSpecial package or special assistance sought

Polavaram as an economic project

  • Location and purpose: an irrigation-multipurpose project on the Godavari near Polavaram. Also called Indira Sagar Polavaram. It provides irrigation, power, drinking water and industrial water supply.
  • Links: the right canal sends Godavari water toward the Krishna delta (a Godavari-Krishna link), and the left canal serves the north coastal region including Visakhapatnam. It can help divert water to the Krishna system and reduce water stress.
  • Status: the Act made it a national project, and the Polavaram Project Authority oversees it. Important issues are cost, land acquisition, resettlement and rehabilitation of affected (mostly tribal) families, submergence concerns in neighbouring states, and delays. Do not quote cost or capacity figures without checking.
  • Economic value: greater cropping area, hydropower, water for industry in the north coast, and stability for the delta.

Amaravati as an economic project

  • Idea: a new capital on the south bank of the Krishna in the Guntur-Vijayawada region, planned as a "people's capital" with government, business and knowledge districts.
  • Land pooling: land was acquired through a voluntary pooling scheme in which landowners gave land and received developed plots and annuity. Land use is regulated by the Andhra Pradesh Capital Region Development Authority Act, 2014 (CRDA).
  • Economic aims: build administrative and service jobs, spur construction, attract investment, and decongest other cities.
  • Issues: large funding requirement, central help under the Act, environmental concerns around the river and floodplain, and political change of plans (including the "three capitals" proposal and its later withdrawal). The state's current policy should be checked in recent official releases.
  • Regional balance: Visakhapatnam as business and port city and Rayalaseema as an industry and energy zone are often discussed alongside Amaravati.

Exam traps

  • 1. Appointed day is 2 June 2014 (not the date the Bill passed).
  • 2. Hyderabad common capital period was up to ten years only.
  • 3. Polavaram is a national project under the Act, but it is on the Godavari, not the Krishna.
  • 4. Amaravati is on the Krishna; it is not on the Godavari.
  • 5. SCS came from the Gadgil formula; it is not part of the Finance Commission Report.
  • 6. Fourteenth Finance Commission raised devolution; it did not give SCS to AP.
  • 7. Backward region package was for Rayalaseema and north coastal Andhra, not for the delta.
  • 8. CRDA Act governs the capital region; the Reorganisation Act is the main law for the split.

One-liners

  • 1. Appointed day for the new states was 2 June 2014.
  • 2. The Reorganisation Act made Hyderabad a common capital for up to ten years.
  • 3. Section 90 deals with the Polavaram project.
  • 4. Section 93 deals with the Thirteenth Schedule (institutions and infrastructure); backward-region help is in Sections 46 and 94(2).
  • 5. Section 94 deals with incentives and institutions.
  • 6. Polavaram uses Godavari water.
  • 7. Amaravati lies on the Krishna river.
  • 8. CRDA Act was passed in 2014.
  • 9. Gadgil formula is linked to Special Category Status.
  • 10. The Fourteenth Finance Commission increased the states' tax share.
  • 11. The residuary state has a long coastline.
  • 12. Rayalaseema is drought-prone and backward.

Practice questions

  1. The appointed day for the formation of Telangana under the AP Reorganisation Act was

    1. 1 November 2014
    2. 1 January 2014
    3. 15 August 2014
    4. 2 June 2014
    Answer

    D. 2 June 2014

    The Act fixed 2 June 2014 as the appointed day.

  2. Under the Reorganisation Act, Hyderabad was made a common capital for a period not exceeding

    1. Fifteen years
    2. Twenty years
    3. Ten years
    4. Five years
    Answer

    C. Ten years

    Section 5 provided a common capital for up to ten years.

  3. Which section of the Reorganisation Act deals with the Polavaram project?

    1. Section 93
    2. Section 46
    3. Section 90
    4. Section 5
    Answer

    C. Section 90

    Section 90 declares Polavaram a national project.

  4. Which section of the Act speaks of a special development package for backward regions of Rayalaseema and north coastal Andhra?

    1. Section 5
    2. Section 93
    3. Section 90
    4. Section 101
    Answer

    B. Section 93

    Section 93 deals with backward areas.

