Recently, the Telugu Desam Party Chief has demanded a Special Category Status for Andhra Pradesh.
About Special Category Status (SCS)
Special Category Status (SCS) is a designation the central government provides to aid states with geographical and socio-economic challenges.
- Origin: In 1969, the Fifth Finance Commission of India introduced the SCS mechanism to assist certain states in their development and fast-tracking growth if they faced historical economic or geographical disadvantages.
- Constitutionality: The Constitution does not include a provision for Special Category Status.
- The National Development Council of the former Planning Commission previously granted Special Category Status for plan assistance.
- States with SCS: The status was first granted to Jammu, Kashmir, Assam, and Nagaland in 1969. Eleven states, including Himachal Pradesh, Manipur, Meghalaya, Sikkim, Tripura, Arunachal Pradesh, Mizoram, and Uttarakhand were granted this status
- Telangana received it after being carved from Andhra Pradesh.
- Criteria: 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 were typically considered to accord SCS.
- Abolition: The 14th Finance Commission abolished most states ‘special category status’, retaining it only for the Northeastern states and three hill states.
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Concerns Regarding Special Category Status
- Disagreement over Criteria: States disagree on the criteria for awarding Special Category Status (SCS).
- For Example: Uttarakhand, a Himalayan state bordering China, was granted SCS, while Jharkhand and Chhattisgarh were not awarded the same status despite lagging behind Uttarakhand in various growth indicators.
- Inter-State Disparities: Providing special status to specific states could raise concerns about unequal economic and social structures, potentially exacerbating inter-state disparities.
- Promotes Fiscal Irresponsibility: Debt-swapping and debt-relief initiatives indirectly incentivize states to exceed their capacity for servicing debt, resulting in prolonged liabilities.
- For instance, in Jammu and Kashmir, outstanding guarantees represent 20% of the Gross State Domestic Product (GSDP), while in Himachal Pradesh, it stands at 10%.
- Demand Chain Reaction: Giving special status to one state often prompts others to seek the same, leading to a series of requests and reducing the intended benefits.
Special Provisions States under Article 371 of the Indian Constitution
- Article 371: It assigns specific duties to the Governors of Maharashtra and Gujarat,
- Article 371A: It grants special status to Nagaland, prohibiting Parliament from legislating on matters concerning Naga religion, social practices, customary law, land rights, and civil and criminal justice without the state assembly’s consent.
- Article 371B: It addresses Assam, empowering the President to oversee the Constitution and functioning of a Legislative Assembly committee comprising tribal members, enacted in 1969.
- Article 371C: It pertains to Manipur, establishing a committee of legislators from the Hill Areas to which the Governor must submit an annual report on administration.
- Articles 371D and E: They offer special provisions for Andhra Pradesh and Telangana, allowing the President to issue orders ensuring equitable opportunities in public employment and education across different regions of Andhra Pradesh.
- Article 371F: It provides special status to Sikkim, safeguarding existing laws, customs, and rights of its people.
- Article 371G: It applies to Mizoram, preserving religious, social practices, customary law, administration of justice, and land ownership and transfer in Mizoram.
- Article 371H: It confers special responsibility on the Governor of Arunachal Pradesh regarding law and order.
- Article 371I: It pertains to Goa, mandating the Legislative Assembly to consist of at least 30 members.
- Article 371J: It accords special status to the Hyderabad-Karnataka Region (Kalyana Karnataka), necessitating the establishment of a separate development board for the area.
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Reasons for Abolishing Special Category Status Since 2014
- Enhanced Devolution: The 14th Finance Commission raised the vertical devolution to states to 42%, up from 32% in the 13th Finance Commission.
- Revised Formula: The 14th Finance Commission introduced factors such as “Forest and ecology” into the formula for horizontal devolution, so states with hilly and challenging terrain might see an uptick in devolution from the central government.
- Additional Grants: Apart from tax devolution, the Finance Commission recommends grants for local bodies, disaster management, revenue deficit, and other specified areas outlined in the government’s Terms of Reference.
- Special Assistance: The central government extends support to states through mechanisms such as GST compensation to offset any tax revenue losses incurred due to the adoption of the GST system and interest-free loans for capital expenditure, lasting up to 50 years.
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Benefits of Special Category Status
- Central Assistance Allocation: Previously, the Gadgil-Mukherjee formula allocated approximately 30% of total central assistance to Special Category Status (SCS) States.
- However, recommendations from the 14th and 15th Finance Commissions resulted in this allocation being integrated into an expanded divisible pool of funds for all states, increasing to 41% in the 15th Finance Commission.
- Funding: In Special Category Status (SCS) States, the division of Centre-State funding for centrally sponsored schemes favoured a ratio of 90:10, compared to 70% in non-SCS states.
- Continuity of Unspent Funds: Special category states enjoyed the provision where unspent funds in a fiscal year would not expire but instead be carried forward to the subsequent fiscal year.
- Incentives: Special Category Status (SCS) States receive various benefits, such as concessions in customs and excise duties, reduced income tax rates, and corporate tax rates aimed at attracting investments for establishing new industries.
- Additionally, SCS states have utilized debt-swapping and debt-relief schemes to their advantage.
Why is Andhra Pradesh Demanding Special Category Status?
- Bifurcation of the State: Since its division in 2014, Andhra Pradesh has sought Special Category Status, citing revenue loss resulting from the transfer of Hyderabad to Telangana.
- Higher Grant-in-Aid: SCS would mean higher grants-in-aid to the state government from the Centre.
- To illustrate, per capita grants to Special Category States is Rs 5,573 crore per year, whereas AP receives only Rs 3,428 crore.
- Increase Employment: The governments of AP have argued that such special incentives are vital for the rapid industrialisation of the primarily agrarian state and would improve employment opportunities for the youth and the overall development of the state.
- Encouraging Investments: Granting SCS would encourage investments in speciality hospitals, five-star hotels, manufacturing industries, high-value service industries such as IT, and premier institutions of higher education and research.
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June 6, 2024