Aug 03, 2013 01:05 PM IST | Source: CNBC-TV18

With new statehood & Hyderabad, will Telangana grow faster?

With the government's decision to separate Andhra Pradesh and Telangana with Hyderabad being the joint capital, Telangana may be the benefactor in the split in economic terms.

The government's decision to divide Andhra Pradesh (AP) into two parts with Hyderabad being the joint capital has raised questions on the political compulsions in the state. Telangana, with its aggressive growth prospects, may be benefitting by the joint capital's decision.

Also read: Here's how Telangana bifurcation impacted RBI bond auction

Here are some facts and statistics to understand the economies of three regions in AP.

Andhra Pradesh, historically and geographically, can be divided into Telangana, Rayalaseema and Coastal Andhra. Telangana with 10 districts, including Hyderabad has 41 percent of the population as of 2010. It originally was a part of the kingdom of the Nizam, which kept the area economically backward as compared to Andhra and Rayalaseema by over 50 years; at the time of independence.

Rayalaseema comprises of four districts and 18 percent of the population. It is the culturally richer part of the state. Meanwhile, Coastal Andhra comprises of nine districts and accounts for 41 percent of the population. People from Andhra were more educated and entrepreneurial and the area, economically more prosperous. The demand for separate statehood for Telangana has its wellsprings in the region's historical backwardness and fears of losing out to the economically and politically more powerful Andhraites.

However, lately, Telangana appears seems to be performing well economically; excluding the city of Hyderabad.

From 1994 to 2001, while the gross domestic product (GDP) of AP grew by 36 percent, the GDP of Telangana excluding Hyderabad grew by 38 percent. Meanwhile, Telangana including Hyderabad grew by 43 percent; Hyderabad by 74 percent, Rayalaseema by 22 percent and Coastal Andhra by 35 percent.

Post 2001, Telangana grew furthermore. From 2001 to 2008, while the GDP of Andhra Pradesh grew by 58 percent, the GDP of Telangana excluding Hyderabad grew by 60 percent. Telangana including Hyderabad grew by 63 percent; Hyderabad alone grew by 77 percent, Rayalaseema by 58 percent, Coastal Andhra by 54 percent.

Clearly, it is not economic angst, but lack of political clout that has become the basis of a separate state for Telangana.

In terms of distribution of education, healthcare, irrigation and roads, each region has its advantages with Coastal Andhra leading in irrigation because of the large river basins. Rayalaseema leads in healthcare. Telangana leads in absorption of National Rural Employment Guarantee Scheme (NREGS) expenses and developing rural roads.

Even in foreign direct investment (FDI) for 20 years from 1991 to 2010, Rayalaseema and Andhra accounted for Rs 6,231 crore while Telangana and Hyderabad accounted for Rs 6,490 crore. The clear financial advantage for Telangana comes due to the inclusion of Hyderabad. For instance, sales tax is a huge source of income for states.

Telangana, excluding Hyderabad accounted for just 7.6 percent of sales tax collections. Rayalaseema accounted for 2.9 percent, Coastal Andhra for 14.3 percent, while Hyderabad accounted for 75.2 percent. Hence, Telangana along with Hyderabad, accounted for 83 percent of the sales tax collection.

A large part of these sales taxes are paid by people from Andhra who have invested heavily in Hyderabad city. This explains why they have opposed the division of the state. Clearly, sharing of the city of Hyderabad as the joint capital or atleast sharing of the tax revenues of Hyderabad will be the sticking point between Andhra and Telangana.

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