special articles_ budgetary surpluses of telengana

8/3/2019 SPECIAL ARTICLES_ Budgetary Surpluses of Telengana

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SPECIAL ARTICLES

Budgetary Surpluses of TelenganaC H Hanumantha Rao

The purpose of this paper is not so much to give a precise estimate of Telengana surpluses as toattempt a clarification of some of the main issues relevant to this problem and to suggest a procedure foiestimating the surpluses.

Limitations of data, especially those arising from the allocation of joint expenditures, will haveto be overcome before the true figure of Telengana surpluses can be arrived at.

The analysis attempted in this paper does, however, suggest that the surpluses could be substantial. Even if a 20 per cent margin of error is applied to the estimate made here, the surpluses would amount to not less than 64 per cent of the Third Plan outlay for Telengana.

THERE have been complaints thatthe Telengana region has not got itsdue share in the public expenditure of Andhra Pradesh State ever since its

formation in 1956, At the request of the State Chief Minister in January1969 for an independent investigation,the Comptroller and Auditor Generalof India deputed K Lalit, an officerof the rank of Accountant General,for determining the exact quantum of Telengana surpluses for the period from1-11-1956 to 31-3-1968. These surpluses(or the difference between the amountthat ought to have been spent and theamount actually spent for Telengana)were to be computed on the basis of the principles agreed to by all thepolitical leaders on January 19, 1969.Lalit submitted his Report in March1969. Apart from his estimates of Telengana surpluses, Lalit's Reportcontains comprehensive data regardingannual receipts and disbursementsunder major heads for the 12-yearperiod.

In the wake of widespread discontentin Telengana, the Government of Indiaconstituted a high-powered committeein April 1969, under the Chairmanshipof Justice V Bhargava, to determinethe Telengana surpluses for the periodfrom 1-11-1956 to 31-3-1968; to determine the sum which ought to have beenspent on the development of the Telengana region but remained unspent onMarch 31, 1968; and to evolve andrecommend precise principles for deter-*mining such surpluses in future. TheCommittee is now wor king on theproblem and is expected to submit itsreport shortly.

Meanwhile, sharp differences of opi

nion have persitted between the Government of Andhra Pradesh and theTelengana Regional Committee (alsocalled the Andhr a Pradesh Regional

Committee consisting of the membersof Legislature from Telengana) concerning the criteria for the allocation of receipts and expenditure between the

Telengana and Andhra regions. Neitherthe Government nor the Telengana leaders scrupulously adhered to whateverunderstanding and agreements hadbeen arrived at. The criteria have beenrevised frequently from both the sides.

This paper is primarily an attempt toexamine these principles from thestandpoint of an economist and tosuggest a procedure for estimatingTelengana surpluses. An attempt hasalso been made to estimate the magnitude of Telengana surpluses by usingthis procedure. The data used are thosecontained in Lalit's Report which hassince been published by the Governmentof Andhra Pradesh.

We use the term 'Budgetar y Surpluses' to include surpluses on Revenueas wel l as Capi tal account. These'surpluses' should not be taken to meanamounts which have remained unspentin Andhra Pradesh and have beenaccumulated into reserves for the purposes of future developmental expenditure, for, no such accumulated reservesseem to exist in Andhra Pradesh now.Telengana surpluses are the amountswhich ough t to have been spent inTelengana but have been diverted forexpenditure in the Andhra region.Therefore, these surpluses represent thedifference between the due share of Government expenditure for Telenganaand the actual share. It is clear thatsuch surpluses, if any, represent over-expenditure in the Andhra region.These amounts would have to be reimbursed fro m the future budgetary

share of Andhra region for purposesof expendit ure in Telengana if thebalance in public expenditure betweenthe two regions it to be restored.

For estimating Telengana surpluseson the Revenue account we follow theprinciple laid down in the Gentlemen'sAgreement of 1956 that "the balanceof (revenue) income from Telenganashould be reserved for the expenditureon the development of Telengana area".We use the figures of revenue receiptsand expenditure given in Lalit's Report.This means that the procedure followedby the Government of Andhra Pradesh for allocating receipts and expenditure to the Andhra and Telengana regions remains unmodified. This proce

dure is open to criti cism in certainrespects. It is free from criticism inregard to many items which are specificto each region: Land revenue receiptsand expenditure on schools or minorirrigation are among such heads. Thedifficulty arises in regard to the receiptsaccrued and expenditure incurred jointlyfor the State as a whole. For instance,the Stat es share in Un ion ExciseDuties, grants-in-aid from CentralGovernment, etc, and the expenditurerelating to general administration havebeen apportioned between the Andhraand Telengana regions in the 2 : 1 ratio. This is assumed to be the population ratio between the two regions andwas affirmed time and again by theGovernment as well as the Telenganaleaders.

