The successor state of Andhra Pradesh, after the separation of Telangana in 2014, has been demanding the 'special category state' (SCS) status ever since.
Bihar has been demanding the SCS status for ages, most vociferously after Nitish Kumar became chief minister.
Except for 11 states (seven in the north-east, Sikkim, Uttarakhand, Himachal Pradesh, and Jammu and Kashmir – temporarily a union territory) that are SCS; all the rest are general category states (GCS).
The recent Lok Sabha elections led to the formation of the NDA coalition government at the Centre, headed by Bharatiya Janata Party's Narendra Modi, but critically dependent upon the support of the ruling parties and the chief ministers of Andhra Pradesh and Bihar. This has reignited the demand for SCS status for these two states.
So, let's look at what SCS actually is and what benefits it brings to such a state. Can and should this status be granted to Andhra Pradesh and Bihar? Is a special package a better alternative to the status quo?
Special Category States Get Larger Grants From the Centre
The special category state (SCS) is integral to and part of the provision of the central government development expenditure assistance (provided as normal and additional central assistance until 2017, before the Planning Commission was disbanded) and central grants for funding schemes like centrally sponsored schemes (CSSs).
The SCS status has nothing to do with the sharing of central taxes, which devolve to all states, only in accordance with the recommendations of the finance commissions (FCs).
The practice of SCS came into existence in 1969 after the earlier system of plan assistance to states – predominantly project-by-project assistance – went through a metamorphosis, replaced by a system of formula-driven normal central assistance (NCA) determined by what was known for decades as Gadgil formula and a few centrally sponsored schemes (CSSs).
The NCA was provided to the states in a mix of loans and grants. The GCS received a 70 percent loan and a 30 percent grant, whereas the SCS had to take only a 10 percent loan and the rest 90 percent came as grants.
Most CSS also followed the NCA pattern. Some other benefits followed.
After the NCA and other central assistance schemes, including CSSs, started providing assistance only in the form of grants to all the states (post-2005), the SCS got 90 percent of their share as central assistance whereas the GCS got less (typically 60 percent since 2015).
When the system of back-to-back transfer for passing on World Bank and other externally aided loans to states was introduced in 2005-06, the SCS continued to get external loans also as 90 percent grants.
The central assistance to the states exceeds Rs 5 lakh crore a year. For a state to receive central assistance as SCS or GCS can make a significant difference.
SCS: Only for the Financially Unviable Hilly States
The National Development Council (NDC), the highest policy-making body for the Planning Commission and the system of plan assistance, decided, in the immediate aftermath of the 1969 transformation, to grant SCS status to three hilly states which were financially precarious and hugely dependent upon the central government for their maintenance – Assam, Nagaland, and Jammu and Kashmir.
All the other north-eastern and Himalayan states got the SCS status as and when they became states – Himachal Pradesh in 1970-71, Manipur and Tripura in 1971-72, Sikkim in 1975-76, Arunachal Pradesh and Mizoram in 1986-87, and Uttarakhand in 2001-02.
No other state has ever been conferred the SCS status.
The central government was under tremendous pressure to grant the SCS status to the surviving state of Andhra Pradesh in 2014 when the better-resourced Telangana was separated from it.
A number of provisions were made to alleviate Andhra’s financial condition in the Andhra Pradesh Reorganisation Act.
The Polavaram project was declared a national project, to be completed by the central government at its cost. The central government was mandated to take, amongst others, ‘appropriate fiscal measures, including an offer of tax incentives’ and to ‘provide special financial support for the creation of essential facilities in the new capital of the successor state of Andhra Pradesh’.
The AP Reorganisation Act, however, has no provision for the grant of the SCS status to Andhra Pradesh.
Special Packages are Political Compromises
In place of providing Odisha and Bihar with an SCS status, demanded vociferously in the late 1990s, the central government provided a kind of special package (also an oddity as all other schemes were all-India or at best regional schemes).
For Odisha’s three most backward districts (Kalahandi, Bolangir, and Koraput; later divided into eight), the central government provided special central assistance under a special KBK plan.
Bihar got a ‘special economic package’ in 2003 from the Atal Bihari Vajpayee government, under a specially designed scheme – the Rashtriya Sam Vikas Yojana – to fund a number of identified programmes and special projects in Bihar only.
Later, the Manmohan Singh-led UPA government started providing special packages, which included a number of central government projects, to the states they considered in special difficulties – Jammu and Kashmir, Odisha, and Andhra Pradesh to name a few. The Narendra Modi government has special packages for almost every state too.
These special packages don’t alter the constitutional system of sharing central taxes and the schematic transfer of resources.
The central government has a discretionary facility called special central assistance (SCA), which it uses to provide extra assistance to states receiving special packages.
As these special packages do not really bring significant resources over and above the normative share of a stat, therefore, there is not much fascination amongst the states for them.
Will the NDA Government Provide SCS Status?
Andhra Pradesh and Bihar don’t satisfy the criterion used for declaring the eleven states as SCS.
Andhra Pradesh is industrially advanced with great potential for IT and other industries. Bihar’s economic backwardness and poverty are duly recognised and compensated in the form of large FC devolutions, including revenue deficit grants.
As there was no statutory obligation in the AP Reorganisation Act, the Modi government did not provide the SCS status to Andhra Pradesh during the last ten years. Bihar’s request also did not receive any consideration despite the BJP being part of the ruling coalition in Bihar and in Delhi during much of the tenure of the Modi government.
There are bound to be massive protests and agitations in other states if the SCS status is granted to any or both of these states. The cases of many other GCS – Rajasthan, Odisha, Chhattisgarh, Jharkhand, and so on – are no less strong.
In the circumstances and facts of the case, the Modi-led NDA government would be best advised to refuse to grant any SCS status to these two states, Andhra Pradesh and Bihar.
Most likely, these two states might end up getting a good special package and greater allocation (than their normative share would justify) from the central development schemes.
(The author is former Economic Affairs Secretary and former Finance Secretary of India. This is an opinion piece and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for the same.)
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