Andhra Pradesh Chief Minister Chandrababu Naidu had met PM Narendra Modi earlier this month.
The Centre has announced a special financial package of Rs 1,976.50 crore for Andhra Pradesh to compensate for losses from the bifurcation of the state when Telangana was carved out of it two years ago. It is seen as a move to deflect pressure to grant special category status for the state.
The package announced today includes the yearly 350 crore that the Centre gives the state for the development of seven backward districts and 450 crore towards building a new capital city, with Hyderabad, the joint capital for now, set to go to Telangana after 10 years.
About 70% of the undivided state's revenues came from Hyderabad and the bifurcation left the residual Andhra Pradesh with a revenue deficit of about 20,000 crore.
The government said today's package is being given to "fulfill its commitment to the people of Andhra Pradesh," and that with this, it has now provided Central assistance of Rs.8,379.50 crore to the state since the bifurcation in June 2014.
The Modi government has been under pressure to fulfill a promise made by the previous Congress-led UPA government to grant special category status to Andhra Pradesh, not just from the opposition but also its own ally and Andhra's ruling Telugu Desam Party or TDP.
Chandrababu Naidu of the TDP has reportedly reminded PM Modi that their alliance too had made an election promise to grant Andhra Pradesh special category status and has warned that non-delivery will trigger a political backlash.
Special category status gives a state a bigger chunk of central assistance as grants rather than as loans and also tax concessions. But it will mean an additional financial burden for the Centre and, the government fears, will also trigger a race among states for special status.
The government, sources say, is completely against according special status to states.
A senior minister said, "The era of granting special status is history now as the 14th Finance Commission has brought in a new age of financial devolution with the states getting nearly 10 per cent more than what the earlier share used to be".
The government faced a tricky situation during the just-ended monsoon session, when a private member's bill in Rajya Sabha became a rallying point for opposition parties. The Centre wriggled out of the situation by saying that a bill pertaining to financial devolution was a "money bill" and could not be taken up in the Raja Sabha.
In Parliament this month, the Congress accused the BJP of "betraying" Andhra Pradesh by not fulfilling the promise of special status.
The BJP in turn has accused the Congress of faking concern for Andhra Pradesh and argues that the party should have ensured that the provision for special category status was added to the bill that Parliament cleared in 2014 to implement the bifurcation.