Chandrababu Naidu, Nitish want special category status for their states: What is it?

Hectic parleys are ongoing in New Delhi ahead of the formation of the new government. Narendra Modi has got support from Telugu Desam Party (TDP) boss Chandrababu Naidu and Janata Dal (United)’s Nitish Kumar. It’s a big relief. But conditions apply.

The Bharatiya Janata Party, which has only 240 seats, needs the backing of its alliance partners to cross the majority mark of 272. Together, they have 293.

TDP’s 16 seats and JD(U)’s 12 in the Lok Sabha have given both parties much bargaining power . In return for their support, they are making some demands. One of the big ones is a special category status for their states – Andhra Pradesh and Bihar.

Naidu’s demand was rejected by the NDA in 2019 but now it’s back on the table. Reports in the media suggest that the JD(U) also is making the same for Bihar.

What is a special category status?

The special category status (SCS) was introduced in 1969 by the Fifth Finance Commission of India to help certain states in development if they face historical economic or geographical disadvantages.

To get the status, a state needs to have certain requirements like a hilly and difficult terrain, low population density or a seizable tribal population, or a strategic location along borders with neighbouring nations. A state must be economically or infrastructurally backward or must have a non-viable nature of state finances.

However, the 14th Finance Commission recommended that the system be discontinued. It suggested that the resource gap of the states should be filled by increasing the devolution of tax to 42 per cent from the existing 32 per cent, according to a report in The Indian Express.

How did states benefit from special category status?

Disadvantaged states were granted preferential treatment in terms of assistance from the Centre, tax breaks, setting up special development boards, and reservation in local government jobs and educational institutions, according to a report by India Today.

Under the SCS, the Centre provided 90 per cent of funds in schemes that it sponsored. Other states that do not fall in the category get 60 to 70 per cent of funds from the Centre while the rest have to be managed from its finances.

The special states also get subsidies on excise and customs duties, income tax and corporate tax.

The decision to grant SCS was made by the National Development Council, which comprised the PM, Union ministers, chief ministers and members of the Planning Commission, which was also dissolved under the Modi government in his first term in 2014.

Which states enjoy the status?

The first three states that were granted SCS were Assam, Nagaland and Jammu and Kashmir. From 1974-1979, Himachal Pradesh, Manipur, Meghalaya, Sikkim and Tripura were given the status.

In 1990, Arunachal Pradesh and Mizoram were added to the list and Uttarakhand was granted the special category status in 2001.

Ahead of the bifurcation in 2014, both Telangana and Andhra Pradesh were assured of SCS. While it was accorded to the new state, Andhra was denied it, according to a report in India Today.

Why does Andhra Pradesh want the SCS?

The UPA had promised Andhra special category status before the bifurcation. However, in 2014, Narendra Modi came to power.

Initially, when the BJP and TDP forged an alliance a special status was promised. Chandrababu Naidu made several appeals to the Centre to provide more funds to the state to help it overcome a “distressing” financial situation. However, a special financial package was given instead, leading to political friction. In 2018, TDP broke away from the alliance over it.

Jagan Mohan Reddy came to power in the state in 2019, banking on the SCS issue. He also made similar appeals to the Centre but all have fallen on deaf ears.

Andhra claims that when the state was divided it got the poor end of the bargain – 59 per cent of the population, debt and liabilities but only 47 per cent of the revenue, according to a report in The Indian Express.

Hyderabad, which is the IT hub and generates among the biggest revenues in the state, was a shared capital until 1 June but now belongs to Telangana.

According to the presentation made to NITI Aayog by the Andhra government, the 14th Finance Commission estimated that the post-devolution revenue deficit for the state for the five years from 2015 to 2020 would be Rs 22,113 crore. However, it claimed that the figure stood at Rs 66,362 crore, reports The Indian Express.

During the time of bifurcation, the state’s debt was Rs 97,000 crore and has only increased since. It touched Rs 2,58,928 crore by 2018-19 and is more than Rs 3.5 lakh crore now, the report says.

With a special status comes concessions in tax, lesser excise duty and more funds from the Centre. The special category states get a grant of Rs 5,573 crore per year. As compared to that Andhra received Rs 3,428 crore, reports The Indian Express.

The leaders in Andhra believe that an SCS will usher in growth for the state. It would attract industries and encourage investments in sectors like IT, hospitality, manufacturing and education, providing more employment opportunities and better prospects for the country’s youth.

What about Bihar?

Various political parties in Bihar have been demanding a special status for years. They argue that the poverty and backwardness in the state are because it lacks natural resources.

Like Andhra, Bihar too was bifurcated, which saw industries shifting to Jharkhand. With this, there are fewer opportunities for investment, growth and employment.

Bihar remains one of India’s poorest states. A socio-economic data released last year showed about 94 lakh families – 34.13 per cent of the total 2.76 crore families in Bihar – are economically poor and earn less than Rs 6,000 a month.

As hectic negotiations continue ahead of government formation, the JD(U) said that it would renew its demand for special status. “When Narendra Modi takes the oath as the Prime Minister for the third time, the people of Bihar expect a special package that will put the state on the path to becoming a more developed economy,” JD(U) spokesperson Arvind Nishad was quoted as saying by CNBC-TV18 on Wednesday.

With inputs from agencies