Thursday, February 10, 2011

SKC Report Review 1: Recommendations at Variance with the Analysis

Here is an analysis from eminent economist and former member of Planning Commission C.H.Hanumantha Rao on the SKC's report on Telangana. Mr Rao is presently a honorary professor at Centre for Economic and Social Studies (CESS).


The Committee headed by Justice Srikrishna, constituted by the government of India to examine the situation in Andhra Pradesh with reference to the demand for a separate State of Telangana as well as the demand for maintaining the present status of a united Andhra Pradesh, has submitted its Report after holding wide-ranging consultations with all the stakeholders and carrying out a comprehensive analysis of the relevant data on socio-economic aspects. Among other things, the Committee examined the three basic issues bearing on the formation of a separate state of Telangana,viz., its economic viability, social inclusion and cohesion, and wishes of the people of Telangana, and found them strongly favouring the formation of a separate Telangana state with Hyderabad as its capital. But the Committee has been deterred by  fears on three counts:Vehement opposition from the influential sections of Seemandhra, particularly to Hyderabad becoming the capital of Telangana; similar demands for creation of smaller states cropping up in the country; and the impact on internal security situation with the anticipated growth of Naxalism and  religious fundamentalism - discussed in Chapter 8 of the Report but withheld from public at large and submitted to the Ministry of Home Affairs in a separate cover along with the Report. The Committee tended to regard big states as strong and small as weak which could undermine national unity. It saw Naxalism essentially as a ‘law and order’ problem (which presumably can be ‘faced effectively’ in bigger states), rather than a socio-economic problem calling for inclusive development which can be better accomplished in smaller states.

            Balancing various considerations, the Committee recommended keeping the state united by creating a statutorily empowered Telangana Regional Council, a Water Management Board and an Irrigation Project Development Corporation, as the most workable option under the circumstances (option 6 in the Report). As the second best option (option 5 in the Report), the Committee recommended the bifurcation of the state into Telangana and Seemandhra as per existing boundaries with Hyderabad as the capital of Telangana, and Seemandhra to have a new capital. This option is to be exercised only  in case it is unavoidable and if the decision can be reached amicably amongst all the three regions by instilling confidence in the people of coastal  Andhra, Rayalaseema and others who have settled in Hyderabad and other districts of Telangana  with regard to the safety and security of their investments, properties, livelihood and employment(Ch.9,PP.450-8).

The ‘most workable’ option recommended by the Committee  basically amounts to restoring status quo ante, experimented  but failed miserably as documented by the Committee itself. The Committee did not face the question squarely as to why this particular arrangement and several other assurances given to Telangana failed to work in the past and what prompts it to believe that a variant of such an arrangement would be workable in future. The Committee did seem to take note of the basic lesson from the experience that in a democracy like ours such ‘safeguards’ can not withstand the pressures exerted by the ‘interest groups’ from the politically dominant  region but, apparently on balance of considerations, chose not to allow this to influence its recommendations.

 Surprisingly, in none of the two options did the Committee recommend safeguards for Rayalaseema – rightly regarded by it as the most backward region in the state. Further, whereas in the case of the ‘first best’ option  it elaborated the recommended safeguards for Telangana in great detail, in the case of the ‘second best’ option it did not recommend any plan of action and a road map in regard to the assurances for the people from coastal Andhra and Rayalaseema settled in Telanganaa.   
Growth and Inequality

At the time of the formation of Andhra Pradesh, average per capita GSDP (Gross State Domestic Product) for Telangana was significantly lower than for coastal Andhra as well as for Rayalaseema. Starting with a low base, Telangana showed a ‘catching-up process’  resulting in a higher growth rate than the other regions but the level of its per capita GSDP continued to be lower than in the other two regions for at least four decades after the formation of the state. It is in the post-reform period that it overtook Rayalaseema, and now its per capita GSDP(excluding Hyderabad) stands above that for Rayalaseema and is next to coastal Andhra (Rao and Shastry, 2009).The analysis of growth by the Srikrishna Committee indicates a similar trend. The Committee does note, however, some continuing concerns in Telangana regarding public employment, education, and water and irrigation.

An important factor contributing to the catching-up process in Telangana is the in-migration of capital, enterprise and skills from Seemandhra - more so in the post-reform period - especially from coastal Andhra, into different districts of Telangana, prominent among them being Hyderabad and the adjoining areas. This is amply borne out by the data on interregional migration (Rao and shastry, op.cit). Therefore, an analysis of how the benefits from rising GDP growth and employment have been shared between different social groups is essential to understand the rising discontent in Telangana, especially in the post-reform period. It is also necessary to understand the other qualitative aspects of growth such as costs of investment, uncertainty of returns and sustainability. For example, as pointed out by the Srikrishna Committee, agriculture in Telangana has become heavily dependent on well irrigation which is both costly and uncertain. This indeed accounts for the disproportionately large number of suicides by farmers in Telangana (Galab,Revathi and Reddy, 2009) - also documented by the Srikrishna Committee.

