Telugu Desam Party (TDP) president N Chandrababu Naidu emerged as a key player in national politics on Wednesday (June 4) after his party won 16 seats in the Lok Sabha election. TDP is in alliance with the Jana Sena Party and the BJP in Andhra Pradesh. Naidu is likely to extract several promises and assurances, the most important of which will be the status of a Special Category State for Andhra Pradesh. WHAT IS SPECIAL CATEGORY STATUS? In 1969, the Fifth Finance Commission of India introduced the mechanism of SCS to assist certain states in their development and fast-tracking growth if they faced historical, economic or geographical disadvantages.

FACTORS CONSIDERED:

  • Difficult and hilly terrain,
  • Low population density and/or a sizable tribal population,
  • Strategic location along borders,
  • Economic and infrastructural backwardness, and
  • Non-viable nature of state finances.
TO WHICH STATES WAS SCS PROVIDED? SCS was accorded to 11 states, including the entire Northeast, and the border hill states of Jammu and Kashmir, Himachal Pradesh, and Uttarakhand. DID OTHER STATES DEMAND IT TOO? Subsequently, other states too demanded SCS — including Naidu’s AP; Bihar, whose Chief Minister Nitish Kumar is another key NDA ally; and Odisha, where the BJP will now form the government. THE CURRENT STATUS: The system was scrapped on the recommendation of the 14th Finance Commission, which suggested that the resource gap of the states should be filled by increasing the devolution of tax to 42% from the existing 32%.

BENEFITS TO A SCS STATE

  • SCS would mean higher grants-in-aid to the state government from the Centre. (grants to Special Category States is Rs. 5,573 crore per year, whereas AP (Non SCS) receives only Rs. 3,428 crore.)
  • SCS states enjoy special industrial incentives such as:
    • Income-tax exemptions,
    • Custom duty waivers,
    • Reduced excise duty,
    • Corporate tax exemption for a certain period,
    • Concessions and exemptions relating to GST, and
    • Lower state and central taxes.
  • In SCS states, the Centre funds Centrally Sponsored Schemes up to 90%, compared to 75% in non-SCS states.
WHY DOES AO WANT SPECIAL CATEGORY STATUS? When undivided AP was bifurcated to create Telangana in 2014 through the AP Reorganisation Act, 2014, the UPA government at the Centre had promised to grant SCS to AP to compensate for the loss of revenue, and of Hyderabad, where much of the development was concentrated.
  • The 14th Finance Commission estimated that the post-devolution revenue deficit for AP for the five-year period 2015-20 would be 22,113 crore, but in reality, this figure stood at Rs. 66,362 crore.
  • The debt of the residuary state, which was 97,000 crore at the time of bifurcation, reached Rs. 2,58,928 crore by 2018-19, and is more than Rs. 3.5 lakh crore now.
  • AP argues that the undivided state was bifurcated in an unjust and inequitable manner — the successor state inherited nearly 59% of the population, debt, and liabilities of the original state, but only 47% of its revenues.
    • For example, of the 57,000 crore of software exports from AP for the year 2013-14, Hyderabad city — with Telangana after the bifurcation — alone accounted for Rs. 56,500 crore.
  • Today’s AP is essentially an agrarian state, with low economic buoyancy, leading to huge revenue disabilities. This is evident from the fact that the per capita revenue of Telangana for 2015-16 was Rs. 14,411, while it was only Rs. 8,397 for AP.