  5. Polavaram project is built on the river

    1. Tungabhadra
    2. Pennar
    3. Krishna
    4. Godavari
    Answer

    D. Godavari

    Polavaram is on the Godavari.

  6. The Polavaram project is declared a

    1. State project only
    2. Inter-state canal scheme
    3. Private project
    4. National project
    Answer

    D. National project

    The Act made it a national project.

  7. Amaravati, the capital of Andhra Pradesh, is located on the banks of the river

    1. Godavari
    2. Vamsadhara
    3. Krishna
    4. Pennar
    Answer

    C. Krishna

    Amaravati is on the Krishna.

  8. The Act that governs the planning of the capital region is the

    1. Panchayat Raj Act
    2. AP Capital Region Development Authority Act, 2014
    3. AP Land Reforms Act
    4. Industrial Disputes Act
    Answer

    B. AP Capital Region Development Authority Act, 2014

    The CRDA Act created the authority for the capital region.

  9. Land for Amaravati was mainly obtained through

    1. Purchase from the Reserve Bank
    2. Land pooling
    3. Forced seizure without compensation
    4. Foreign grants
    Answer

    B. Land pooling

    Landowners voluntarily pooled land and received developed plots.

  10. The Gadgil formula is associated with

    1. Income tax slabs
    2. Crop insurance
    3. Land ceiling
    4. Special Category Status
    Answer

    D. Special Category Status

    Gadgil formula guided central assistance and the category status.

  11. Which of these is a criterion of Special Category Status under the older system?

    1. Hilly terrain and strategic border location
    2. Coastal location
    3. Large urban population
    4. High per capita income
    Answer

    A. Hilly terrain and strategic border location

    Hilly terrain, border location, backwardness and non-viable finances were among the criteria.

  12. Which Finance Commission raised the tax share of states and moved away from category-based special status?

    1. Thirteenth
    2. Tenth
    3. Fourteenth
    4. Twelfth
    Answer

    C. Fourteenth

    The Fourteenth Finance Commission increased devolution and did not retain category status for most states.

  13. After bifurcation, residuary AP lost most of its

    1. Delta irrigation
    2. Coastline
    3. Mineral deposits
    4. Hyderabad-based service and revenue base
    Answer

    D. Hyderabad-based service and revenue base

    Hyderabad's services and tax base went to Telangana.

  14. Which region of AP is traditionally drought-prone and backward?

    1. Coastal Visakhapatnam
    2. Godavari delta
    3. Rayalaseema
    4. Krishna delta
    Answer

    C. Rayalaseema

    Rayalaseema gets low and uncertain rain.

  15. A major strength of residuary AP's geography is

    1. A long coastline for ports and fisheries
    2. Lack of agriculture
    3. Absence of rivers
    4. Landlocked position
    Answer

    A. A long coastline for ports and fisheries

    The state has a long coast.

  16. Section 46 of the Act deals mainly with

    1. Common capital
    2. Central grants for resource gap of the successor state
    3. River water sharing
    4. Division of employees
    Answer

    B. Central grants for resource gap of the successor state

    It provides for grants to meet the revenue gap.

  17. The Polavaram Project Authority was created to

    1. Oversee execution of the project
    2. Collect water tax
    3. Regulate ports
    4. Control floods in the Krishna delta
    Answer

    A. Oversee execution of the project

    The authority supervises the national project.

  18. Polavaram's right canal is meant to

    1. Carry Godavari water toward the Krishna delta
    2. Carry water to Telangana only
    3. Serve Rayalaseema's deserts only
    4. Feed the Pennar
    Answer

    A. Carry Godavari water toward the Krishna delta

    The right canal links the Godavari with the Krishna system.

  19. Polavaram's left canal mainly benefits

    1. Rayalaseema
    2. North coastal Andhra including Visakhapatnam
    3. Tungabhadra basin
    4. Nellore
    Answer

    B. North coastal Andhra including Visakhapatnam

    It serves the north coastal region.

  20. Which issue is often raised about Polavaram?

    1. Absence of any canal
    2. Foreign ownership
    3. Use of seawater
    4. Resettlement and rehabilitation of affected families
    Answer

    D. Resettlement and rehabilitation of affected families

    Displacement and rehabilitation are key concerns.