However, according to the 1961 Census the population of Telengana consti tuted 35.3 per cent of the Statepopulation 1 as against 33.3 per centimplied in the above ratio. The discrepancy of 2 percentage points in theallocation of receipts and expenditure

over a period of 12 years can makea significant difference to the magnitudeof surplus or deficit. This will becomeclear later in this paper. The appor-

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Telengana Surpluses onRevenue Account


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tionment of capital expenditure on 2 ; 1(66.7 : 33.3) basis yields a deficit of Rs 14 crores for Telengana whereasapportionment on the basis of actualpopulation (le 64.7:35.3) turns this deficit into a surplus of about Rs 3 crores.The use of 2 : 1 ratio is, therefore,inequitous, especially because nearly 80to 90 per cent of revenues accruingfrom the Central divisible pool andother Union taxes are distributed amongthe States str ict ly on the basis of population.

However, we had to use the figuresas they are because there is no way of identifying from the available data allthe heads, especially in regard toexpenditure, which have been apportioned on the 2 : 1 basis. There is nodoubt, however, that a reallocation of receipts and expenditure on the basisof population is called for in the interests of -equity. Our estimate of revenuesurplus would thus be subject to revision on this account.

A major point of controversy inregard to the allocation of receipts relates to the grants-in-aid from CentralGovernment under Article 275 of theConstitution, Lalit has argued that-''successive finance commissions hadrecommended the payment of grantsto State Governments to cover revenuegaps. Strictly speaking, the amountsreceived from the Government of Indiaunder this head insofar as statutorygrants are concerned should be allocated between the two regions, on theproportionate overall revenue gapexisting between the two regions . . ."-However, Lalit followed the prevailingpractice of apportioning these grantson 2 : 1 basis in view of the agreement to this effect between the Chief Minis ter and the Chairman of theTelengana Regional Committee. But thequestion as to how these grants-in aidought to be apportioned remains unresolved.

It is true that successive FinanceCommissions have recommended thesegrants to States for meeting a substantial portion of deficits in their Revenuebudgets. The Third Finance Comm's-sion observed, for instance, that "thetotal amount of grants-in-aid shouldbe of an order which would enablethe States, along with any surplus outof the devolution, to cover 75 per centof the revenue component of the irplans", 31 Although Andhra Pradeshhad a surplus of about 10 crores onRevenue Account over the 12-year

period (see Table 3), it would showu significant deficit if we exclude grants-in-aid from revenue receipts. There

fore, a substantial portion of potentialdeficit has been covered by grants-in-aid.

However, these grants were intendedto cover the anticipated deficits duringthe period of the Plan concerned andnot the actual deficits incurred in thepast. The anticipated deficits wereworked out by the Finance Commissions largely on the basis of the pro

jections of revenue and expendituresubmitted by the State GovernmentsThe estimates of budgetary gaps weregoverned by a number of factors suchas "the lia bi li ty arising out of thechanged pattern of Central assistancefor post-stage II community development blocks . . . grants to universities. . . revision of pay scales in severalStates, reorganisation of police anddistrict administration, introduction andextension of Panchayati Raj, continuance of subsidised sale of foodgrains,special relief measures, etc''. 4

In their memoranda to the successiveFinance Commissions the Governmentof Andhr a Pradesh focused on theneeds of the backward regions of theState. The following extracts bear thisout :

"The poverty and helplessness of theryots in these areas (Rayalaseemaand Telengana) is appalling. Irrigation facilities are poor . . . There areno major industries which could provide alternate employment for edu

cated classes and labour in urbanareas and the landless poor in therural areas. Inadequacy of powersupply is also coming in the way of development of small industries. Educational facilities, health services and

communications are also very poor,particularly in the Telengana area. . .It is hoped that the Finance Commission will make suitable recommendations for special financial assistance by way of additional grants-in-aid to the States which are backwardin the fields of industrial development, education, health services,communications, etc . . . This Government requests that besides continuing the grant-in-aid of Rs 4 croresper annum that is now being givenby the Centr e (under the SecondFinance Commission Award) an additional grant-in-aid of at least Rs 6crores per annum may be recommended for the Third Plan period tocover at least a part of the anticipated deficit." 5

It is thus clear that the State Government requested for grants-in-aid inorder to cover part of the anticipated deficit as a result of expenditures planned mostly for the development of

backward regions. In practice, however,the expenditure pattern was such as tocreate a sizeable revenue deficit forthe Andhra region and surplus for theTelengana region. Table 1 shows thatwhereas revenue receipts of Telengana(including one-third of grants-in-aid)constituted 41.7 per cent of State receipts, its revenue expenditure wasonly 36.8 per cent of State expenditure. Andhra region, on the other hand,showed a sizeable revenue deficit despite the fact that two-thirds of grants-in-aid are included in its revenue receipts.