    The Committee  notes the rising inequality in rural Telangana in the post-reform period (between 1993-4 and 2004-5, based on the sample surveys conducted by the National Council of Applied Economic Research) when the SCs, STs, and minorities have suffered a decline in income: “Such deepening inequality in Telangana can not only sustain the separatist agitation but it can also carry it further and increase its   intensity……Contrastingly, the evidence suggests that the inequality in income has, in fact, declined in coastal Andhra” (Ch.2, P.119.). But, over this period, the affluent farming sections from the rural coastal Andhra have been increasingly shifting to non-farm occupations by leasing out their land, thanks to their command over capital and proliferation of lucrative non-farm opportunities. On all accounts, the area under tenancy has increased phenomenally in coastal Andhra in the recent period. This out-migration could well have led to a decline in rural inequality there, while at the same time contributing to the rise in inequality in areas of their destination, including Telangana and Rayalaseema.

Economic Viability of Telangana State

Viability of a state is usually assessed in terms of its area, population, size of GSDP and public revenues. Area and population assume particular relevance from the governance angle, whereas size of GSDP and pubic revenues have a bearing on economic viability. Tax and non-tax revenues are largely determined by the size of GSDP. In the early years of development with low levels of per capita GSDP, the compulsions of a critical minimum of public revenues for maintenance of general administration, police, judiciary and other essential services did not, in general, favour smaller states. In fact, at the time of the formation of Andhra Pradesh, a strong consideration favouring integration of Telangana with the Seemandhra was the persisting revenue deficit of Seemandhra and existence of revenue surplus for Telangana. Over the last half a century, however, with the steady growth in per capita income and tax revenues, economic viability in terms of public revenues is no longer a binding constraint in many cases. Therefore, the Srikrishna Committee has done well by focusing on GSDP and not getting into the issue of public revenues (except for a passing mention in the Report) while discussing viability.

The Committee observed that “Telangana region (excluding Hyderabad) ranks 15th in the list of 28 states (excluding A.P.) in terms of the absolute amount of GDP, and is listed above the states of Chhattisgarh, Jharkhand, Himachal Pradesh, Goa and all the North eastern states(Appendix 2.25). In terms of per capita income, Telangana (excluding Hyderabad) ranks 13th in GSDP as well as in per capita income……..Thus, from the point of view of sheer size of economy, Telangana as a new state can sustain itself both with and without Hyderabad”(Ch.2, P.121).

Having said this, the Committee duly noted the apprehensions of Seemandhra concerning its own economic prospects and viability in case statehood for Telangana  is conceded: Fear of local entry taxes and cess scuttling free trade and enhancing cost of business and increasing prices of goods and services;  local laws constraining physical movement of goods and services between neighbouring regions and states; and losing a major market inherent in huge population, business and market concentration of the city of Hyderabad (P.122).

 The Committee after simply observing that, “on this count, separation of AP can be a negative factor which inhibits economic growth of newly formed states”( P.122), goes on to suggest that “it is important to keep the city/district/urban agglomeration of Hyderabad accessible to people and businesses from any of the regions of AP or for that matter from any part of India and abroad. This can be accomplished irrespective of whether the political control over Hyderabad is wielded through a united AP or otherwise”(P.123).

As it is, we have a common national market in the country in which people belonging to several regions and states participate for mutual advantage. Restrictive practices in trade and business equally hurt those practicing them and, in any case, the Union Government can not remain a mute spectator to such  practices. There can hardly be any basis for these fears when there is no evidence of restrictive practices in trade and business between the existing states in the country, including those recently created.

Social Inclusion

The Srikrishna Committee Report contains an illuminating analysis of the issues bearing on social inclusion, based on the data assembled by the Committee from the authentic sources on several indicators of development according to regions, castes, religion and gender, supplemented by the extensive field visits and interviews by the members of the Committee(Ch.7).An important fact emerging from these data – not widely known so far - is that the upper or high castes account for as high as 32% of total population in coastal Andhra and 24.2 % in Rayalaseema, as against a low level of 10.7% in Telangana (including Hyderabad). Thus the socially disadvantaged sections comprising SCs, STs, Muslims, Other Minorities and OBCs constitute as high as nearly 90% of total population in Telangana, a little over three-fourths and two-thirds of total population in Rayalaseema and Coastal Andhra (Table 7.1, P.360).