  21. Which is an economic aim of the Amaravati project?

    1. Abolish tax
    2. Close all ports
    3. Build a new administrative and service hub
    4. Stop construction
    Answer

    C. Build a new administrative and service hub

    The capital is meant to drive jobs and investment.

  22. Which concern is linked with the Amaravati project?

    1. Lack of any land
    2. Funding and environmental issues near the river
    3. Total absence of roads in AP
    4. Ban on investment
    Answer

    B. Funding and environmental issues near the river

    Large finance needs and river-floodplain issues have been debated.

  23. The demand for Special Category Status for AP was largely based on

    1. Excess surplus budget
    2. Hill terrain
    3. Revenue gap and promises during bifurcation
    4. Large tribal majority
    Answer

    C. Revenue gap and promises during bifurcation

    AP cited the loss of revenue and assurances in Parliament.

  24. Special Category Status in the older system gave

    1. Abolition of the state budget
    2. Control over defence
    3. Exemption from all taxes
    4. More grant-heavy central scheme funding
    Answer

    D. More grant-heavy central scheme funding

    Special category states got a larger grant share in schemes.

  25. Which Finance Commission recommended a larger share of the divisible tax pool for states than its predecessor and ended category-based special status for most states?

    1. Eleventh
    2. Ninth
    3. Fourteenth
    4. Seventh
    Answer

    C. Fourteenth

    The Fourteenth Finance Commission raised devolution and moved away from category-based status.

  26. The 'special package' for AP was offered as an alternative to

    1. Special Category Status
    2. Finance Commission
    3. GST
    4. Capital budgeting
    Answer

    A. Special Category Status

    The Centre offered special assistance instead of SCS.

  27. Which of the following is an industrial cluster of AP?

    1. Kanpur
    2. Jaipur
    3. Surat
    4. Visakhapatnam
    Answer

    D. Visakhapatnam

    Visakhapatnam has steel, refining, shipbuilding and pharmaceuticals.

  28. The Visakhapatnam-Kakinada coast is associated with a

    1. Tea plantation
    2. Textile park only
    3. Petroleum, chemicals and petrochemicals investment region
    4. Diamond cutting hub
    Answer

    C. Petroleum, chemicals and petrochemicals investment region

    The region was planned for petroleum and chemicals industries.

  29. Rayalaseema's economic development is often tied to

    1. Deepwater ports
    2. Fisheries only
    3. Plantation tea
    4. Energy, mining and industry along with irrigation
    Answer

    D. Energy, mining and industry along with irrigation

    Solar and wind parks, minerals and irrigation are key hopes there.

  30. Consider the statements: 1. Hyderabad was a common capital for a limited period. 2. Hyderabad is the permanent capital of both states. Which is/are correct?

    1. 1 only
    2. 2 only
    3. Both 1 and 2
    4. Neither 1 nor 2
    Answer

    A. 1 only

    Hyderabad's joint capital status was time-bound.

  31. Consider the statements: 1. Polavaram is on the Krishna. 2. Polavaram is declared a national project under the Act. Which is/are correct?

    1. 1 only
    2. 2 only
    3. Both 1 and 2
    4. Neither 1 nor 2
    Answer

    B. 2 only

    Polavaram is on the Godavari.

  32. Consider the statements: 1. Amaravati lies on the banks of the Krishna. 2. The AP CRDA Act relates to the capital region. Which is/are correct?

    1. 1 only
    2. 2 only
    3. Both 1 and 2
    4. Neither 1 nor 2
    Answer

    C. Both 1 and 2

    Both statements are accurate.

  33. Consider the statements: 1. Special Category Status is a constitutional status under Article 370. 2. It was based on the Gadgil formula under the older system. Which is/are correct?

    1. 1 only
    2. 2 only
    3. Both 1 and 2
    4. Neither 1 nor 2
    Answer

    B. 2 only

    SCS was an administrative framework, not a constitutional status.

  34. Consider the statements: 1. The Fourteenth Finance Commission did away with category-based special status for most states. 2. After this, all states lost devolution. Which is/are correct?