The distribution of grants-in-aid inproporti on to the actual deficit is,therefore, unjust.

It may be argued that the areas whose

Source: K L al it : "Re port on the Qua ntum of Telengana surpluses", Section I V ,Gover nment of An dhr a Pradesh, 1969.

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per capita tax revenue is lower shouldbe given preference for extendinggrants-in-aid, especially where the lowertax revenue is due to factors such aslow per capita income or the introduction of prohibition. The Andhra region,one might argue, deserves consideration because prohibition was introducedin this area. The Third Finance Commission stated, for instance, that indetermining the budgetary gap of eachState, they had "taken full account of the impact of prohibition on the revenues of the States where this hasalready been introduced". 6

It is, therefore, necessary to examine whether the grants-in-aid actually made to different States reveal anyprecise relationship with their per capitatax revenues. This is important becausesuccessive Finance Commissions regard

ed the tax effort of States as one of the basic considerations governinggrants-in-aid. Summarising these principles, Asok Chanda, the Chairman of the Third Finance Commission observes."Liberal assistance to a State which hadnot used its taxing power adequatelyto narrow its budgetary gap wouldprove to be an inducement to it notto increase taxation. Secondly, it wouldbenefit the mor e affluent tax-payingsection of the population and not thepoorer sections for whom federal assistance should obviously be granted." 7

Table 2 gives a comparison of grants-in-aid to different States during thefour-year period covered by theSecond Finance Commission (i e, from1957-58 to 1960-61) with the State revenues (excluding grants-in-aid) andper capita income of the States. Staterevenues include the States share inCent ral taxes, e g, excise duties, income tax and estate duties, These revenues are dis tri buted among Stateslargely on the basis of popul ation .Therefore, State-wisp differences in per

capita revenues (col 3 of Table 2) reflect the disparities in the mobilisationof revenues by the States. There is nosystematic relationship between per capita grants-in-aid on the one hand and percapita State revenues or per capita income on the other. The analysis given inthe Appendix shows virtually no correlation between them. In view of this experience it would be difficult to arguethat the Andhra region should be entitledto a larger per capita grants-in-aid thanTelengana because of its low per capita revenues resulting from the introduction of prohibition. Nor can it be argued that the per capita grants-in-aidallocated to Telengana should havebeen large r because of its lo w per

capita income. Population seems to bethe only reasonable basis for apportioning grants-in-aid among the two regions. This procedure derives strengthfrom the fact that among differentStates, there is a significant corr elation between grants-in-aid and population (see Appendix).

Between different States, there is asignificant positive correlation betweenper capita State revenues and per capi

ta income. The statistical analysis showsthat, on an average, an increase in percapita income by one rupee is associated with an increase of 4 paise in percapita tax revenues (see Appendix). Inother words, a 1 per cent rise in percapita income is associated with 0.73per cent increase in per capita tax revenues. If this All-India experience istaken as a norm, then per capita taxrevenues of the Andhra region should

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Sources: (1) Government of India, Fourth Five-Year Plan, 1969-74, Draft, p 75(for cols 2 and 3).

(2) Government of India, Report of the Finance Commission, 1961,p 101 (for popu lat ion figures).

(3) National Council of Applied Economic Research, "Distribution of National Income by States, 1960-61" (for col 4) p 9.

Source K Lalit: "Report on the Quantum of Telengana Surpluses", Section IV,Government of Andhra Pradesh, 1969

have been higher than in Telenganabecause per capita income of Andhrais higher. If we assume that per capita income of the Andhra region ishigher by 25 per cent when comparedto that of Telengana (this is substantiated later), then the per capita taxrevenues in Andhra should have beenhigher by 18.25 per cent (0.73 x 25).

Actually, however, the per capita taxrevenue (excluding grants-in-aid) in Andhra for the 12-year period under studywas Rs 260 compared to Rs 352.35 forTelengana , i c, it was lower by 26 percent. Ignoring the differences in percapita income, if Andhra had the sameper capita revenue as Telengana, Andhra region would have mobilised Rs92 more per capita or Rs 214 croresover 12 years. If we take into accountthe higher per capita income of An

dhra and apply the all-India experience, the per capita tax revenue inAndhra should have been 18.25 percent higher than in Telengana. Thiswould have added another Rs 148 croresbringing the total additional revenuesto Rs 362 crores.

