In line with the deadline set by the Governor to complete bifurcation-related works by May 15, the Finance Department has achieved another milestone and opened an account with the Reserve Bank of India to create separate consolidated fund of Telangana State before the appointed day of June 2.

The consolidated fund account will facilitate all taxes to be accrued to the State as well as the Central devolution to be deposited into a separate account. The present account for the united Andhra Pradesh will be operated by the residuary State of Andhra Pradesh from the appointed day. With Governor’s approval, Secretary, Finance, went to Mumbai on Tuesday to sign an agreement with the RBI and open an account for Telangana State which will become operational from June 2.

According to the Andhra Pradesh Reorganisation Bill-2014, the cash balance and credit balance of the existing State of Andhra Pradesh will be divided between the two successor States on the basis of population ratio. This apportioning will be carried out by adjusting the credit balances for the two States in RBI books.

The consolidated fund of Telangana should be in place before June 2, so that the government could draw money to run the administration from Day 1 of Telangana State coming into existence, officials said.

The AP Reorganisation Act also mandated the Centre to apportion the award made by the 13th Finance Commission between the successor States on the basis of population and other parameters. Under section 46(2), the Centre may also make appropriate grants and also ensure that adequate benefits and incentives in the form of special development package are given to the backward areas of the State notwithstanding the award to be given by the 14th Finance Commission.

In this context, Governor E.S.L. Narasimhan had written a letter to the Union Finance Minister about the State government’s concern about possible fiscal stress likely to be experienced post-division by the residuary State of Andhra Pradesh, as its resource gap, based on budgetary estimates, could be substantial.

At his request, the Centre also constituted a joint committee of senior officials of the Planning Commission, Finance and Home departments for taking stock of the situation and make necessary recommendations for inclusion in the Union budget for 2014-15 in order to bridge the likely resource gap. The Prime Minister had made a statement in the Rajya Sabha to that effect on February 20. That committee, which met once, would hold another meeting on May 15, the sources added.