Special Category Status to AP

Special Category Status

What happens when your products or solutions are not being sold? What haps when you are about to bankrupt? What ascertains when you are in the dire mode to accomplish the success out the present situation?

There are two simple yet best solutions to accost the situation; close the company or give special offers to dispose of the products.

People seldom chose the first option of closing the organization, rather they chose to depict the offers to make good sales and nourish the brass. This is a basic principle been espoused from simple to very complex business model.

Assume a situation wherein no one wants to live in an area due to the reasons like lack of infrastructures, the area is a hilly terrain, less number of people already living in there or whatever are the reasons not to choose the place of living. Such places become useless and become the Ghostlands, and eventually lead to population congestion at selected parts of the nation and at other parts will become Ghostlands.

The invention of the Scheme

To solve this situation government of India categorized a special classification called “Special Category States(SCS)” to assist the development of those states that face geographical & socio-economic disadvantages like hilly terrains, strategic international borders, economic & infrastructural backwardness and non-viable state finances. The classification came into existence in 1969 as per the suggestion was given by the Fifth Finance Commission, set up to devise a formula for sharing the funds of Central Govt. among all states.

In fact, the 4th five-year plan between 1969-74, under the direction of D.R. Gadgil formulated a special assistance plan “Central Plan Assistance(CPA)” to meet the essentials of the states like Assam, J&K, Nagaland first and the rest of the other Indian states will go to the other category.

Parameters consideration

But during the 5th five-year plan under 6th finance commission between the years, 1974 to 1979 let in other states like Himachal Pradesh, Sikkim, and remaining NE states, attaining it total 10 and rebranded the category as “Special Category States(SCS)” considering the following conditions.

The original idea was to build a diversified living model in India, diffuse the population evenly across all the geographical realms.

New State Uttarakhand

In the year 2000, the Union government led by then Prime Minister Shri AB Vajpayee under the NDA government discrete to dissever out Uttaranchal and later renamed to Uttarakhand from Uttar Pradesh as 11 districts of the newly forged state have come under hilly vicinages, which is a prime parameter to be reckoned for SCS. And the new state has been added to “Special Category Status” states as these districts were having infrastructure limitations.

With this accession 11 states have become ‘special category status’ states, namely, Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Jammu & Kashmir, Himachal Pradesh, and Uttarakhand is the final list till date. In nutshell 7 states from north-east, 3 northern hill states and Sikkim.

Categories from Centre to States to channel the funds

So, let’s canvas what benefits come under SCS. Before we look at the unfeigned benefits under Special Category Status, you need to note that Center-State financing is a confusing topic. Most of the states depend on the center for the large chunk of their revenue. There are different channels through which the center channel funds to states. With many organizations like Finance Commission(FC), else while Planning Commission(PC) and the present NITI Aayog involved, people are only confused. Besides, there are many formulae like the Gadgil-Mukherjee formula and Finance Commission formula. No, not over; we should also know about the Special Category States.

Benefits under SCS detailed

1.30% of “Normal Central Assistance” (NCA – Gadgil-Mukherjee Formula) to the Special Category States with grant loan ratio of 90:10 (70% to other States with grant loan ratio of 30:70)

• 30 percent of NCA will go to 11 special category states and rest 70% will go to rest of the states in India
• And as per Special Category status, the grat-to-loan ratio is 90:10 and for other statues 30:70
• What does this mean, assume center has 100 rupees to share across all states under NCA, 30 rupees will be given exclusively to 11 special category status states and rest 70 percent will be given to 18+ other normal, yet bigger densified states.
• Furthermore, suppose we get 10 rupees under this scheme, 9 rupees will come as a free cash and only 1 rupee has given as a loan in case of other states 3 rupees nonrefundable fund and 7 rupees on interest fetchable loan by the center.

2. “Special Plan Assistance for Projects” with grant loan ratio of 90:10

• Under SPA, projects relating to infrastructure development & employment generation scheme viz Roads & Bridges, PAB, Health, Flood Control, School Education, Higher Education, Water Supply, Art & Culture, Sports, etc are taken up in the State
• Again here 90% amount is non-refundable and only 10% you need to repay to Centre with interest.

3. “Special Central Assistance” with 100% grant

• Under this scheme, whole 100% is non-refundable

4. “Assistance for Externally Aided Projects” with grant loan ratio of 90:10.

• Some of the important projects in various sectors have been funded by external assistance like foreign assistance, in this case, 90% of the funding will be taken-care by central and only 10% state needs to return with interest
• Under “Accelerated Irrigation Benefit Program” (AIBP), the grant will be 90% in comparison to 25% for other states.