There is no reason to believe thatthe tax revenues foregone in Andhraowing to the introduction of prohibition could not have been made good,at least in part, by other tax measures. Prohibition does not reduce theincomes of the people at large but onlydiverts the part of incomes either forsavings or for expenditure on othergoods and services. But assuming thatthe loss of revenues due to prohibition could not have been made good,what is the probable extent of loss onthis account? The net revenue fromexcise duties in Telengana (after deduct ing revenue expenditure on thishead) works out to Rs 102.41 croresor Rs 80.64 per capita for the 12years. Assuming that excise dutieswould have yielded the same per capita

revenues in Andhra, the total amountworks out to Rs 187.80 crores. If wededuct from this the actual excise revenues (net) in Andhra of about 5crores, the probable extent of loss dueto prohibition amounts to Rs 182.80crones. This estimate, based as it ison the excise revenues of Telengana,is likely to be on the high side because part of the Andhra demand forthe prohibited commodity is nowsatisfied in Telengana which raises theper capita excise revenue of thisregion.

It is clear from the above, that evenwhen full allowance is made for theloss of revenue owing to prohibitionand no adjustment in tax revenues is

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made for higher per capita income, itwas possible to mobilise Rs 31 crores(214183) more in Andhra. If adjustment is made for higher per capitaincome and full allowance is made forthe loss due to prohibition, about Rs179 crores (362183) could have beenmobilised from the Andhra regionwhich is more than sufficient to coverits revenue deficit of Rs 53 crores during the 12-year period.

The Telengana Regional Committeehas been insisting ever since 1959 that"h al f of the overspent amount inAndhra revenue account should beadded to the Telengana surpluses asthe Government ought to have spentmore in Telengana than its income". 8

At one stage, the State Governmentalso committed itself to this principle.In their letter to Lalit dated 28-2-1969the Government "clarified that theTelengana surpluses of each yearshould be computed by adding to thenet revenue surpluses of Telengana region of that year half of the revenuedeficit of Andhra area". 9 However, onsecond thoughts, the Government clarified fur ther on 6-3-1969 tha t "wha twas meant by revenue deficit in theirletter of 28-2-1969 was that where capital receipts like loans from Governmentof India, etc, had been diverted tofill in the revenue gap of Andhra, half of the capit al receipts so diverted

should be added to the Telengana surpluses". 10 Consequently, Lalit decidedto ignore the Andhra deficit altogetherwhile computing Telengana surpluses onthe ground that "it was not possiblefrom the accounts to specify from whatparticular source the revenue deficithas been met", 11

However, this question cannot beignored as it has a direct bearing onthe method of computing the net revenue surpluses of Telengana. AndhraPradesh has a composite budget andthe revenue surplus or deficit for the

State as a whole represents the netposition after the surplus or deficitof each of the two regions have beenadjusted. Table 3 shows that during the12-year peri od under study And hraPradesh had a revenue surplus of Rs10.44 crores after adjusting the Andhradefici t (Rs 53.49 crows) against the Telengana surplus (Rs 63 93 crores). This implies that a good part of the Telenganarevenue surplus has been diverted toAndhra for meeting its revenue deficit.The remaining part (Rs 10.44 crores)being the revenue surplus of the Statecan be considered to have been diverted to the capital account of the State.Since a part of this amount has been

spent for Telengana on capital account,adjustments needs to be made for this,before arriving at net Telengana surpluses on revenue account. For reasonsdiscussed later in this paper, we areallocating 37.5 per cent of the capitalexpenditure of the State for Telenganainstead of the prevailing practice of allocating 33.3 per cent. Therefore, 37.5per cent of the revenue surplus of theState (ie, 3.90 crores) will have to bededucted from the revenue surplus of Telengana (Rs 63.93 crores) as estimated by Lalit, for arriving at the net re-venue surplus (Rs 60.03 crores).

This is the overall picture for 12 years.But what does this principle imply forthe years when the State has a revenuedeficit? Revenue deficit incurred for theState as a whole can be considered tohave been covered by divert ing thecapital receipts or amounts from anyother sources which could alternativelybe used for expenditure on capitalaccount. That is to say, revenue deficitof the State represents the expendituresacrificed on capital account. Therefore,Telengana's share in the amount foregone (ie, 37.5 per cent of the States deficit) needs to be added to the revenuesurplus of Telengana of that year forarriving at the net revenue surplus (seeTable 3) Indeed, this appears to bethe meaning of the suggestion containedin the Gover nment s letter to La litmentioned above.

Net revenue surpluses of Telenganathus worked out represent overspendingin Andhra. This should be so unlessthe revenue surpluses of Telenganahave been accumulated in to reserveswhi ch are available for expendit urenow. Since no such accumulation hasbeen in evidence, this amount needsto be reimbursed from the share of Andhra receipts in future, if the balanceof expenditure between the two regionsis to be restored. To the extent thisamount is reimbursed from the future

share of the Andhra region, the latterwill cease to have the benefits of overspending in the past. Therefor e, thecontention of the Telengana RegionalCommittee that half of the revenuedeficit (or overexpenditure) of Andhrashould be added to Telengana surplusesis unreasonable.

