Unique Category Positioning

The Andhra Pradesh State Bandh observed a state-wide bandh demanding Special Category Status and Special Railway Zone.

Since the 2024 Lok Sabha elections are over, there has been a renewed call in the political arena for Andhra Pradesh to be granted Special Category Status (SCS). The Amaravathi bridge's ongoing construction serves as a reminder of the State's need for infrastructure development. Let's examine why Andhra Pradesh deserves this status and why the matter is still politically crucial.

The Context of History

The Reorganisation Act of Andhra Pradesh, 2014

The unitary state of Andhra Pradesh was divided into the states of Andhra Pradesh and Telangana as a result of the Andhra Pradesh Reorganisation Act, 2014. There were no provisions in the Act, which was notified on March 1, 2014, and went into effect on June 2, 2014, for Andhra Pradesh to receive Special and Special Court Status. However, then-Prime Minister Manmohan Singh made the SCS promise on February 20, 2014, during a debate in the Rajya Sabha, stating that the scheme would be extended to Andhra Pradesh for a period of five years. M. Venkaiah Naidu, the leader of the Bharatiya Janata Party (BJP), endorsed this assurance.

Following Bifurcation Advancements
The Union Government contended that the dissolution of the Planning Commission in August 2014 added to the complexity of the situation and that Andhra Pradesh did not meet the requirements for SCS. The 14th Finance Commission essentially repealed the provision for new states by equating SCS with general category status.

Requirements for Status in a Special Category

Origins and Prerequisites

The Fifth Finance Commission first proposed the idea of SCS in 1969 in order to give states that faced severe socioeconomic difficulties and geographic obstacles extra funding. Among the requirements for awarding SCS are:

  1. states where tribal people predominate.
  2. states having sparse populations.
  3. states with hills and those close to foreign borders.
  4. states characterized by industrial and socioeconomic regress.
  5. States with insufficient financial resources.

At the moment, the following states have SCS: Uttarakhand, Telangana, Assam, Himachal Pradesh, Jammu & Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, and Arunachal Pradesh. Odisha is another state requesting SCS, along with AP and Bihar.

What advantages do states that have SCS have?

  • According to the Gadgil-Mukherjee model, SCS states used to receive about 30% of central support.
  • However, this support for SCS States has been absorbed into a greater devolution of the divisible pool funding for all States (raised to 41% in the 15th FC from 32%) in accordance with the recommendations of the 14th and 15th Finance Commissions (FC) and the abolition of the Planning Commission.
  • States with special category status receive 90% of the funding needed for a Centrally-Sponsored Scheme from the Center, compared to 60% or 75% for other states; the state governments provide the remaining amounts.
  • Money that is not spent in a fiscal year is carried over and does not expire.
  • These states receive significant breaks on income tax, corporation tax, and excise and customs taxes.
  • States in Special Categories receive thirty percent of the Center's Gross Budget.

The SCS Qualification for Andhra Pradesh
Andhra Pradesh does not satisfy the required standards for SCS, hence it is ineligible based on these factors. Andhra Pradesh's argument is made more difficult by the 14th Finance Commission's decision to revoke SCS for newly created states. Instead, the Center provided a Special Package (SP) that came with a number of monetary and educational benefits.

The Exclusive Bundle for Andhra Pradesh
When Chandrababu Naidu, the then-chief minister, approved the Special Package for Andhra Pradesh in 2014, it contained the following:

  1. the Union Government's full financing of the Polavaram irrigation project in recognition of it as a national initiative.
  2. tax breaks.
  3. more financial support.

Opposition groups, especially the Yuvajana Sramika Rythu Congress Party (YSRCP), criticized Mr. Naidu for accepting the SP despite doing so, calling it a betrayal of the interests of the state.

Apprehensions About The Special Category Status

  • Lack of Consensus over Criteria: States cannot agree upon the standards for granting Special Category Status (SCS). For example, the Himalayan state of Uttarakhand, which borders China, was granted Special Category Status (SCS), yet other states, like as Jharkhand and Chhattisgarh, who fall behind Uttarakhand in a number of growth indices, were not given the same designation.
  • Inter-State inequities: Giving some states special status raises questions about whether it will encourage unfair social and economic arrangements and so exacerbate state-to-state inequities.
  • Promotion of Fiscal Irresponsibility: SCS-related debt-swapping and debt-relief programs may subtly encourage states to take on more debt than they are capable of servicing, which could result in longer-term financial obligations. In Jammu and Kashmir, for instance, outstanding guarantees make up 20% of the state's Gross State Domestic Product (GSDP), whereas in Himachal Pradesh, they make up 10%.
  • Demand Chain Reaction: Granting a state special status frequently sets off a chain reaction of similar demands from other states, thereby reducing the benefits that were originally anticipated. For instance, the Bihar government approved a resolution in November 2023 requesting that Bihar be granted SCS.

Resolution

  • Economic Policy Integration: Although SCS benefits have the potential to stimulate the economy, their actual effects rely on state-by-state economic policy.
  • State Capacity Empowerment: Rather than depending too much on federal assistance, states should emphasize identifying their industrial strengths and creating a policy framework that encourages self-reliance.
  • Other Strategies: Take a look at several strategies, including the one the Raghuram Rajan Committee suggested, which focused on allocating funds using a "multi-dimensional index." The Centre-appointed Raghuram Rajan Committee categorized Bihar as being in the “least developed category” in 2013 and proposed a new devolution of funding approach based on a multi-dimensional index, rather than SCS. One way to better effectively address the state's socioeconomic backwardness would be to revisit this methodology.

In summary

Even though Andhra Pradesh's request for Special Category Status is still a contentious political matter, it must be handled with impartiality. For the purpose of addressing socio-economic challenges and promoting state development, more equitable and efficient solutions can be found through agreement on criteria, economic policy integration, state capacity empowerment, and alternative fund allocation techniques like the multi-dimensional index suggested by the Raghuram Rajan Committee.