 Since the upper castes would, in all probability, predominate among the migrants from Seemandhra into Telangana, this may be contributing to reinforcing the existing inequalities in Telanagana, characterised by feudal antecedents. It is pertinent to note, at this stage, the following observations of the Committee:

The Upper castes in Rayalaseema and coastal Andhra are vehemently against the idea of dividing the state; their greatest fear being the loss of Hyderabad. The accommodation between these two regions has been in terms of political domination by Rayalaseema and economic domination by coastal Andhra. Together the two regions have ruled the state through Congress and TDP political formations. Telangana feels dominated by the upper castes of these regions and its struggle is primarily to shake off their yoke.(P.390). 

According to the Committee, Telangana separatists argued before it that because of its higher proportion of disadvantaged social groups, Telangana will be a more socially, economically and politically equitable and inclusive state (P.389) Dalit groups from all the three regions, citing the viewpoint of Dr.B.R.Ambedkar, argued before the Committee that splitting of the state would break the domination of upper castes and provide opportunities for the SC, ST, and OBC communities in both the states (P.368). But the Committee tries to counter this argument by saying that the division of the state may reduce the proportion of the disadvantaged groups in Seemandhra when compared to the unified state. They could thus lose out in Seemandhra (P.389).The Committee overlooks that even after the division, the socially disadvantaged groups would  constitute over 70% of the population in Seemandhra. The basic point, however, is that given their large numbers, the weaker sections would be better able to articulate their problems and assert themselves in smaller and relatively homogeneous states because of their shared history and easy communicability (Ambedkar,1979; Rao, 2010).          

Telangana groups argued before the Committee that political power is necessary for channeling resources and development benefits towards the region, that political domination by Seemandhra has adversely affected their prospects and that the only way out of this domination is to have a separate state. The Committee examined this argument by merely counting the  number of years for which the posts of CM, Deputy CM, and important portfolios were held by representatives from different regions, and observed that Telangana side can not claim total lack of representation as it held important portfolios of Home, Finance, Revenue and Irrigation for fairly long periods (PP.406-9). However, the matter is not so simple, as, even when the position of Chief Minister was held by ‘strong’ persons from Telangana, plenty of anecdotal evidence suggests that they felt helpless on vital issues and had to bow down to the wishes of  Seemandhra. Political power for different regions flows basically from their respective numbers in the state legislature and not so much by the type of portfolios held or by the time period for which they were held. The latter are in fact determined by the former.   

The following observations of the Committee are telling on how Telangana, as conceived by its protagonists, can be socially inclusive, modern, progressive and even trend-setting:

The Telangana movement can be interpreted as a desire for greater democracy and empowerment within a political unit. As stated earlier, sub-regionalism is a movement which is not necessarily primordial but is essentially modern – in the direction of a balanced and equitable modernisation. Our analysis shows that cutting across caste, religion, gender and other divisions, the Telangana movement brings a focus on the development of the region as a whole, a focus on rights and access to regional resources and further, it pitches for a rights-based development perspective whereby groups and communities put forth their agendas within a larger vision of equitable development. There are strong indications that if Telangana does become a separate state, a movement for separation is likely to follow in Rayalaseema which remains the most backward region in the state”(P.413).

When there are such strong grounds for constituting separate Telangana state, it is not fair to withhold its formation simply for fear of its consequences for other regions in the country. Rayalaseema is backward, but its elite – political, bureaucratic and professional – is much stronger than its Telangana counterpart, thanks to its shared history with coastal Andhra and indeed with the rest of the South over a long period in the struggle for freedom, exposure to modern education and progressive land tenures when compared to Telangana. Rayalaseema can be assertive and succeed in protecting its rights and safeguards in the truncated and less heterogeneous Seemandhra after the separation of Telangana. But if it too fails in this and separation becomes inevitable, then this need not be a cause for alarm. The country, in any case, is in for an era of smaller states.

Hyderabad Metropolis

The two major issues of concern for Seemandhra in the event of creation of Telangana state with Hyderabad as its capital are: (a) the possible impact of its separation from Hyderabad on Seemandhra’s economy (b) the prospects for education and employment of youth in Hyderabad; and security of investments, properties, jobs and livelihoods of those from Seemandhra settled in Hyderabad and other districts of Telangana.     

The growth of Hyderabad is marked broadly by three phases: The first phase ends with the formation of AP when the new state inherited the city which ranked fifth and continues with this rank even to this day, among the major cities in the country with its unique location and a highly developed infrastructure built during the Nizam’s rule. In fact, this was a major attraction and determining factor behind the integration of Seemandhra with Telangana. It may be recalled that Marathwada and Karnatak which were constituents of the Hyderabad state for a long period contributed, in no small measure, to the development of Hyderabad city but had no claims to it because of its organic link with Telangana. Over the second phase stretching up to the start of globalisation, Hyderabad continued to grow linked basically with the regional economy. In the third phase covering the period of globalisation over the last two decades, the character of the city underwent a major change with its phenomenal growth and increased links with the national and global economy which, as brought out by the Srikrishna Committee, now predominate over its links with the state economy. 

