A decade after

States need engines of growth

It has been 10 years since the bifurcation of Andhra Pradesh — into Telangana, around the city of Hyderabad, and the new Andhra Pradesh, which retains the area of Rayalaseema and the districts of coastal and upper Andhra. The division of the state was not amicable. Disputes continue about the splitting of shared assets, including public-sector companies of the undivided state, and properties in Hyderabad. The acrimony between the two states is not entirely surprising. The bifurcation, after all, followed a long period of agitation by pro-Telangana activists, who believed that their part of the undivided state was being exploited by “Seemandhra”. Many data points in the decade since the bifurcation could be marshalled in support of their cause.

The two states have demonstrated similar growth rates in the period: 7.1 per cent and 7.2 per cent, both higher than the national average. But at the time of bifurcation, poverty was concentrated in rural Telangana. Most of its rural districts were classified as being among the most deprived in the country. That has been effectively turned around by the welfare-oriented regional party that ruled in the state before being ousted by the Congress in the last Assembly election. While welfare spending in Telangana increased and new government schemes were piloted, the state also managed to run a revenue surplus in seven of the nine years prior to the Assembly elections.

Andhra Pradesh, meanwhile, opened the fiscal tap without corresponding revenue. Its fiscal deficit went up to more than a percentage point of state gross domestic product, higher than the mandated level of 3 per cent. Unlike Telangana, it had a change in government, which led to severe policy uncertainty. Projects from the massive plans for a new capital to contracts signed with renewable power suppliers were all discarded. Revenue was not raised, off-Budget liabilities built up, capital assets were not created, and investors were turned off by the policy shifts. The state no longer has the sort of political capital in New Delhi that would cause it to receive a special financing package from the Union government. It thus faces a difficult reckoning — which is not helped by the competitive welfarism of the major contenders for power in the ongoing Assembly elections in the state.

There is no clear lesson to be drawn from recent Indian political history about whether bifurcation leads to better outcomes. Jharkhand and Uttarakhand, which were separated from Bihar and Uttar Pradesh, respectively, a quarter century ago, may have done better than their parent states but it is also clear that they have not lived up to their potential. The Telangana story reveals, if anything, that the Indian political economy is far too dependent upon extractive politics structured around revenue-generating cities. When Seemandhra dominated the politics of undivided Andhra Pradesh and had access to Hyderabad’s surpluses, it did well. When instead that power shifted to the rural districts of Telangana, they did well in turn. Cities are the engines of growth, but Indian state politics continues to compete not around expanding that growth or creating more cities, but instead for the spoils of that growth — to funnel it to the regions and communities that happen to have political power at that point.