Tax and Economic Reforms in Andhra Pradesh

Tax and Economic Reforms in Andhra Pradesh :-

On 16 May 2017 Andhra Pradesh Legislature passed the state Goods and Services Tax (GST) Bill and contributed towards biggest Tax and Economic Reforms in Andhra Pradesh . Meanwhile State has a glorious history of Economic and Tax reforms.

First Phase of Economic Reforms in Andhra Pradesh :–

The attention of economists and policy makers has turned towards reforms at

the state level in the late 1990s, because it is being recognized that the first phase of Economic Reforms in Andhra Pradesh will not be complete without reforms at the state level. The programmes for development and welfare cannot take off without reforms at the state level, which are the Constitutional repositories ofthe responsibilities in these sectors. A competition was witnessed among the states, irrespective ofthe political philosophy of the Governments in power, for reforms at the state level as a means of attracting investments, preferably foreign investments. The state of Andhra Pradesh was in the forefront of this competition; it was the first state to have initiated the World Bank to suggest measures of reform, to have attracted the Bank’s advice and package of assistance for such a programme and to have initiated steps suggested by it.

World Bank Agenda for Economic Reforms in Andhra Pradesh:–

Since the early 1980s AP has developed a public expenditure strategy based on large allocation to numerous broad-based subsidy and welfare programs. Among India’s states, AP has the highest proportion of non-interest expenditure allocated to such programs. This has diverted scarce public resources away from productive uses in economic and social infrastructure, and has consequently discouraged private investment and curtailed growth. On account of its poor growth performance, AP has failed to expand the revenue base needed to finance its subsidy and welfare programs. As a result, the government has been caught in a vicious circle and, has been increasingly forced to divert funds away from productive uses and resort to high-cost borrowing to meet its commitment to subsidies. Until 1991, the state was a monopolistic supplier ofinfrastructure services; the private sector could not compensate for inadequate public funding for infrastructure. While this situation changed since 1991 and the state has sought to attract private investment in infrastructure, the inappropriate pricing policies and weaknesses in the policy and regulatory framework have remained important constraints. In this context, the Government of Andhra Pradesh has approached the World Bank, India Country Department, to assess the existing economic situation and suggest a suitable agenda for economic reforms to implement them in Andhra Pradesh. The World Bank appointed a broad based committee with multi-sector experts in 1996 to assess the existing economic situation ofAndhra Pradesh and suggest a suitable agenda for economic reforms at the state level. This committee has surveyed the existing economic situation in different sectors ofAndhra Pradesh economy and has prepared an Agenda for Economic Reforms, which was approved by the Government of India as well as the Government of Andhra Pradesh. The following two sub-sections will summarise the macroeconomic trends of Andhra Pradesh and the Agenda for Economic Reforms in Andhra Pradesh.

Review of Macroeconomic Trends provided in the Agenda for Economic Reforms in Andhra Pradesh:–

Given its huge resource base, AP has the potential for being one of the fast growing states in India. Despite this fact, AP’s growth performance has been poor. The average growth rate of gross state domestic product (GSDP) in the past fifteen years has been far below its potential and significantly below the national average. Insufficient resources for infrastructure and human resource development and severe under funding of operation and maintenance (O&M) work are key factors responsible for the state’s poor economic performance. The expert group of the World Bank team assessed the macroeconomic performance of the Andhra Pradesh state between 1980-81 and 1992-93. During this period, the GSDP ofthe AP state grew at an annual average rate of 4.6 percent. This is significantly lower than the national average of 5.2 percent. The average growth rate in the six fastest growing states in India was 5.7 percent in the same period. All three major sectors (agriculture, industry, and services) recorded slower growth rates in Andhra Pradesh than the all-India level and the six-state average. As a result, the gap between AP and the all-India average in terms of per capita income has significantly widened. Per capita income in AP in 1980-81 was 85 percent of the national average and 72 percent ofthe average per capita income in the fastest growing six states. This ratio has fallen continuously. In 1992-93 it stood at 75 percent and 50 percent, respectively. Structural change in production has been modest. At current prices, the share of agriculture in GSDP fell from 44 percent in 1980-81 to 36 percent in 1992-93. The share ofservices increased correspondingly, while the share of industry remained almost constant at about 20 percent. Further, the expert committee found that the growth ofGSDP has significantly slowed in the past five years. The average annual rate of growth of GSDP fell from 5.5 percent in the period 1980-81 to 1988-89 and to 3.9 percent in the period 1989-90 to 1993-94. The slowdown is observed in all three sectors but was particularly marked in agriculture, where the growth rate fell sharply from 4.7 percent to 1.8 percent. The share ofindustry in GSDP is about one-fifth, which has not changed significantly in the past fifteen years. This is below the national average of about one-quarter. Traditional agriculture or resource-based activities such as food processing, sugar, textiles, cement, tobacco, and paper dominate the industry. However, pharmaceuticals, fertilizer, electrical machinery, basic metals, and software have also started to emerge as new manufacturing activities. In this situation, the expert team proposed some reform measures to improve the different sectors of the Economic Reforms in Andhra Pradesh, which were summarized in the following section.