However, Telenganas claim wouldstand to reason if its surpluses are notreimbursed from the future share of Andhra but are met from the thirdsource, say, Central Government. Butin such an event, it is not the half of Andhra deficit on revenue accountalone that needs to be added to theTelengana surpluses. The aggregate of

Telengana surpluses on revenue as wellas capital account along with any interest that is agreed upon, would represent overspending in Andhra and,therefore, half of this amount shouldbe added to Telengana surpluses, if thebalance in public expenditure betweenthe two regions is to be restored. If the correct population ratio for Telengana (35.3 per cent) is used, then theaggregate of surpluses should beraised by 54.5 per cent instead of 50per cent only. The same procedureneeds to be followed if Telengana surpluses are to be set aside from thereceipts of the State first before apportioning the remaining receipts betweenthe two regions. This is necessary, if the amount of Telengana surpluses isto remain the same as when it is setaside from Andhra's share of theState receipts.

I I

Telengana Surpluses on CapitalAccount

Following the accord of January 19,1969, mentioned earlier, Lalit workedout Telengana surpluses (or deficits) oncapital account as the difference betweenone-third of the total capital expenditure of the State and the actual capital expenditure in Telengana. In thegentlemen's agreement of 1956, however,there was no reference to the ratioto be applied while allocating capitalexpenditure. The Government and theTelengana leaders are agreed that capitalreceipts are not to be taken into account while calculating surpluses onthis account, presumably because thebulk of the capital expenditure is metfr om loans and assistance fr om theCentral Government and overdraftsfrom the Reserve Bank.

Since the allocation of capital expenditu re in the 2: 1 ra tio between theAndhra and the Telengana regions is

based on the population ratio, it isonly proper that the correct populationra ti o (64.7 : 35.3) is used, especial lybecause the bulk of Plan asistance toStates from the Central Government isallocated on the basis of population.There is, for instance, a very high correlation between the population of theStates and the Cen tral assistance tothem for the Third Plan. The inter-Statevaria tion in populat ion explains asmuch as 86 per cent of variation inPlan assistance from the Centre forthe Third Plan (see Appendix).

Apart from the population, economic backwardness of the region as indicated by its per capita income may

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be an important criterion for allocating capital expenditure. The ability of the region to mobilise its own resourceshas been regarded as yet another factor favouring more Central assistance.The Telengana Regional Committee hasoften pleaded for the distribution of Central assistance to the Andhra andTelengana regions in proportion to theown resources of these regions. Butwhereas the planners have been explicit on population and backwardness orper capita income as factors governingCent ral assistance, the pos it ion has by nomeans been straightforward in regard tothe own resources of the States deter-mining Plan assistance. The Third Five-Year Plan clearly states that "in assessing needs and problems, such factorsas population, area, levels of incomeand expenditure, availability of certainservices, e g, roads, schools, hospitals . . . were taken into account". 12

On the question of own resources, however, the approach was flexible: "earewas taken to see that States whoseresources were unavoidably small didnot have to limit development to a scalewhich was altogether insufficient, merely because of paucity of resources. At thesame time States which were able tomake a larger effort in mobilising theirown resources could undertake development on an appropriate scale." 13

Table 4 shows that among 9 Stateswhose per capita Central assistance forThird Plan was above the average (of all States), as many as 8 States hadper capita income below the average.Out of the 6 States with below average Central assistance only 2 Stateshave per capita incomes signi ficantlybelow the average. The statistical analysis of these figures given in the

Appendix shows that, on an average, aone rupee increase in per capita incomeis associated with a decline in per capitaCentral assistance to the extent of about7 paise. In other words, a 1 per centincrease in per capita income is associated with a 0.36 per cent decline inper capita Central assistance.

There is no positive correlation between per capita Central assistance andState's per capita con tr ibu tio n (seeAppendix). On the other hand, there isa mild negative association between percapita Central assistance and per capitaState's contribution. However, this maynot imply that per capita Central assistance was lower because of higher percapita contribution of own resources.Thi s relationship arises because percapita contribution is generally higherin States where per capita income is

higher and higher per capita income isassociated with lower per capita Central assistance.

