Special Status: Andhra’s Demands, Larger Issues

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In News: Political parties and social organisations in Andhra Pradesh have formed a joint action committee (JAC) in a bid to transform their crusade for special category status for the state into a major social movement

• Demand has been at the heart of the divorce between Chandrababu Naidu’s Telugu Desam Party (TDP) and BJP-led National Democratic Alliance (NDA).
• A politically-sensitive issue that has its roots in the bifurcation of united Andhra Pradesh in 2014 – In lieu of accepting the bifurcation plan and to compensate for revenue losses, primarily due to Hyderabad becoming the capital of the new state, Telangana, Andhra was promised SCS.

Centre: Denied the demands citing the recommendations of the 14th Finance Commission –

• Did away with the ‘special category’ status for states, except for the North-eastern and three hill states
• Suggested that the resource gap of each state be filled through ‘tax devolution’, urging the Centre to increase its share of tax revenues to the states from 32% to 42%.
• If devolution alone could not cover the revenue gap for certain states the Centre could provide a revenue deficit grant to these states.
• Stated that Andhra Pradesh would end up as a revenue deficit state, and recommended that the Centre provide a revenue deficit grant for the period of the 14th Finance Commission.

Did the Andhra Pradesh Reorganisation Act, 2014, have provisions for special category status to Andhra Pradesh?

• No. The Act, under which the state of Andhra Pradesh was bifurcated in 2014, doesn’t mention ‘special category’, but mentions that the Centre would help Andhra Pradesh bridge any resource gap – 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 that State.
• Former Prime Minister Manmohan Singh had in the Rajya Sabha assured that Andhra Pradesh would be granted special category status for a period of five years.

Special Category Status (SCS)

Granted by: National Development Council (NDC), a NITI Aayog body

To: States that are disadvantaged as compared to the others

1st State to be granted the status: Jammu and Kashmir

Other States having the SCS status: Assam, Nagaland, Arunachal Pradesh, Himachal Pradesh, Manipur, Meghalaya, Mizoram, Sikkim, Tripura, and Uttarakhand

Set of parameters that determine the decision:

• Hilly and difficult terrain
• Low population density or the presence of sizeable tribal population
• Strategic location along international borders
• Economic and infrastructural backwardness
• Non-viable nature of state finances

Assistance provided to the States with Special Category Status:

• Receive preferential treatment in the form of 30 percent of the Centre’s budget
• Concession on excise duty and other tax breaks to attract industries and investment
• Option to avail benefits of debt swapping and debt relief schemes
• In central government-sponsored schemes and external aid, the states get it as 90 percent grants and 10 percent loans. Other states receive only 30 percent of their funds as grants.

Gadgil-Mukherjee formula (1990)

• Named after social scientist Dhananjay Ramchandra Gadgil and Dr Pranab Mukherjee
• It is a revised formula; was earlier known as Gadgil formula (1969)
• Centre’s assistance pool to states under the categories (population, per capita income, fiscal management and special problems) would shrink from 90 to 85 percent.

Why the Demands?

Lost their Gold mine named Hyderabad

When the state was divided, Andhra not only lost a capital but also an important industry hub, which was in and around Hyderabad. This led to

• Lower level of industrialization
• Lower per capita income (lowest in South)

Whereas Hyderabad has become an important growth engine and revenue source for Telangana – the per capita income for Telangana is at par with states like Maharashtra and Tamil Nadu, and many see this as largely on account of Hyderabad (High level of Industrialisation + a rising IT hub with about 80-90 per cent of jobs)

Other aspects of the Bifurcation Act and the Special Package promised in lieu of the special status remain unfulfilled:

• Bridging the revenue deficit
• Setting up of a railway zone, steel plant, port
• Supporting the construction of Greenfield capital
• Development of infrastructure in backward districts
• Construction of Polavaram project
• 90 percent central funding
• Industrial incentives similar to the entitlements in case of special category states
• Satisfactory funding for national educational institutions

The Way Ahead:

There is an urgent need for Andhra Pradesh to solve issues that are burning and have been paid little to no attention –

• Better planning and execution of development projects
• Develop better educational institutions and work on skill building of its people
• Financial packages and tax breaks which will attract foreign and domestic investors
• Developing other cities through decentralized development, and not just developing a particular city
• Work towards the long pending Railway zone (Waltair division of East Coast Railway (ECoR))
• Solving issues related to water sharing

Connecting the Dots:

What is ‘special category status’? What benefits do states with special category status enjoy? Discuss.