Special category status for Bihar and Andhra Pradesh:

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June 6, 2024

Special category status for Bihar and Andhra Pradesh:

With the General Elections throwing up a fractured mandate, Nitish Kumar’s Janata Dal (United) and Chandrababu Naidu’s Telugu Desam Party are set to play a key role in government formation at the Centre. As a result, their past demands for special category status for Bihar and Andhra Pradesh, respectively, are back in focus. The TDP won 16 seats, and the JD (U) 12. They are both part of the Bharatiya Janata Party-led National Democratic Alliance.
Soon after the General Election results started coming in on June 4, Congress General Secretary Jairam Ramesh said his party would guarantee special status to Andhra Pradesh, as was promised by former Prime Minister Manmohan Singh, if it came to power.

The JD(U), too, has demanded special status for Bihar and has stressed it will continue with the NDA.
However, the Fourteenth Finance Commission removed the concept of special category status from states, and since then, the Centre has largely discouraged calls for special category status in recent years.

Experts point out that the definition of a special category status may not have to be changed as there is no Planning Commission that used to decide on the Plan expenditure.

D.K. Srivastava, Chief Policy Advisor, EY India, noted that special category status was a concept that was relevant as long as the Planning Commission existed, as it typically applied to Plan Assistance. “The concept of Plan Assistance is not there anymore. By special category status, states are asking for a special assistance package,” he said, adding that this will have to be designed by a government body such as the NITI Aayog depending on the requirements of the state.

“The amount will have to be worked out depending on state specific needs and the fiscal impact will also have to be gauged then,” he noted.

With the Sixteenth Finance Commission already set up and working on the formula for tax devolution between the Centre and states for the five-year period starting April 1, 2026, granting special category status to these two states may be a simpler task. The finance panel is already working on assessing the fiscal situation of states and how to ensure a better tax devolution between the Centre and the states.

Another expert noted that it will have to be seen how the Centre goes about creating new special category states and whether it would be done through the legislative route. “Any fund transfer in terms of tax devolution or grants in aid by the Centre would have to be done through the finance commission. The Centre cannot provide any special package through the Consolidated Fund of India,” the expert said, adding that now there is no distinction of a special and general category state.

The demand by Bihar and Andhra Pradesh for special category status is not new, and has been raised as far back as 2005 by Nitish Kumar when he was first sworn in as Chief Minister of Bihar, which has been a backward and poor state. He reiterated this demand last year in November when he released the caste census.

Naidu too has been campaigning for special category status, a demand that was raised in 2017 after the bifurcation of Andhra Pradesh in 2014 and loss of a large part of its revenue. It is also hoping to revive its shelved plan to reinstate Amravati as the state capital, which would require funds.

A recent demand by Odisha for a similar dispensation was not taken up by the Centre.

Which states have special category status?

Till date, as many as 11 states such as all the North East States including Assam, Meghalaya, Nagaland, Manipur, Himachal Pradesh and Telangana have been given the special category status.
Getting the special category status enables states to get certain fiscal and tax benefits that are aimed at helping them attract investments and help them with economic development due to certain geographical and socio economic disadvantages.

Special category states have certain features including international boundaries, hilly terrains and have distinctly different socio-economic developmental parameters such as low population density. They also have geographical disadvantages in their effort for infrastructural development.

The issue of Special Category Status first came up in April 1969 when the Gadgil formula of fund allocation was cleared by the National Development Council. At that time, this was provided to Assam, Jammu and Kashmir and Nagaland, which were provided Central Assistance in the form of 90% grant and 10% loan. Later more states were given the special category status when they attained statehood. These include Himachal Pradesh in 1970-71, Manipur, Meghalaya and Tripura in 1971-72; Sikkim in 1975-76 and Arunachal Pradesh and Mizoram in 1986-87 and Uttarakhand in 2001-02.

What are the benefits?

Benefits to these states included getting Central assistance of as much as 90% in the form of grants and 10% loan for centrally sponsored schemes. For Non-Special Category Status, the Normal Central Assistance was calculated as 30% grant and 70% loan. Special Category States were also provided Special Plan Assistance for projects of special importance to the state. Further, unspent funds do not lapse at the end of the financial year. They also get tax concessions although many tax benefits have now been subsumed under the goods and services tax regime.


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Special category status for Bihar and Andhra Pradesh: | Vaid ICS Institute