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Special Category Status

Special Category Status and the ongoing furore

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ü  G.S. Paper 2

ü  What is a special category status?

ü  What does The 14th Finance Commission say about the Special Category status?

ü  What assistance do states with Special Category Status get?

Recently:

  • The Bharatiya Janata Party (BJP) and Telugu Desam Party (TDP) have locked horns over the central assistance and demand for special category status to Andhra Pradesh.
  • Naidu alleges that the Centre failed to implement the AP Reorganisation Act, 2014 including giving the Special Category Status to AP.
  • The demand for the special category status for the southern state has been a constant issue ever since the inception of Telangana in 2014.

What is Special Category status?

  • The concept of a special category state was first introduced in 1969 when the 5th Finance Commission sought to provide certain disadvantaged states with preferential treatment in the form of central assistance and tax breaks.
  • Initially three states Assam, Nagaland and Jammu & Kashmir were granted special status.
  • Later eight more states were included (Arunachal Pradesh, Himachal Pradesh, Manipur, Meghalaya, Mizoram, Sikkim, Tripura and Uttarakhand).
  • The rationale for special status is that certain states, because of inherent features, have a low resource base and cannot mobilize resources for development.

What does The 14th Finance Commission say about the Special Category status?

  • 14th Finance Commission (2015-20) scrapped the distinction between general and special category States.
  • In the past, the NDC considered factors such as difficult and hilly terrain, low population density and/or a sizeable share of tribal population, strategic location along borders, economic and infrastructural backwardness, and non-viable nature of state finances.
  • The NITI Aayog, which has replaced the Planning Commission, has no power to allocate funds — therefore, the discretion that the ruling party at the Centre had to dole out special favors to states through the Plan panel, no longer exists.
  • The Centre says the Fourteenth Finance Commission effectively removed the concept of Special Category States after its recommendations were accepted in 2015.
  • The Centre was willing to provide the “monetary equivalent” of a special category state to Andhra Pradesh but would not be able to grant the “special status” that was restricted only to the north-eastern and three hilly states by the 14th Finance Commission.

What assistance do states with Special Category Status get?

The Centre pays 90 per cent of the funds required in a centrally-sponsored scheme to special category status category states as against 60 per cent in case of normal category states, while the remaining funds are provided by the state governments.

What does Andhra Pradesh seek from  the centre?

For Andhra Pradesh, the Centre is committed to giving 90 per cent of the funds, equivalent to special category states, through other means like external agencies.

However, the Centre has agreed to give “special assistance” to AP for five years, which would make up for the additional central share the state might have received during these years — 2015-16 to 2019-20.

This will be in the form of Union funding for externally aided projects that have been signed and disbursed during these years.

AP is demanding that special assistance funding should be in the 90:10 ratio (Centre: state) for both EAPs and centrally-sponsored schemes — which adds up to about Rs 20,010 crore of central assistance.

Because the state government may not be able to spend this amount on EAPs in the stipulated five years, AP is demanding that the Centre allow it to use the money to clear outstanding loans.

It is seeking permission to borrow from internal lenders like NABARD, HUDCO and other commercial banks, and to use the gap to pay interest commitments to the Government of India, NABARD and EAPs.

The Centre is also willing to accept the state government’s suggestion of raising funds through NABARD.

Which are the other states that are demanding the Special Category Status?

  • Apart from Andhra Pradesh, Odisha and Bihar had demanded SCS status.
  • However, they have not been granted the status as they did not fulfill the criteria to be qualified as an SCS State.

When was the first Special Category status bestowed?

  • The NDC first accorded SCS in 1969 to Jammu and Kashmir, Assam and Nagaland.
  • Over the years, eight more states were added to the list — Arunachal Pradesh, Himachal Pradesh, Manipur, Meghalaya, Mizoram, Sikkim, Tripura and, finally, in 2010, Uttarakhand.
  • Until 2014-15, SCS meant these 11 states received a variety of benefits and sops.

Andhra Pradesh Government’s demand is futile because:

  • The perception that Andhra is currently disadvantaged is misleading as industries such as communications, business, and local community services are doing reasonably well there.
  • But if one argues that the commitment made earlier should be kept and that rules cannot be changed in retrospect, how does then one grapple with the idea of competitive federalism?
  • Though the SCS could deliver monetary benefits for Andhra, it makes little economic sense for the Centre.

Conclusion:

States must understand their industrial strengths and create a policy environment to leverage their exclusive resources instead of relying on Centre’s support.

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