Agenda for Economic Reforms in Andhra Pradesh:–

The strategy underlying the Adjustment Scenario, as specified in the Agenda for Economic Reforms in Andhra Pradesh, is based on:

a significant change in the composition of expenditure from unproductive to growth-enhancing expenditure;
strong cost-recovery efforts, particularly in irrigation and power, to raise adequate revenue to cover the necessary O&M needs and improve efficiency ofresource use;
an improvement in the system that broadens the revenue base and increases buoyancy through simplification and other administrative measures;
a new anti-poverty strategy based on acceleration of growth and employment creation, with smaller but better targeted subsidy programs for the very poor;
a focus on rebuilding the long-neglected physical and social infrastructure; and
acceleration of private sector participation in infrastructure, particularly in the power, road, and port sectors.

The Core Reform Programme for Andhra Pradesh:-

Reprioritizing expenditure:–

Rice scheme: Replace the good quality rice by cheaper food grains to facilitate self-targeting. Reduce the number of beneficiaries from the present 85 percent to about 30 percent of the population. Ensure the issue price covers at least 50 percent of the costs.
Reduce staffing in the public sector by 1 percent a year until 2001/02.
Substantially increase expenditure on O&M, education, health, and public investment.

Improving expenditure management:-

Introduce zero-budgeting and three-year rolling expenditure plans with continuous assessment ofperformance, efficiency, and priorities.
Start budget formulation with realistic revenue projections. Establish explicit budget ceilings for each department at the beginning of budget preparation.

Reforming public enterprises:-

Establish an autonomous Commission to plan and implement PE reforms. Ensure that the Commission prepares an action plan with deadlines for reform and starts implementing it, and prepares transparent guidelines for privatization of PEs.
Establish a state-level Renewal fund for voluntary retirement and retraining of affected workers.

Reforming the tax system:-

Sales Tax: after adequate preparation, replace the present nineteen-commodity scheme with a “trade margin” VAT for larger dealers as an intermediate step to full VAT. Abolish the Turnover Tax.
Improve and simplify tax administration. Phase out sales tax concession. Formulate a plan to introduce full VAT in 2-3 years.
Stamp duties: reduce excessive rates, remove concession, abolish nuisance stamps. Consider abolishing orreducing the 3% tax on secondary sales or assignment of bonds.
Profession Tax: step up the administrative efforts to collect this tax from self-employed professionals

Restructuring the power sector:–

Raise the power rate to farmers to Ps 50 per kwh or higher. Continue to adjust tariffs to cover costs and reduce crosssubsidies. Improve the quality or service delivery. Meter power supply to farmers.
Progressively privatize the distribution business.
Enact legislation to enable establishment of an independent regulatory body and corporatization of power utilities.

Improving the efficiency ofthe public canal irrigation network:-

Increase O&M allocations in the budget to meet the required norms. Improve the service quality.
Raise water rates to cover full costs. Ensure effective collection of water charges.
Accelerate formation ofWUAs and handover O&M responsibilities to them.
Improve the planning and management capacity ofthe irrigation Department.

Improving maintenance and upgrading of roads:-

Increase O&M allocations in the budget to the required norms. For this purpose, set up a State Road Fund and finance it from the Vehicle Tax and Sales Taxes on fuels.
Improve the technical and management capacity ofthe Road and Building Department and redefine its role in the light of the recommendations ofthe ongoing technical assistance study.

