In March, 2018, the Telugu Desam Party, headed by N Chandrababu Naidu, had walked out of the NDA over the denial of Special Category Status to Andhra Pradesh which was undergoing the pangs of bifurcation.
Six years later, Naidu has now emerged as the kingmaker of the NDA 3.0 and his support is crucial to the stability and longevity of the coalition government. The TDP, with 16 Lok Sabha seats in its kitty, is the largest ally of the NDA.
It is widely expected in political circles that Naidu will revive the demand for Special Status for AP, along with other items on his party’s wish list.
What is Special Category Status?
When Andhra Pradesh was divided to carve out a separate Telangana state in 2014, an oral assurance was given on the floor of the Parliament by the then Prime Minister Manmohan Singh that the residual AP would be given Special Category status for a period of five years to tide over the problems. This was mainly to compensate for the loss of revenue, and of Hyderabad, where much of the development was concentrated.
It was supported by BJP which included the promise in the manifesto. The idea was to handhold the successor AP since it would lose a significant amount of revenue as a result of Hyderabad going to Telangana, the new state that came into existence on June 2, 2014.
Special Category states would get funds from the centrally-sponsored schemes and external aid in the ratio of 90 per cent grants and 10 per cent loans, while other states get 30 per cent of their funds as grants. Besides, they would be given tax breaks and excise duty concessions to attract industries.
The SCS states enjoy special industrial incentives such as Income-tax exemptions, custom duty waivers, reduced excise duty, corporate tax exemption for a certain period, concessions and exemptions relating to GST, and lower state and central taxes
An irrelevant privilege now?
However, the 14th Finance Commission did away with the distinction between general and special category states since it had taken into account the level of backwardness of states in the proposed transfer of funds to states. It recommended higher devolution of central taxes to the states.
The idea was that adequate resources would be allocated through tax devolution and grants to address interstate inequalities. The special category status was therefore restricted to the three hill states of Jammu and Kashmir, Himachal Pradesh and Uttarakhand and those in the Northeast.
It was also decided that a revenue deficit grant would be provided for certain states for which devolution alone would be insufficient. AP was one of the states that were to be given a revenue deficit grant.
While ruling out special status to AP in the light of the 14th Finance Commission report, the then Finance Minister Arun Jaitley, however, said the Centre was committed to granting the monetary equivalent of a special status to Andhra and would bear 90 per cent of the share of schemes sponsored by the Centre.
Andhra’s contention
AP argues that the undivided state was bifurcated in an unjust and inequitable manner — the successor state inherited nearly 59% of the population, debt, and liabilities of the original state, but only 47% of its revenues. For example, of the Rs 57,000 crore of software exports from AP for the year 2013-14, Hyderabad city — with Telangana after the bifurcation — alone accounted for Rs 56,500 crore.
Today’s AP is essentially an agrarian state, with low economic buoyancy, leading to huge revenue disabilities.
The 2024 verdict has brought in a new set of vulnerabilities for the BJP which has failed to get a majority on its own. While it cannot outrightly reject Naidu’s demand, it cannot afford to be selective either. Giving Naidu what he wants to the exclusion of other states — notably Bihar and Odisha — will be difficult.
Also, the 14th Finance Commission had stated that SCS was a burden on the Centre’s resources — this has been used by the NDA to reject Naidu’s pleas since 2014.
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