A strong positive relationship existsbetween per capita income and own contr ib ut io n of resources: A one per centincrease in per capita income of theState is associated with a 1.18 per centincrease in own contribution. In viewof this experience the own contribution of the Andhra region can be regarded as poor when compared toTelengana's. The own resources of Telengana constituted 42,6 per cent of State resources for the Third Plan 14(much higher than its population ratioof 35.3 per cent) despite its per capitaincome being lower than the Andhraregion's. However, we are ignoring thisfactor in the allocation of capital expenditure between the two regions inview of the absence of any significantrelationship between per capita contri

bution and Central assistance amongStates fo r the Th ir d Plan. The experience of Central assistance to Statesdiscussed above strongly suggests thefairness of population and per capitaincome as the criteria for allocatingcapital expenditure between the Andhraand Telengana regions.

There are no separate estimates of per capita income for these regions. Itis, however, possible to make a reasonable assumption as to the probabledifferences in the per capita incomesof these regions on the basis of thedata on irrigation facilities, agriculturalincomes and agricultural wages, etc.

Whereas Telengana accounted for35.3 per cent of State's population and41.8 per cent of State's area, 15 its sharein irrigated acreage was only 27.9per cent in 1965-66. 16 Thus irrigatedacreage per capita was higher inAndhra to the extent of 41.5 percent when compared to that inTelengana. A study made by this writerin 1958-59 revealed the position asshown in Table 5 in regard to the netagricultural output and wages. 17

Even if equal weight is given to theRayalaseema and the Delta regions,the net agricultural output per headworks out to be Rs 291,40 in theAndhra region or 100 per cent higherthan in Telengana. The same holds

true in regard to the wages of permanent labour while the wage ratesof casual labour work out to be 34.4per cent higher. Since agriculture isa major sector in the State contributing as much as 60 per cent to theState income, 18 it would be reasonableto assume that the per capita incomeof the Andhra region would be at

Source: K La l i t : "Repo rt on the Quantum of Telengana Surpluses", Section I V . Gove rnment of Andhr a Pradesh, 1969.

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least 25 per cent higher than that of Telengana.

If we apply the experience of Centralassistance for State plans, viz, a1 per cent increase in per capita income shou ld be associated wi t h a0.36 per cent decline in per capitaCentral assistance, the per capita assistance for the Andhra region should be9 per cent (0.36 x 25) lower than forTelengana. By weighting the populationrati o (35.3 : 64.7) wi th the ratio of per capit a C ent ral assistance (1 : 0.91)we get the allocation ratio betweenthe two regions as 35,3 : 58.9. On thisbasis the shares of Telengana andAndhra regions in the capital expenditure of the State would be 37.5 per centand 62.5 per cent respectively. Thusthe additional share for Telengana dueto its low per capita income amounts

to 2.2 per cent of State expenditure.In other words, the weight of percapita income in the allocation of capital expenditure for Telengana is about 6 per cent. Thi s is considerablyless than 10 per cent, proposed tobe allocated to States oh account of low per capita income during theFourth Plan period. 19

We have comput ed the Telenganasurpluses on cap ita l account as thedifference been 37.5 per cent of State'scapital expenditure and the actual capital expenditure for Telengana. Theactual capital expenditure includes afew items, eg, capital outlay on Electricity Schemes, Payment of Commuted Value of Pensions, Floating Debtand Other Loans and appropriation tothe Contingency Fund, the expenditureon which is jointly incurred and has,therefore, been apportioned by theGovernment on 2 : 1 basis between theAnd hr a and Telengana regions. Wehave reapportioned this expenditure on a62.5 : 37.5 basis, because much of this joint expenditure may have to be borne

in proportion to population. Failure toreapportion this expenditure would result in an overestimation of Telenganasurpluses. It is possible that there area few more items of this nature requiring reapportionment. Insofar as thereapportionmen t rat io for Telengana(37.5 per cent) is higher than its population ratio, this may provide a corrective to the possible overestimationarising from our failure to account forsome of these items. Needless to say.our estimate of surpluses would haveto undergo revision if some more items

of this nature are still left unidentifiedThere may be certain other cases

of reapportionment resulting in a clear

upward revision of our estimate. Forinstance, the Telengana Regional Com

mittee has argued that the existingallocation of the cost of Nagarjuna-sagar Dam on a 2 ; 1 basis shoul d bealtered because the utilisation of waterincluding the Krishna basin under thisproject would be in the ratio of 207 : 87 between the Andhra and Telengana regions. The Committee has suggested further that the expenditure onthe Left Canal of this project shouldbe shared between the Andhra andthe Telengana regions in proportion tothe actua l benefits derived (44.4 : 87)instead of the present practice of allocating the entire expenditure to Teren-gana.