    1. 1 only
    2. 2 only
    3. Both 1 and 2
    4. Neither 1 nor 2
    Answer

    A. 1 only

    Devolution actually rose.

  35. Consider the statements: 1. Residuary AP has a long coastline. 2. Residuary AP is landlocked. Which is/are correct?

    1. 1 only
    2. 2 only
    3. Both 1 and 2
    4. Neither 1 nor 2
    Answer

    A. 1 only

    The state has a long coast, so the second statement is false.

  36. Consider the statements: 1. Land pooling for Amaravati gave landowners developed plots. 2. All land was acquired without any compensation. Which is/are correct?

    1. 1 only
    2. 2 only
    3. Both 1 and 2
    4. Neither 1 nor 2
    Answer

    A. 1 only

    Pooling offered developed plots and annuity.

  37. Match the following: 1. Section 5 - (i) Common capital 2. Section 90 - (ii) Polavaram 3. Section 93 - (iii) Backward regions Which match is correct?

    1. 1-iii, 2-ii, 3-i
    2. 1-i, 2-ii, 3-iii
    3. 1-i, 2-iii, 3-ii
    4. 1-ii, 2-i, 3-iii
    Answer

    B. 1-i, 2-ii, 3-iii

    These are the section-subject pairs.

  38. Match the following: 1. Polavaram - (i) Godavari 2. Amaravati - (ii) Krishna 3. Rayalaseema - (iii) Drought-prone Which match is correct?

    1. 1-i, 2-iii, 3-ii
    2. 1-iii, 2-ii, 3-i
    3. 1-ii, 2-i, 3-iii
    4. 1-i, 2-ii, 3-iii
    Answer

    D. 1-i, 2-ii, 3-iii

    Each is paired with its river or feature.

  39. A state faces a revenue gap after a split. Which statutory route provides central grants to meet it for the successor state in the AP case?

    1. Right to Information Act
    2. Article 370
    3. Seventh Schedule only
    4. Section 46 of the Reorganisation Act
    Answer

    D. Section 46 of the Reorganisation Act

    The Act provided grants for resource gap.

  40. Which of the following shows regional imbalance in AP?

    1. Equal development everywhere
    2. Coastal and delta areas developed, Rayalaseema and north coast more backward
    3. No agriculture in the north
    4. No ports in the south
    Answer

    B. Coastal and delta areas developed, Rayalaseema and north coast more backward

    Regional disparity is a central issue in the state's economy.

  41. What is the most direct benefit of the Godavari-Krishna link under Polavaram?

    1. Reducing GST
    2. Raising MSP
    3. Stabilising water supply to the Krishna delta
    4. Creating a new ocean port
    Answer

    C. Stabilising water supply to the Krishna delta

    Diverting Godavari water helps the Krishna system.

  42. Why did the older Special Category Status become a difficult demand to meet?

    1. The Constitution bans all grants
    2. The Gadgil formula was revived in 2014
    3. The Finance Commission approach increased devolution for all states and ended category-based support for most states
    4. AP has no revenue gap
    Answer

    C. The Finance Commission approach increased devolution for all states and ended category-based support for most states

    Devolution through the Finance Commission replaced category status.

  43. Which of the following is a key issue for a new capital city like Amaravati?

    1. Banning construction
    2. Closing ports
    3. Ending land pooling forever
    4. Funding large infrastructure and balancing regions
    Answer

    D. Funding large infrastructure and balancing regions

    Finance, environment and regional balance are central.

  44. Aquaculture in residuary AP is concentrated mainly in

    1. Hilly interior
    2. Coastal areas
    3. Rayalaseema's dry plateau
    4. Eastern Ghats peaks
    Answer

    B. Coastal areas

    Prawn and fish farming are along the coast and deltas.

  45. A cause of fiscal stress in the new AP right after 2014 was

    1. Excess surplus
    2. Absence of expenditure
    3. Lack of any debt
    4. Loss of Hyderabad-based revenue and need to build a capital
    Answer

    D. Loss of Hyderabad-based revenue and need to build a capital

    The revenue gap and capital building raised financial pressure.

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