Andhra Has a Special Grouse
The crisis in the NDA over granting special category status (SCS) to Andhra Pradesh may escalate as the 2019 elections draw nearer. The division of the state by the UPA before the 2014 elections had left it much poorer, with the key districts of Hyderabad and Ranga Reddy, which together accounted for 76 per cent of the revenues of undivided Andhra, going to Telangana. To placate sentiments in Andhra, the UPA had dangled the lure of ‘special category status’ for five years, but the Congress couldn’t win even a single Lok Sabha seat in the state. In the bifurcated state, the BJP has only two seats, though in alliance with the TDP, the NDA has 17 of 25. The present row over SCS may well cost BJP the state in 2019, but it must be noted that contrary to Chandrababu Naidu’s claims, the promise of special category was never incorporated into the Andhra Pradesh Reorganisation Act, 2014, which only states that the Centre will make appropriate grants, benefits and incentives “in the form of special development package” for the development of the state.
Finance minister Arun Jaitley dismissed the demand as a “sentimental and political movement’’ that cannot be accommodated “constitutionally” because the 14th Finance Commission had restricted said status to the northeast and three hill states. However, there is nothing “constitutional” about SCS; like the Planning Commission that created it, it was an extraconstitutional mechanism to address the backwardness of these peripheral states. Even the 14th Finance Commission report makes no reference to ‘special category’.
Eleven of our 29 states have been given this status since 1969—the eight northeastern states plus J&K, Himachal and Uttarakhand. These states were special only in respect of the special plan assistance they received from the Centre under the Gadgil formula, which earmarked 30 per cent of total plan assistance for these states. Thus, they benefitted from plan grants (given by the Planning Commission) rather than non-plan grants (given by the finance commissions). The per capita plan assistance they received was 4x what ‘general category’ states got; they were also granted tax and other incentives—including capital investment subsidy, excise duty and income tax exemption, subsidy under the Freight Subsidy Scheme—to attract industry. While these incentives failed to industrialise these states as intended for lack of local resources, markets and access, in the case of Andhra, it might provide the required fillip to transform its predominantly agrarian economy into a strong industrial one. Andhra needs resources badly for capital investments: Rs 33,000 crore for its capital Amaravati, an equal amount for the Polavaram project on the Godavari and funds for a new railway zone. The Centre has so far given Rs 2,500 crore for its cities and Rs 5,000 crore for Polavaram, which is peanuts compared to the state’s requirement.
The distinction between plan and non-plan expenditure having now gone, the Gadgil formula is a thing of the past. The only advantage special category states now enjoy is in respect of Centrally Sponsored Schemes (CSS), for which the Centre provides them 90 per cent funds while general states get much less; under MNREGA, for example, other states get only 75 per cent funds from the Centre. In the 2017-18 budget, the Centre slashed the CSS number from over a hundred to 28, defining six as ‘core of the core’ and the remaining 22 as ‘core’ schemes. Even in the rejig, special category states have retained relative advantages—for the ‘core’ schemes, the Centre provides 90 per cent funds to ‘special’ states but only 60 per cent to others; for the six ‘core of the core’ schemes (MNREGA is one of those), general states continue to get 75 per cent from the Centre. Subsidies and tax incentives also continue for ‘special’ states. Even when agreeing to provide Andhra the “monetary equivalent” of SCS, Jaitley said: “Political issues can’t increase quantum of money because the Centre has no free-floating funds. Every state has a right to central funds.” But it may yet be possible to grant this status to resource-starved states like Bihar, Chhattisgarh, Jharkhand, Odisha and Andhra, by re-engineering the mechanism and correcting inherent flaws. The most glaring flaw is that status is granted in perpetuity without any performance expectation or accountability; there’s also no monitoring by the Centre. The purpose of development may be served better if status is reviewed periodically, and a time-bound formula- and target-based approach adopted to qualify for central assistance. Status would then be open-ended, based on performance.
Special category status is granted in perpetuity, without any performance expectation or accountability. That is its greatest flaw
Govind Bhattacharjee is a former Director General at the Office of the Comptroller & Auditor General of India, and the author of Special Category States of India