Speeding up private sector participation in the port sector:–

Clearly define the projects being offered to private parties and state the terms and conditions, and establish transparent ground rules for BOT arrangements.
Commission prefeasibility studies for the projects offered to the private sector.

Implementing universal primary schooling:-

Improve the quality ofschooling by ensuring that pupils and teachers have adequate teaching material, increasing the amount ofinstructional time in schools, involving local bodies in operation ofschools, and enhancing teachers’ training.
Increase budgetary allocations for education particularly in primary education
Raise fees in post-secondary education to at least 30 percent of unit costs in the first instance.

Improving public health services:-

Improve coordination among service-providing institutions, streamline norms and technical standards.
Increase budgetary allocations to the primary and the secondary levels by at least 50 percent.
Raise user chargers for hospital services at the secondary and tertiary levels to recover 15-20 percent ofthe costs with exemptions for the vulnerable groups.
Strengthen the state’s capacity to register, certify, regulate, and monitor the private health sector.

This agenda is a formidable challenge for AP, but the state has the resources and capacity to meet the challenge. This amply demonstrated by the policy measures introduced in July-August 1996, following extensive public debate generated by the presentation ofseveral white papers on the pressing problems the state face. Involving public in policy debate through white papers provide transparency in the policy making process and this proved to be effective.

Economic Reforms in Andhra Pradesh through Vision 2020:–

In 1995-96, the economy ofthe state of Andhra Pradesh was slightly below the mean of all-States, in terms of broad indicators of development and faced severe financial crisis. The Government of Andhra Pradesh responded boldly and imaginatively to this challenge, by undertaking measures to raise tax and non-tax revenues and by launching several reforms to restructure the institutions for the management of physical and social infrastructure, after holding wide-ranging discussions with experts and people at large. These initiatives have earned a name for Andhra Pradesh as being in the forefront of economic reforms, raising high expectations within the country and abroad about its performance. As part ofits reform package, the Government ofAndhra Pradesh has prepared “Vision 2020 Swama Andhra Pradesh” document, which envisages that the SDP will increase at a trend setting growth rate of 9.1 per cent per annum in the 25-year period of 1995-2020. The Vision 2020 Swama Andhra Pradesh, projects a comprehensive outline ofthe development possibilities in Andhra Pradesh till 2020.

The Vision 2020 Andhra Pradesh projected the growth rates for each major sector of the economy – Agriculture, Industry and Services. The trend setting growth rate in agriculture for the 25-year period would be 5.7 per cent per annum. Vision 2020 hopes that the trend setting growth rate of GSDP for the whole period of 25 years would be a whopping 10.3 per cent per annum. In so far as industry is concerned, its trend setting rate ofgrowth over the whole period would be 10.9 per cent per annum. The services sector is the key segment in the projected growth of Andhra Pradesh. The trend setting rate of growth ofthe service sector for the whole period will be 11.7 per cent, higher than that in industry and much higher than in agriculture. In fact, it would be higher than the overall trend growth rate ofthe Andhra Pradesh GDP.

Economic Reforms in Andhra Pradesh : Post -Vision 2020:-

The Government of Andhra Pradesh has implemented many reform measures proposed in the Vision 2020 document during the post-vision 2020 period:-
During the year 2004, the Government has taken up plans to fully utilize the available yields of Godavari and other rivers and initiated a historical beginning named ‘JALAYAGNAM’ with the aim of completing the ongoing and new projects in a record time, to provide immediate irrigation to water starving segments on top priority by mobilizing funds from all possible sources. Some more projects were added to the Jalayagnam Programme and presently 86 projects (44 Major + 30 Medium + 4 Flood Banks + 8 Modernisation) were considered under Jalayagnam.
The Government of Andhra Pradesh provided free power to the Agriculture Sector with effect from 14.05.2004 in view of the extreme hardships faced by agriculture consumers in the past. The Government has also waived the power consumption arrears amounting to Rs. 1,259 crore relating to agricultural consumers of DISCOMs and RESCOs.
The Government has started a New Employment Generation scheme with the aim of providing ten lakhs jobs in the private sector to the unemployed youth. To achieve this, a society called “Rajiv Udyogasri” has been set up in July 2007.
The Government of Andhra Pradesh has approved 103 Special Economic Zones (SEZ) and 73 SEZs are notified. Of the 73 notified, 40 SEZs have already become operational creating 54,776 jobs, with 35,269 jobs of direct employment and 19,507 jobs by indirect employment.
Apart from the general economic policies and bold policy initiatives, the targeted poverty alleviation programmes like Velugu or Indira Kranthi Patham (IKP) for women’s empowerment, INDIRAMMA programme for providing housing and other infrastructure, pensions, land distribution, introduction of 104 and 108 services in the health sector and health insurance (Arogyasri) are the other important programmes helping the poor in various dimensions.

