No Special Status: Financial Package for Andhra & Bihar!

With a coalition government at the Centre, the demand for special status by states like Bihar and Andhra Pradesh is again in focus.
No Special Status: Financial Package for Andhra & Bihar!

With a coalition government at the Centre, the demand for special status by states like Bihar and Andhra Pradesh is again in focus. Modi 3.0 will be under pressure from their two important coalition partners Nitish Kumar’s JDU from Bihar and Nara Chandrababu Naidu’s TDP from Andhra Pradesh to grant special status to their states.

What 14th Finance Commission Recommended?:

Under the current provisions, special status for states does not exist. Under current provisions, special status for states unviable; Centre has option to release financial packages for Bihar and Andhra.

With the dissolution of 13th planning commission in August 2014, the 14th finance commission has made any distinction between special and general category states. Union government accepted the recommendations of the 14th finance commission and from April1, 2015; it hiked the tax devolution to states from Centre, to 42 per cent from 32 per cent earlier, and also added a new provision of revenue deficit grants to states facing any resource gap. Under the new provision, the total devolution to states in 2015-16 was hiked to Rs 5.26 lakh crore as against Rs 3.48 lakh crore in 2014-15, an increase or Rs 1.78 crores.

Financial Packages in Lieu of Special Status:

The Narendra Modi-led National Democratic Alliance (NDA) government has determined that reinstating special category status for states is unviable under the current framework. Instead, the Centre is considering financial aid packages for states like Bihar and Andhra Pradesh, similar to those provided in 2015 and 2016. While there hasn't been an official demand, finance ministry officials have likely begun calculations for a new package, particularly for Andhra Pradesh.

Special Category Status is the “Closed Chapter”:

The dissolution of the Planning Commission in August 2014 and the 14th Finance Commission's decision not to differentiate between special and general category states marked the end of special category status in India. Starting April 1, 2015, the Finance Commission increased tax devolution to 42% and introduced revenue deficit grants for states with resource gaps. Newly appointed Union Minister Bhupathiraju Srinivasa Varma (BJP) made a sensational comment during the discussion on AP Special Status. He clarified that special status is a closed chapter.

Historical Context of Special Status:

Previously, states with special category status received 90% funding from the Centre for centrally-sponsored schemes, with only 10% required from the state's own resources. Eleven states, including Assam, Tripura, and Himachal Pradesh, benefited from this arrangement, which also included central assistance for projects of special importance. Although the 90:10 funding rule still applies to northeastern and hill states, the special status category itself no longer exists. Other states now receive central funding on a 60:40 basis, with the Centre contributing 60%.

What AP & Bihar Got as a Special Package?:

In 2015, the NDA 1 had announced a Rs 1.25 lakh crore financial package for Bihar, covering roads, highways, railways, power, gas pipelines and refineries, to name a few. Prior to this, the UPA too had been providing Central assistance to Bihar for its infrastructure development.

While Andhra Pradesh received Rs 10,461 crore of Central assistance between FY15 to FY17 as per the 90:10 resource sharing rule, apart from the higher tax devolution and revenue deficit grants of the finance commission. Despite this, Chandrababu Naidu walked out of NDA 1.0 in 2018.

What are the Current Developments?:

  • In the recent 2024 general elections, aalliance government of TDP, BJP and Janasena came to power in AP. TDP is also a partner of NDA at the Centre.

  • Present Chief Minister Chandrababu Naidu's stand on the issue of AP Special Status is not yet clear.

  • Senior Congress leader Jairam Ramesh asked the Center whether the BJP, which had previously supported AP in the matter of special status, would keep its promise.

  • APCC chief YS Sharmila Reddy advised Chandrababu Naidu, who is supporting NDA, to take assurance on the issue of special status.

  • YSRCP is demanding that TDP-Jana Sena, which are the partners at the Centre, should put pressure on Centre on AP special status.

What Next…?:

While there is debate going on special category status at present, the Narendra Modi government appears ready to extend financial aid packages, particularly to Andhra Pradesh. This approach aligns with the Centre's strategy to support states through financial measures rather than reinstating special status categories.