What is the ‘Special Category Status’ That Andhra Pradesh Wants?

Cracks were reported in the TDP-NDA alliance after Arun Jaitley ruled out a special category status for Andhra Pradesh, offering a special package to the state instead.

(Photo: Shruti Mathur/The Quint)

In a blow to the Bharatiya Janata Party (BJP), the Telugu Desam Party (TDP) broke ties with the NDA on Friday, 16 March, in the backdrop of the Centre’s refusal to grant special category status to the state.

Before you dive into the political ramifications of the TDP pulling out of the NDA, and their decision to move a no-confidence motion against the Narendra Modi government, here is a quick run-through on what ‘special category status’ really is.

What is Special Category Status?

The issue of Special Category Status was brought in through the Gadgil Formula in April 1969, according to a Factly report.

The Gadgil Forumla, now revised to Gadgil Mukherjee Formula, is used for allocation of funds to states by the Centre.

The Central government provides financial assistance to states in three manners:

• Normal Central Assistance (NCA)
• Additional Central Assistance (ACA)
• Special Central Assistance (SCA)

Apart from this, the Centre also grants funds via Centrally Sponsored Schemes, which are funds extended to state governments to achieve some national goals.

The Gadgil Mukherjee Formula takes into consideration population (60%), per capita income (25%), fiscal performance (7.5%) and special problems (7.5%).

In 1969, when the Gadgil Formula came into being, three of the then 17 states were accorded a special status.

Who Accords Special Category Status?

While there is no constitutional provision that specifies a sort of eligibility for the special status, the decision to grant this tag lies with the National Development Council.

The NDC comprises of the Prime Minister, Union ministers, chief ministers and members of the planning commission.

The NDC decides the basis of granting a special status through set parameters, including geographical anatomy such as hilly terrain, location along borders, economic and infrastructural backwardness, and the nature of state finances.

Who are the Current Beneficiaries?

While initially in 1969, only three states were under the special status, namely Assam, Nagaland and Jammu & Kashmir, the Centre accorded the status to Arunachal Pradesh, Himachal Pradesh, Manipur, Meghalaya, Mizoram, Uttarakhand, Sikkim and Tripura, taking the tally to eleven.

Currently, apart from Andhra Pradesh, Bihar, Chhattisgarh, Rajasthan and Odisha have also been clamouring to get this status.

What Are the Benefits of a Special Status?

Under the Gadgil Mukherjee Formula, special states were given 30% of the total central assistance, while the remaining 70% was shared among the rest of the states, as of 2009-2010.

However, with the dissolution of the Planning Commission, and the introduction of the NITI Aayog, as well as the recommendations of the 14th Finance Commission, the 'special category status' that was earlier accorded to states has been removed.

As per the 14th Finance Commission’s recommendations in 2015, only the northeastern states and three hilly states have a ‘special status’. The Commission also recommended an ‘enhanced devolution of the divisible pool of tax proceeds’, increasing the states’ share from 32% to 42%.

Further, for states in the special category, the Centre meets 90 percent of the funds required in a centrally sponsored scheme, as against 60 percent in case of normal category states. The remaining funds are provided by the state governments.

What are Andhra Pradesh's Demands?

The Commission recommended a share of the "Post-Devolution Revenue Deficit Grants" be channelled to Andhra Pradesh based on its expenditure requirements, tax devolution, and revenue mobilisation capacity, for five years.

However, the state has been demanding that it be accorded the 'special category status' officially, based on former PM Manmohan Singh's promise that SCS would be "extended to the successor state of Andhra Pradesh... for a period of five years,” reported The Hindu.

Further, in 2014, incumbent PM Narendra Modi reiterated his predecessor's promise.

What Has the Centre Promised Now?

In a bid to pacify its sulking ally, the Telugu Desam Party (TDP), Finance Minister Arun Jaitley has promised Andhra Pradesh funds equivalent to what a special category state receives.

But giving special category status, as demanded by Andhra Pradesh Chief Minister Chandrababu Naidu, to any state apart from those in the northeast and the three hilly provinces is not constitutionally possible, after the implementation of the 14th Finance Commission’s recommendations, Jaitley said.

He said the Centre had committed 90 percent of the funds for centrally sponsored schemes in Andhra Pradesh, equivalent to special category states, through other means like external agencies such as World Bank, but the state government wanted funds to be routed through agri-lending bank NABARD. The Centre is agreeable to even that, provided a mechanism is worked out.

Asked about the threat of TDP pulling out of the NDA if more funds are not allocated, Jaitley said “political issues cannot increase the quantum of money because the Centre has no free floating funds.”

Every state in India has the right to central funds in the same manner. Sentiment does not decide quantum of funds, it is the constitutional award of the Finance Commission which decides on the quantum of funds that the states get.

Jaitley said that while the promise of special category status to Andhra Pradesh was legally possible when the state was bifurcated, there is no such category right now.

"Instead states which are in deficit in terms of revenue, we are compensating them because everyone gets a hike of 10 percent to 42 percent plus for a certain period; revenue deficit will be taken care of and a provision for revenue deficit was made in the case of Andhra Pradesh," he said.

For Andhra Pradesh, the 90:10 funding of schemes instead of usual 60:40 would be implemented "notwithstanding the fact that the word special status is not there", he said.

(with inputs from PTI)