Lalit's method of allocating capital

expenditure in the 2 : 1 ra tio wouldshow a deficit or overexpenditure for

Telengana to the extent of Rs 14.16crores. If the correct population ratio(ie, 35.3 per cent) is applied and theexpenditure on joint items is reapportioned accordingly, then the actualcapital expenditure on Telengana wouldbe less than the desired expenditureyielding the surplus of Rs 3.30 crores.If low per capita income of Telenganais also taken int o account, i e , if 37.5 per cent of capital expenditureis allocated to Telengana with corresponding reapportionment of expenditure

on joint items, the Telengana surpluseson capital account would go up toRs 22.31 cr or es (see Table

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III

Telengana Surpluses on Accountof Public Corporations

The All-Party Accord of January 19,1969 laid down that "statutory or otherboards, corporations, etc, functioning ona State-wide basis financed by the State

Government would be, for the purpose of computing Telengana surplusestreate d as if they were State-wideGovernment departments and as if theirreceipts and expenditure were bookedin Government accounts. " 20 Lalit took into account only those corporationsand boards, etc, in which the moneyinvested by the State Governmentformed 51 per cent or more of theshare capital.

These corporations show a revenuedeficit of Rs 6.34 crores for Telenganaover the 12 year per iod (Table 7).Lalit deducted this amount from theTelengana surpluses on Revenue Account for arriving at the overall sur-pluses. Lalit ignored the revenue deficitof these corporations in the Andhraregion, just as he ignored the Andhradeficit on Revenue Account while calcul ati ng Telengana Surpluses. SinceAndhra Pradesh has a composite budgetand since these corporations are to betreated "as if their receipts and expenditure were booked in Governmentaccounts", it would be illogical to ig

nore the revenue deficit of corporationsin the Andh ra region. This is alsounfair to Telengana because the Andhraregion does not have revenue surplusesto meet the losses of public corporations. These losses in Andhra have tobe met from other sources and Telengana should be entitled to meet itslosses in a similar manner.

As argued earlier, any revenue deficitof Andhra Pradesh represents a drafton capital outlay and Telengana's sharein this amount will have to be addedto its surpluses (or deficit) for arrivingat the overall surpluses. We, therefore, follow the same procedure nowas we did in calculating Telengana surpluses on Revenue Account. Table 7shows a surplus of Rs 2.07 crores forTelengana on the revenue account of public corporations. This is because thelosses in Andhra amount to more thanits proportionate share of losses in theState.

Lalit worked out the Telengana surpluses (or deficits) on the capital account of these corporations as the dif

ference between the actua l cap ita loutlay of these corporations in Telengana and one-third of the State's outlay. This procedure yields a deficit of

Rs 5.73 crores which he deducted fromthe Telengana surpluses on RevenueAccount for arrivi ng at the overallsurpluses.

For reasons discussed earlier, weconsider the desired capital outlay of these corporations in Telengana to be37.5 per cent of State outlay instead of 33,3 per cent. Accordingly we compute

the Telengana surpluses on the capitalaccount of these corporations as thedifference between the 37.5 of capitaloutlay of these corporations and the ac

tual outlay for Telengana. This estimatewould be subject to revision becausepart of the capital outlay of thesecorporations represents joint investmentand may have to be reapportioned according to the correct population ratio.While such a reallocation may lowerour estimate, there may need to besome other reallocations wh ic h raise

Telengana surpluses. For instance, theTelengana Regional Committee hasbeen arguing with some justificationthat the original capital investment of

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the Road Transport Corporation whoseactivities were later extended to theAndhra region should be apportionedbetween the two regions and the "excess investment of Telengana shouldalso be treated as Telengana surpluses' 21

Table 8 shows that the actual capitaloutlay of public corporations in Telengana is less than the desired outlay byRs 1.42 crores which should be regarded as Telengana surplus on this account

I V

Present Value of TelenganaSurpluses

The overall budgetary surpluses of Telengana, ie, on Revenue and CapitalAccounts as well as on account of public corporations amount to Rs 85.83

crores over the 12-year period. Thisfigure of budgetary surpluses is an insufficient measure of the real value oieconomic loss for the Telengana region.The investment postponed implies theloss of several direct and indirect benefits in terms of income and employmentand public revenues. 22 The Third Five-Year Plan states that "even a comparatively small delay in completing a pro

ject and putting it into productive usecan make a significant difference to theresources available for investment. Thepoint is that as an economy develops,

even marginal improvements in planningand execution over a number of pointscan yield a large return in the aggregate." 23 Owing to the steep rise in thegeneral price index and in the construction costs during this period, thereal value of the estimated surpluseshas gone down significantly.

The real measure of loss from theinvestment foregone would be given bythe social rate of return on investmentwhich could be very high for oureconomy, say, 20 per cent. 24 However,

we are suggesting a modest compensation by treating the Telengana surplusof each year as a loan for the Andhraregion payable at a compound interestrate of 6 per cent per annum (seeTable 9). The interest works out toRs 31.62 crores raising the overallTelengana surpluses to Rs 117.45 crores.