5. Accelerated Irrigation Benefit Programme (AIBP) of the central Government offers funds to the water projects in the states. If the states without special status receive grants from this programme, a maximum of 25-50% grants may be given. But for the states with special status, 90% of the funds will be borne by the Government. The central Government will also bear the foreign loans related to externally aided projects. 90% of the loan will be given a grant by the Centre. The interest on the loan also will be paid by the Centre.

Additionally, Industrial units will have 100% excise duty will be given, and some income tax exemptions also involved. Fright reimbursements, 30% discount will be given on the expenditure on plants and machinery, 3% discount will be given on interest on working capital for the establishment of industries, 50% discount will apply on power charges of the industries for not less than 20 years.

Dilutions in the Special Category Status from 2015 made SCS less beneficial

After 14th Finance commission, following are changes since 1st April 2015

1. 14th Finance Commission increased the share of States in the divisible pool of taxes from 32% to 42%
2.  Hence, the continuation of grants as well as the quantum of money to be given to the States may be less & uncertain.
3. From the Union Budget 2015-16, Normal Assistance, Additional Central Assistance and Special Plan Assistance were discontinued.
4. At present, there are very few externally aided projects.
5. Allocation under AIBP also reduced from Rupees. 8,992 crores in 2014-15 to just Rupees. 1,000 crores.

Common man’s innocent questions!

Why is AP demanding for SCS?

Andhra Pradesh got bifurcated into Telangana and residual AP on 2 June 2014 under Andhra Pradesh Reorganization Act, 2014. At the time of passing the bill the then PM, Mr. Manmohan Singh announced that residual AP will be given special status for five years and the opposition party BJP also stated that they will extend it to five more years if they form the government at the Centre.

As the residual part is in economic deficit because the capital Hyderabad which produces maximum revenue went to the other part.

?Who else is demanding for SCP?

Following states are demanding for the special category status on the basis of backward states

Bihar, Odisha, Jharkhand and Chattisgarh

What was promised during bifurcation of united AP

A verbal assurance of special states to the separated Andhra Pradesh as the newly formed Telangana state will have Hyderabad, a revenue-generating destination.

Why is NDA lead union government denying special category status to AP?

Granting SCS means that 90 percent of a special state’s expenditure on schemes would be borne by the Centre. This will be difficult to implement and will lead to similar demands from other states (Bihar, Odisha, Jharkhand and Chattisgarh). It would lead to a political crisis with every state pressing for special status.

Of the 5 guidelines laid by NDC AP satisfies only 1.

Is residual AP eligible for SCS and will SCS help AP?

After Planning Commission is taken over by NITI Ayog, and dilution of the Gadgil-Mukherjee Formula, there has been a drastic cut in the allocation to SCS, and the difference between funds allotted to SCS and other states have been considerably reduced. So why fight for something which is already being reduced considerably.

And with 11 states already with special status, 4 other states demanding it and after the drastic cut in the funds, Special Category Status is not special anymore.

If SCS for AP was not possible, then why UPA lead union government promised for special status and why NDA as a prime opposition supported the move?

It’s a political question, by now you will be able to judge better answer to this question

Why are ruling AP and opposition parties demanding even though they qualify with only one point for SCS?

Same as the previous answer

What is the revenue deficit?

State total revenue deficit: 16,000 crores

Centre already paid as a part of the special package: 4,000 crores

Centre pending to pay for a special package: 0,142 crores

What AP needs?

AP Ask: 33,000 crores to build state capital Amaravathi | Centre response: Centre already offered 5000 crores for land acquisition and 2500 crores for infrastructure building

AP Ask: New railway zone | Centre response: Odisha is opposing this project

AP Ask: Funds from local agencies like Hudco and Nabard | Centre response: Centre proposed to get the funding from external agencies like World Bank instead of local agencies

What is article 371J?

Special provision for Karnataka to

o   Establishment of a separate development board for Hyderabad Karnataka region.

o   Making a provision that a report on the working of a board will be placed every year before the state legislative assembly.

o   Equitable allocation of funds for developmental expenditure over the region.

o   The reservation of seats in educational and vocational training institutions in the region for the students belonging to the region.

o   The reservation in the state government jobs in the region for a person belonging to the region.

Can AP ask for the amendment to the section 371?

Of course, that would be the best alternative now per my knowledge

?What should AP do now?

Concentrate more on the requirements for AP, it does not matter whatever form they can come from, whether with SCS or Special Package.

--Aravind Reddy | MD, Inpride Properties | www.inprideproperties.in