Economic Reforms in Andhra Pradesh through Vision 2029:–

Recently in 2016 AP Goverment released the draft of ‘Sunrise Andhra Pradesh Vision 2029’ document that envisions to “remould” the state into a “happy and globally-competitive society” by 2029. Highlight of vision Statement:-

The people of Andhra Pradesh envision transforming their state into happy, inclusive, responsible, globally-competitive and innovation-driven society through structural transformation and by sustaining double-digit economic growth to become one amongst the three best states in India by 2022 and the best state by 2029.
Andhra Pradesh will also adopt the global Sustainable Development Goals (SDG) 2030, to direct and drive the social and economic development policies and programmes in the state. SDG-2030 contains 17 goals and 169 targets like ending poverty and hunger, improving health and education, making cities more sustainable and combating climate change.As some of the goals and targets in SDG-2030 are not of direct relevance to Andhra Pradesh, the state government has customised those into 12 goals and 115 targets that are directly consequential and on which the state will initiate action.
Vision 2029 has been delineated into different programme phases with Vision 1.0 programme phase (2015-19) premised on endowing all citizens with their basic rights and saturating access to basic amenities to immediately advance their standard of living, well-being and happiness.
The state, as per the Vision, targets to achieve a human development indicator of 0.7 that is rated as high by the UNDP by 2019 and a HDI of 0.8 (very high) by 2022. By 2029, the government will ambitiously strive to improve the HDI of the state to a value of over 0.9.
A Sunrise AP Vision 2029 Governing Board under the chairmanship of the Chief Minister for steering and mentoring the implementation of the Vision.
The government projected that Rs 17 lakh crore will be required for building infrastructure in the state by 2029.
The Vision foresees a “structural shift” with agricultural labour force declining from 55 per cent in 2014-15 to 40 per cent in 2029 and industrial workforce reaching up to 30 per cent.
The Agriculture sector’s share in the state’s economy is expected to dip from 28 per cent in 2014-15 to 22-25 per cent in 2029. But the industry’s share will increase from 20 per cent to 25-28 per cent, the Vision document said.
AP’s Industrial Policy-2015-20 assures clearances within 21 days through a single desk clearance system after which it is deemed approved based on self-certification. AP’s policy also gives spot approvals for identified enterprises and clearances; exemptions from seeking approvals for investments in certain category of industries; assignment of Inspection to Private Technical Experts; State Investment Promotion Board (SIPB) and Empowered Committee of Secretaries for expediting decision making.

Impact of Tax and Economic Reforms in Andhra Pradesh

In 2016 Andhra Pradesh occupied the top slot in the country in terms of the growth rate of gross state domestic product (GSDP). The performance appraisal document recently released shows that AP stood first with 10.99% growth in GSDP for 2015-16. The growth rate of GSDP in other states is: Bihar (10.27%), MP (10.16%), Telangana (9.24%), Maharashtra (8%), Karnataka (6.2%), Odisha (6.16%) and Punjab (5.96%). Official statistics show that AP contributes 4.3%of all-India gross domestic product.
In terms of per capita income at current prices, AP crossed Rs 1 lakh mark for the first time during 2015-16. Andhra Pradesh, which stood ninth among states during 2014-15, has improved its position in 2015-16. AP with a per capita income of Rs 1.07 lakh per annum is preceded by Karnataka (Rs 1.45 lakh), Telangana (Rs 1.43 lakh) and Punjab (1.26 lakh).
In year 2016 Telangana and Andhra Pradesh have jointly topped the ease of doing business ranking with a score of 98.78 per cent while Gujarat, the former number one, has slipped to the third position.

Impact of Economic

Due to a number ofstrategic initiativesput in place in the State, by

and large the living standards ofthe people have improved. The strength of

the economy is evident from the remarkable transition to a high growth

path, which has been achieved in the recent years

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