Hyderabad to give rise to complications: EY

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Though Telangana is in place now, Hyderabad, which will remain the joint capital of the two states for ten years will give rise to complications, a report by global consulting firm Ernst & Young (EY) said.

Hyderabad’s special position gives rise to considerable complications in working out both revenues and fiscal transfers for the new states, according to said DK Srivastava, chief policy advisor, EY in a report entitled Andhra Pradesh bifurcation — A perspective.

“The AP bifurcation will have significant implications on resource flow to the two new states — Telangana and new AP — and on their economic development. In the long run, both regions are likely to benefit, but both of them will face considerable uncertainty in the immediate future,” he said.

The bifurcation will impact assets and liabilities, water and land resources, and the division of pensioners and existing government employees and public sector enterprises, Srivastava said.

According to the report, Hyderabad is estimated to have contributed over Rs 34,000 crore to the state’s total revenues of Rs 70,548 crore during 2012–13. This includes contribution of citizens and companies of both of the states. Of the 44 state-level public enterprises, headquarters of 40 are located at Hyderabad, as are the head offices of private companies. Many of them may be paying a significant share of their state taxes in Hyderabad though their activities may be spread across the two states.

The report says that the trade of some goods and services that is presently intra-state will become cross-state in the new Andhra Pradesh. Telangana will then become subject to the levy of central sales tax. Non-tax revenues, mainly following the principle of location, will also be differentially affected. The division of mineral resources including coal and oil and gas will affect royalties.

Offshore resources will go to new AP while Telangana will stand to benefit from land-based mineral resources. Telangana will have to devote more resources to developmental expenditure, including education and health, to uplift the economic development of districts other than Hyderabad. The focus of AP will be on selecting the location of a new capital, which will require a massive flow of resources to cater to infrastructure and construction-related activities, the report said.

“Hyderabad is the second largest city for IT industry and many districts around it will the capital’s effective satellite extensions,” said Ramesh Loganathan, MD, Progress Software.

krishnamohan

@mydigitalfc.com

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