Tale of two states: What numbers tell us about AP, Telangana

A visitor to the town 20 years ago would not have received a similar welcome as weavers then were in deep distress. With falling orders, high yarn prices, rising power costs and cheap imports, they incurred losses and piled up debts. As machines remained idle for most days, they were unable to repay the debts and many committed suicide. Others chose to migrate elsewhere in search of menial jobs.

Things have changed since 2016. Weavers are back in business, thanks to large orders from the government of Telangana. Between 2016 and 2023, the state procured 58.56 crore metres of cloth valued at ₹2,758 crore. They also get power and yarn subsidies.

“I finally repaid last year the ₹5 lakh debt that I had taken nine years ago," says Gajula Mallesham, who operates 10 looms in his house. “We went through hell. Things are better now," he adds.

This transformation has triggered a reverse migration. Workers from Jharkhand and Odisha have found jobs in these weaving units and in the textile and weaving parks the state government has set up in the town.

Sircilla is the constituency of K.T. Rama Rao, working president of the Bharat Rashtra Samithi (BRS), Telangana’s ruling party, and son of chief minister K. Chandrashekar Rao.

Sircilla is clearly a beneficiary of the bifurcation of Andhra Pradesh. In 2014, The Andhra Pradesh Reorganisation Act got the presidential assent and Telangana formally came into existence on 2 June that year. The two other regions, Coastal Andhra Pradesh and Rayalaseema, also called Seemandhra, remained with Andhra Pradesh. Ten years on, the bifurcation appears to have worked, if one looks at the broad numbers. Both Telangana and Andhra Pradesh have grown at a faster pace than united Andhra Pradesh.

“Between 2013-14 and 2022-23, Telangana’s economy grew at a compounded annual growth rate of 7.2% and Andhra Pradesh by 7.1% as against all India rate of 5.6%. Their growth was higher than undivided Andhra Pradesh’s 3.9% between 2011-12 and 2013-14," says Paras Jasrai, senior analyst, India Ratings and Research, a credit rating agency.

Per capita income of both states has risen. Telangana’s from ₹85,000 in 2012-13 to over ₹309,000 in 2022-23. In the same period, Andhra Pradesh’s per capita income grew to over ₹220,000 from ₹72,000.

But a closer look reveals two different tales. One of Telangana’s, a transformation that was based on a clear vision, and the other of Andhra Pradesh’s, where virulent politics and inconsistent policies have caused under-performance and fiscal challenges.

As Telangana heads into its third assembly elections on 30 November, it is on a much stronger footing than Andhra Pradesh which will face the electorate next year.

The trigger

Of the three regions of erstwhile undivided Andhra Pradesh, Telangana remained underdeveloped. “It was a case of denied development," says E. Revathi, director, Centre for Economic and Social Studies, a Hyderabad-based think tank. Though bulk of the revenue was raised from the Telangana region, which included Hyderabad, a smaller part was spent there. Hyderabad, by virtue of being the capital, saw major development but rural Telangana region remained ignored. Agriculture was in distress as it was predominantly rain-fed in the absence of irrigation.

Between 1960-61 and 2014-15, the quantum of irrigated land remained constant at 4.1 million acres (of the 12 million cultivable land). This, despite the fact that 86% of river Godavari and Krishna’s catchment areas were in Telangana. The lower riparian regions of Andhra and Rayalaseema benefitted the most from the two rivers. Massive power cuts—the region had a power deficit of over 1,000MW at the time of bifurcation—meant that borewells were of little use to irrigate. Farmer suicides were common. People also had no access to drinking water. Debilitating power cuts—six hours a day and a two-day power holiday—meant that there was hardly any industrial development and unemployment was rife, especially among the youth.

There were reasons for this skewed development. Seemandhra, with 175 assembly seats in the state assembly, was politically more empowered. Telangana had just 120 seats. Also, strong political leaders emerged from Seemandhra and this meant policies favoured that region. At the time of bifurcation in 2014, nine out of 10 districts in Telangana were classified as backward. Two of them, Khammam and Mahbubnagar, were termed as ‘most hungry’ by the Planning Commission. It was these factors that fuelled the demand for a separate state. Telangana Rashtra Samithi (TRS), as BRS was earlier named, under Chandrashekar Rao, capitalized on this disenchantment and protested under the theme ‘water, finance, employment’. They succeeded in 2014.

The Telangana story

When TRS won the mandate to form the first government in 2014, the first challenge it took up was to fix the power crisis. A three-stage plan was conceived. As a short-term measure, electricity was purchased from power exchanges to reduce the blackouts. Simultaneously, transmission lines were built to evacuate power from neighbouring Chhattisgarh, which was a power surplus state. Thirdly, it began building large power stations. According to B. Vinod Kumar, vice chairman, Telangana State Planning Board, the state with a capacity of 18,567 MW as against 7,778 MW at the time of bifurcation, is power surplus today.

Two lift irrigation systems (where water is pumped using motor) were implemented—the Kaleshwaram Lift Irrigation Project on river Godavari, considered to be the world largest, at a cost of ₹1 trillion, and the Palamuru-Rangareddy Lift Irrigation Scheme on river Krishna that cost ₹35,000 crore.

That apart, over 46,300 tanks were renovated at a cost of ₹20,000 crore over a period of five years under Mission Kakatiya. These efforts irrigated vast swathes of parched land.

In addition, the government introduced Rythu Bandhu, a direct cash transfer scheme for farmers to meet the cost of inputs. As much as ₹65,559 crore has been spent in the last five years for the scheme. The impact? Gross irrigated area of all crops increased 117% between 2014-15 and 2021-22. Total crop production in this period rose by 152%. Telangana has become the largest producer of paddy in the country. The Food Corporation of India (FCI), a public sector enterprise tasked with ensuring India’s food security, procured 13 million tonnes of paddy in 2022-23. At the time of bifurcation, FCI procured just 2.5 million tonnes.

