With the TDP pulling its ministers out of the Union government over denial of special category status to Andhra Pradesh, ET Magazine takes you through what the term means, the crisis and its implications.
What is special category status and why was it given to some states?
Special Category Status used to be granted to some regions that have historically been at a disadvantage, compared to the rest of the country. This decision was taken by the National Development Council (NDC), a body of the former Planning Commission, and was based on various factors, such as hilly and difficult terrain, economic and infrastructure backwardness and non-viability of the state’s finances. Jammu & Kashmir was the first state to get special category status, and another 10 states were added over the years, with Uttarakhand being the last in 2010.
What are the benefits for these states?
Those states that have been accorded special category status enjoy several benefits such as special central assistance grants, assistance for externally aided projects being given as 90% grants (as opposed to loans, for others), excise duty concessions and other tax breaks to attract industry to their territory. The state share in centrally sponsored schemes is also lower, compared to general category states.
Why was Andhra asking that it be included in this list?
When Andhra Pradesh was bifurcated in 2014, it sought special category status on the grounds that it was at a disadvantage, especially because of the loss of capital Hyderabad to Telangana. The then-prime minister, Manmohan Singh, had told the Rajya Sabha that special category status would be extended to Andhra Pradesh for five years, to help put the state on a firmer footing. But the 14th Finance Commission changed this.
Why did the category cease to exist, as FM Arun Jaitley mentioned?
The 14th Finance Commission did away with distinction between general and special category states, as it had taken into account the level of backwardness of states in the proposed transfer of funds to states. The idea was that adequate resources would be allocated through tax devolution and grants to address interstate inequalities. The special category status was restricted to three hill states 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. Andhra was one of the states that were to be given a revenue deficit grant.