V

Telengana SecuritiesTelengana inherited securities worth

Rs 13.59 crores as its share in the former Hyderabad State. The Governmentof And hra Pradesh agreed to treatthem as Telengana surpluses. TheTelengana Regional Committe e has

demanded frequently that these securities be sold and the proceeds utilised forthe development of Telengana. Thesesecurities are presumably intact and itmay not be in the interests of Telenganato sell these securities un ti l the surpluses or the overspent amount inAndhra is reimbursed and spent for thedevelopment of Telengana. These securities in Reserve Bank may prove tobe highly beneficial for Telengana, inthe long run, in terms of an easy accessto much needed investible funds.

V I

Conclusions

Our objective in this paper was notso much to give a 'precise' estimateof Telengana surpluses as to attempta clarification of some of the main

issues relevant to this problem and tosuggest a procedure for estimating thesesurpluses. The limitations of data, especially those arising from the allocation of joint expenditures, will haveto be overcome before the 'true' figureof surpluses can be arrived at. Ouranalysis suggests, however, that theTelengana surpluses could be sizeable.Even if 20 per cent margin of erroris applied to our estimate, the surpluses would amount to not less than64 per cent of the Third Plan outlayfor Telengana. 25

NOTES

1 Bureau of Econom cs and Statistics,Government of Andhra Pradesh,"Handbook of Statistics, AndhraPradesh, 1966-67", p 17.

2 K La li t: "Report on the Quantumof Telengana Surpluses", Government of Andhra Pradesh, p 17,

3 Govern ment of Indi a, "Repor t of the Finance Commission", 1961,pp 31-32

4 Ibid, p 125 Government of Andhra Pradesh,

Memor andum Submitt ed to the

Third Finance Commission, 1961,pp 24, 30, 31 and 32,6 Report of the Finance Commis

sion, op cit, p 12.7 Asok Chanda: "Federalism in In

dia A Study of Union StateRelations", Allen and Unwin, 1965,pp 200-201.

8 Andhra Pradesh Regional Committee, Report of the Ad Hoc Committee on Planning on the ReportGiven by Sri K Lalit on the Quantum of Telengana Surpluses, (Report 1), 1969, p 7.

9 Lalit, op cit, p 510 Ibid.11 Ibid.12 Planning Commission, Governmentof India, Third Five-Year Plan, p

60.13 Ibid.14 Andhra Pradesh Regional Comm it

tee, Supplementary Report to theTenth Report of the Subcommittee on Development on Implementation of Plan and Non-PlanSchemes in Telengana Area, 1967,p 4 .

15 Bureau of Economics and Statistics,Government of Andhra Pradesh,'H and boo k of Statistics, AndhraPradesh, 1966-67', pp 16-17.

16 Ibid, p 60.17 C H Hanumantha Ra o: "Taxa

tion of Agricultural Land in AndhraPradesh", Asa, 1966, pp 41, 156.

18 "Handbook of Statistics", op cit,p 10.

19 Planning Commission, Governmentof India, Fourth Five-Year Plan,1969-74, Draft, p 53.

20 Lalit, op cit, p 3.21 Andhr a Pradesh Regional Commit

tee, Report of the Ad Hoc Committee on Planning on the ReportGiven by Sri Lain on the Quantum of Telengana Surpluses (Report I) 1969, p 5.

22 For a discussion of this aspect inrelation to Telengana see GautamMat hur : "The Estimation of Telengana Development Fund", TheGraduate Monthly, Vol I I , No 8,Hyderabad. (This note was presented by Mathur to the BhargavaCommittee on Telengana Surpluses.)

23 Government of India . Th ir d FiveYear Plan, p 116.

24 Mathur, op cit,25 The Th ir d Plan outlay for Telen

gana was Rs 146.60 crores. See Government of Andhra Pradesh, "Factsabout Telengana".

TELCOTATA Engineering and Locomotive proposes to implement a fewdiversification and expansion schemesduring the next few years. Theseschemes include manufacture of a newdirect injection type of engine and asynchromesh gear-box for commercialvehicles, substantial expansion of capacity for production of spare parts, andexpansion of TELCO's press too! division at Poona which now works tonear capacity. In addition, it is intended to implement several minor schemesof diversification, and to expandthe engineering research facilities.Of the total capital expenditure requirement of Rs 14.09 crores estimated forthese schemes, Rs 5 crores are proposed to be raised through issue of 7.75 per cent debentures of Rs 1,000each and Rs 3.60 crores through aforeign exchange loan from ICICI. Thebalance will come from internal cashgeneration. The debenture issue is fully

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