This on-going third phase is of special interest. A striking feature brought out by the Committee is the concentration of information technology (IT) and information technology enabled services (ITES) almost solely in Hyderabad accounting for 99% of the total exports from the state (Ch.6, P.315).While there are local investors in IT and ITES sectors, the composition of the firms established in the city is largely national and international in character. Of the ninety four groups identified separately for investments in Hyderabad and Ranga Reddy, seventy four are from outside Andhra Pradesh, testifying to the breadth of investment linkages in the region. Even in Construction and Real Estate, Finance, Business Services, it appears that private A.P. based investors are not dominant. As such, the industry is connected more to the national (through investment) and global economy (through the market) than it is to the regional economy. Its private investments would be driven by the overall climate of certainty and availability of infrastructure, labour and other services. (PP. 316, 330,332).

 As regards labour, the traditional out-migrating states of Eastern India, Rajasthan and Uttar Pradesh, which accounted for 23% of the migrants earlier, are now contributing 40%. Thus, according to the Committee, Hyderabad’s pattern is beginning to look more like Mumbai’s. This is consistent with Hyderabad’s greater integration with national and international markets and its growth as a national and global city (PP.323-4).

The Committee’s narrative of key cities in AP state suggests that the economic interdependence between them may be limited. Hyderabad and each urban centre in coastal Andhra and Rayalaseema appear to have their own economic base hinterland and growth drivers. While Hyderabad is much larger than the other cities in the state, it appears that other cities across AP do not seem to be solely dependent on it for market linkages and other services (PP.336-7).

It is clear from the Committee’s findings that the adverse impact, if any, on the economy of Seemandhra on account of separation of Telangana with Hyderabad as its capital is not going to be significant.

The second issue, viz., the protection of the interests of Seemandhra migrants in Hyderabad and other districts of Telangana is going to be extremely important and challenging. As the Srikrishna Committee points out, migrants from the three regions, especially from coastal Andhra, have contributed substantially to the economic growth of the city and continue to hold a stake in important businesses (P.338).

Access to educational institutions and employment in Hyderabad is important to youth from all the three regions of the state. Small trade persons and semi-skilled workers from all over the state also find a niche in the city. People from the three regions have developed strong material and emotional attachment to the metropolis and fear loss of access in case of changes in the state’s contours (P.339). In view of this, the Committee’s suggestions in the second best option (option 5) regarding the protection of the interests of Seemandhra migrants in Hyderabad and other districts of Telangana deserve serious consideration.      

Summary and Conclusion

According to Srikrishna Committee, Telangana has shown growth dynamism but income inequalities have been increasing. There are also continuing concerns about irrigation, education and employment. Telangana can be economically viable as a separate state with or without Hyderabad. Telangana would also be socially inclusive, facilitating equitable development. Statehood for Telangana is demanded by a large majority of people in the region cutting across caste, religion and gender. Hyderabad Metropolis has acquired a growth momentum of its own, driven largely by investments from the rest of the country and serving the national and global market. Hyderabad becoming the capital of Telangana may not adversely affect the economy of Seemandhra.

Given these findings, it appears the Srikrishna Committee has very narrowly missed recommending Statehood for Telangana with Hyderabad as its capital, as the ‘first best’ option. Scales of justice got tilted against Telangana on account of vehement opposition from Seemandhra and Committee’s own fears about the demands for smaller states cropping up as well as Telangana becoming a stronghold for Naxalism and Religious Fundamentalism. Above all, it shows that in our system opting for a radical change by moving away from status quo is not easy.

Of all these fears, the concerns of Seemandhra, especially those centering on the prospects for its youth in Hyderabad, are most legitimate. Addressing these concerns seriously is critical to the resolution of the crisis so as to pave the way for the formation of Telangana State. This calls for a constructive dialogue between the leaders of both the regions with understanding, spirit of accommodation and statesmanship.
Ambedkar, Dr.Babasaheb(1979).Writings and Speeches, Vol.I (Part II - On Linguistic States), Education Department, Government of Maharashtra.

Galab, S.,E.Revathi,and Prudhvikar Reddy, “Farmers’ Suicides and Unfolding Agrarian Crisis in Andhra Pradesh”, in D.Narasimha Reddy and Srijit Mishra (Ed.), Agrarian Crisis in India, Oxford University Press, 2009, New Delhi.

Rao, C.H.H.(2010).Regional Disparities, Smaller States and Statehood for Telangana, Academic Foundation, New Delhi.

Rao. S. Kishan, and Rahul A.Shastry(2009).Andhra Pradesh Economy –Dynamics of Transformation With a Focus on Regional Disparities, National Academy of Development, Hyderabad.   
The above analysis is also published in EPW.

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