Context-

The demand for Special Category Status (SCS) for Andhra Pradesh has resurfaced in the political arena following the completion of the 2024 Lok Sabha elections. The ongoing construction of the bridge at Amaravathi highlights the State’s infrastructural development needs. Let's explore why the issue remains politically significant and whether Andhra Pradesh qualifies for this status.

The Historical Context

The Andhra Pradesh Reorganisation Act, 2014

The Andhra Pradesh Reorganisation Act, 2014, led to the bifurcation of the unified Andhra Pradesh into two states: Andhra Pradesh and Telangana. The Act, which was notified on March 1, 2014, and came into force on June 2, 2014, did not include provisions for granting SCS to Andhra Pradesh. However, the promise of SCS was made during the debate in the Rajya Sabha on February 20, 2014, by then-Prime Minister Manmohan Singh, who assured that SCS would be extended to Andhra Pradesh for five years. This assurance was endorsed by Bharatiya Janata Party (BJP) leader M. Venkaiah Naidu.

Post-Bifurcation Developments

The Union Government argued that Andhra Pradesh did not meet the criteria for SCS and that the dissolution of the Planning Commission in August 2014 further complicated the matter. The 14th Finance Commission equated SCS with general category status, effectively annulling the provision for new states.

Criteria for Special Category Status

Origins and Qualifying Factors

The concept of SCS was introduced by the Fifth Finance Commission in 1969 to provide special grants to states with significant socio-economic challenges and geographical disadvantages. The criteria for granting SCS include:

1. States with a majority tribal population.
2. States with a low population density.
3. Hilly states and those near international borders.
4. States with socio-economic and industrial backwardness.
5. States lacking adequate financial resources.

Currently, the states with SCS are Arunachal Pradesh, Assam, Himachal Pradesh, Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Telangana and Uttarakhand. Along with AP and Bihar, Odisha is another state demanding SCS.

What benefits do states with SCS enjoy?

• In the past, SCS states used to receive approximately 30% of central assistance, determined by the Gadgil-Mukherjee formula.
  • However, following the recommendations of the 14th and 15th Finance Commissions (FC) and the dissolution of the Planning Commission, this assistance to SCS States has been subsumed in an increased devolution of the divisible pool funds for all States (increased to 41% in the 15th FC from 32%).
• The Centre pays 90% of the funds required in a Centrally-Sponsored Scheme to special category status states as against 60% or 75% in case of other states, while the remaining funds are provided by the state governments.
• Unspent money in a financial year does not lapse and is carried forward.
• Significant concessions are provided to these states in excise and customs duties, income tax and corporate tax.
• 30% of the Centre’s Gross Budget goes to Special Category states.

Andhra Pradesh’s Qualification for SCS

Based on these criteria, Andhra Pradesh does not qualify for SCS as it does not meet the necessary benchmarks. The 14th Finance Commission's decision to annul SCS for new states further complicates Andhra Pradesh’s claim. However, the Centre offered a Special Package (SP) instead, which included several financial and developmental incentives.

The Special Package for Andhra Pradesh

The Special Package for Andhra Pradesh, accepted by then-Chief Minister Chandrababu Naidu in 2014, included:

1. Recognition of the Polavaram irrigation project as a national project with full funding from the Union Government.
2. Tax concessions.
3. Special financial assistance.

Despite accepting the SP, Mr. Naidu faced criticism from opposition parties, particularly the Yuvajana Sramika Rythu Congress Party (YSRCP), which labeled the acceptance as a betrayal of the state’s interests.

Concerns Regarding Special Category Status

• Disagreement over Criteria: There is a lack of consensus among states regarding the criteria for awarding Special Category Status (SCS). For instance, Uttarakhand, a Himalayan state bordering China, was granted SCS, while states like Jharkhand and Chhattisgarh, which lag behind Uttarakhand in various growth indicators, were not awarded the same status.
• Inter-State Disparities: Granting special status to certain states raises concerns about fostering unequal economic and social structures, potentially exacerbating disparities between states.
• Promotion of Fiscal Irresponsibility: Debt-swapping and debt-relief initiatives associated with SCS can indirectly incentivize states to exceed their debt-servicing capacity, leading to prolonged financial liabilities. For example, outstanding guarantees in Jammu and Kashmir account for 20% of its Gross State Domestic Product (GSDP), while in Himachal Pradesh, they represent 10%.
• Demand Chain Reaction: Awarding special status to one state often triggers similar demands from other states, leading to a series of requests and diminishing the intended benefits. For example, in November 2023, the Bihar Government passed a resolution seeking the grant of SCS for Bihar.

Solution

• Economic Policy Integration: While SCS benefits can provide a stimulus, the real impact depends on the economic policies of individual states.
• State Capacity Empowerment: States should focus on recognizing their industrial strengths and fostering a policy environment that promotes self-reliance, rather than relying excessively on central support.
• Alternative Approaches: Consider exploring alternative approaches, such as the one proposed by the Raghuram Rajan Committee, which emphasized a ‘multi-dimensional index’ for fund allocation. In 2013, the Raghuram Rajan Committee, set up by the Centre, placed Bihar in the “least developed category” and suggested a new methodology based on a multi-dimensional index for devolving funds instead of SCS. Revisiting this methodology could address the state’s socio-economic backwardness more effectively.

Conclusion

While the demand for Special Category Status for Andhra Pradesh continues to be a politically significant issue, addressing it requires a balanced approach. A consensus on criteria, economic policy integration, state capacity empowerment, and alternative fund allocation methods like the multi-dimensional index proposed by the Raghuram Rajan Committee can provide more equitable and effective solutions for addressing socio-economic challenges and fostering state development.

Source- The Hindu