Farm distress has eased. As per state crime bureau data, suicide by farmers have dropped from 1,358 in 2015 to 352 in 2021. Mission Bhagiratha (water at doorstep) scheme was launched with a budget of ₹46,000 crore. Today, 95% of all households have tap water.

At the time of bifurcation, many feared a flight of capital as most businessmen were from the Andhra region. One of the first steps that Chandrashekara Rao took was to meet up with the industrialists and assured them of support. The economic hub of Hyderabad needed to thrive and generate the resources to develop the rest of Telangana.

He continued with the investor-friendly policies of earlier governments. Software exports rose from ₹57,258 crore in 2013-14 to ₹2.4 trillion in 2022-23. The number of workers in the IT sector grew from 323,000 to 906,000 in the same period. Investments worth ₹ ₹4 trillion have been committed or realized.

“Telangana is a rare example of integrated, holistic, inclusive and balanced development," BRS working president K.T. Rama Rao tells Mint. “We have focussed on both development and welfare, rural and urban areas, industry and environment, apart from IT services and agriculture," he adds. “None of our 33 districts is classified as backward now."

The state has achieved this without any financial stress. It has managed a revenue surplus in seven out of the last nine years. “The state has been borrowing only to fund capital expenditure. Its quality of expenditure is thus very good," says India Rating’s Jasrai.

“Stable policies, focus on development, creation of productive assets and keeping welfarism at a level that did not hurt the state finances have been key to Telangana’s transformation," adds Jayaprakash Narayan, former IAS officer and general secretary, Foundation for Democratic Reforms, a think tank.

The Andhra story

The opposite is true when it comes to Andhra Pradesh. “While it may be true that the state got the raw end of the stick in the bifurcation, better governance would have helped it to do well," says Narayan.

The raw deal he refers to is Hyderabad, a region that generated bulk of the revenue for undivided Andhra Pradesh, remaining with Telangana. It was also the region that was the base of the state’s industrial and service sectors. The union government then went back on its promise for a special package for Andhra Pradesh. This meant the state inherited a relatively weak fiscal position. Such a situation needed calibrated policies.

The Telugu Desam government that came to power in 2014, hurt by the loss of Hyderabad, chose to spend a lot of money on building a new capital at Amaravati. The state’s fiscal deficit exceeded 4% between 2015-16 and 2017-18. Former chief minister N. Chandrababu Naidu’s reform credentials and investor friendly image did attract some investments, the most prominent being South Korean car maker Kia. When Naidu lost elections in 2019 and YSR Congress came to power under Y.S. Jagan Mohan Reddy, the new government chose to reverse many of the earlier policies.

Amaravati as a capital was junked. The focus shifted to welfarism. “Populism began to take root and it was at the cost of investing in productive assets," says Revathi. The revenue deficit ballooned. In 2022-23, it was ₹29,808 crore and ₹22,317 crore has been budgeted for 2023-24. The state resorted to borrowing to meet its current expenditure.

Committed expenditure (spending on salaries, pensions and interest) as a share of state’s own revenue touched 136% in 2020-21. When the borrowing reached the limit as per the Fiscal Responsibility and Budget management (FRBM) Act, it resorted to off-budget borrowings. In 2021-22, it raised funds through Andhra Pradesh State Development Corporation by securitizing future revenue from liquor sales in 10 zones. Both the central government and the Reserve Bank of India, India’s central bank, came down heavily on the state and mandated that such off-budget borrowings will be added to the fiscal deficit. This created a cash flow crisis, forcing the state government to hold back all payments including salaries. Outstanding debt as a percentage of GSDP, including off-budget borrowings, will touch an alarming 42% of GSDP in 2023-24.

The bane of populism has just gotten worse. Chandrababu Naidu, who had eschewed freebies and focussed on development till now, recently announced first of his many manifestos (Andhra Pradesh goes to election in April 2024) that promises handouts such as free LPG cylinders, monthly cash assistance for women, mothers and unemployed youth. “Naidu has no choice. He has to follow the trend to remain relevant," says Narayan. Such handouts will worsen the already precarious state finances.

The recent arrest of Chandrababu Naidu on corruption charges has also made polity in the state worse. “Virulent politics and inconsistent policies unnerve investors," says Narayan.

This can already be noticed. Not many large investors appear interested in Andhra Pradesh. Young Liu, chairman of Foxconn, world’s largest electronics manufacturer, recently visited Karnataka, Telangana and Tamil Nadu looking to make investments but gave Andhra Pradesh a miss. Local players such as Amara Raja Batteries have chosen to invest heavily in Telangana. The state government, however, claims that its Global Investors Summit, held in March this year, raked in investment commitment worth ₹13.42 trillion.

The Andhra Pradesh government, despite several attempts by Mint, did not respond to requests for meetings.

Meanwhile, in Telangana, a resurgent Congress, fresh after tasting victory in Karnataka, is giving a tough fight to BRS which is facing anti-incumbency in the state assembly elections due on 30 November. The youth are unhappy as they are unable to find jobs, especially in the government.

The Kaleshwaram project is mired in a controversy involving engineering lapses. The opposition has accused the BRS government of corruption too.

“People of Telangana believed that the bifurcation would be a miracle for them, and people of Andhra Pradesh believed it would end up in a disaster for them," says Narayan. “So far, it has been neither, but the jury is still out and the outcome of the upcoming assembly elections in both the states will play a big part in how things will pan out going forward," he adds.