Q+A: Special Category States – Recent Issues

The question of special category status for states has resurfaced recently with the political tussle between the ruling BJP in the Centre and Telugu Desam Party, prime party in the newly formed state of Andhra Pradesh after the bifurcation. The main demand of the state party has been Centre’s non-fulfillment of the promise to grant special category status to the state in the light of shortages it is facing after the division.

What is Special Category Status?

Special Category status is an arrangement in India under which a state becomes entitled to certain additional benefits. While a state usually receives funding of upto 60 per cent for the centrally sponsored schemes, the states given this status receive 90 per cent of the funds for such schemes. This is not a Constitutional provision but has been a practice by the Centre after recommendations from the body of Planning Commission named National Development Council.

Who takes Decision for Granting Special Category Status?

Currently, National Development Council decides on which state to grant special category status to. The Council consists of the Prime Minister, Union Ministers, Chief Ministers and Planning Commission members. The Council has till now granted SCS to 11 states which include Assam, Nagaland, Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Arunachal Pradesh, Tripura, Himachal Pradesh, Sikkim and Uttarakhand.

What are the Criteria for Selection of states for SCS or Granting Assistance under it?

Some of the criteria used to determine SCS fixed by the National Development Council are:

  • Low density of population
  • Sizeable share of tribal population
  • Backwardness in terms of economy and infrastructure
  • Hilly and difficult terrain
  • Strategic location along the borders with neighbouring countries and
  • State finance is non-viable.

In past, the Planning Commission used to distribute funds to states on the basis of central assistance for state plans which had three components-

  • Normal central assistance-30 per cent of the assistance under this is fixed for 11 states and the remaining 70 per cent is allocated to other states. The SCS states get 90 per cent of this money in the form of grants and remaining 10 per cent in terms of loans. But others get only 30 per cent as grant and the remaining 70 per cent as loans.
  • Special central assistance-there is no fixed mechanism of distribution. It depends on plan size of the state or the previous plan expenditures. The SCS states are given several concessions excise and custom duties, corporate tax rates and income tax rates.
  • Additional central assistance-the SCS states are given additional assistance for externally aided and other specific projects.

What is mentioned in the 14th Commission Report about Special Category Status?

Although the 14th Finance Commission Report does not make any mention of Special Category status, its recommendations have been construed as indicating towards this.  The Report provided for a fixed share of states in the net proceeds of the shareable central taxes at 42%. With respect to this, it has been interpreted as doing away with the distinction between general and special category states and grant funds on the basis of backwardness of states. The interstate inequalities are to be addressed through adequate tax devolutions and grants. Only SCS status was restricted to the states of North-east and three hill states. Under this report, some states are entitled to receive revenue deficit grants, under which Andhra Pradesh has been included.

What is the Controversy with Andhra Pradesh?

At the time of bifurcation of Andhra Pradesh in the year 2014, the new state had sought special category status. It was mainly because the capital city of Hyderabad, the most developed part of the state went to Telengana. It thus went into a financial disadvantage with no developed region under its territory. The state is still in need of heavy financial support from the Centre. The then Prime Minister, Manmohan Singh had promised to grant the SCS status to newly formed Andhra Pradesh for a period of five years for the purpose of its financial development.

However, the demand has been ongoing for the last four years without any fruit. TDP supported and entered into alliance with the NDA with the intention to get the special favours for the state. However, due to failed efforts has finally withdrawing support by removing two MPs from the Rajya Sabha who include Union Civil Aviation Minister P Ashok Gajapathi Raju and Minister of State for Science and Technology Y Satyanarayana Chowdhary.

On the other hand, the Centre now claims that the idea of SCS status was undone by the 14th Finance Commission report. So, there is no scope of this status. However, agreement has been made to grant monetary equivalent of a special category status that is 90 per cent funding responsibility of the centrally sponsored schemes. There is also a claim of granting Rs. 4000 crore for meeting its revenue deficit and another Rs 138 crore shall be extended in a while.

The current action by AP can only be interpreted as trying to create pressure on the government to meet the state’s demands. There is no threat to existence of any of the parties in their respective political positions.