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Context: Demand for Special Category Status (SCS) by Andhra Pradesh (AP).

Special Category Status (SCS)

• Special Category Status (SCS) is a mechanism introduced by the Fifth Finance Commission of India in 1969 to assist certain states that faced historical economic or geographical disadvantages, such as difficult terrain, low population density, substantial tribal populations, strategic border locations, economic and infrastructural backwardness, and non-viable state finances.
• Initially, 11 states were granted SCS, including all Northeast states and the border hill states like Jammu and Kashmir, Himachal Pradesh, and Uttarakhand.
• The 14th Finance Commission recommended scrapping SCS, suggesting instead that the resource gap of states be filled by increasing tax devolution from 32% to 42%.

Special Category Status (SCS) aims to bridge the gap between developed and underdeveloped regions by focusing on states facing geographical and socio-economic challenges. The concept emerged in 1969 and is based on the Gadgil Formula.

Andhra Pradesh’s Demand

• After the bifurcation of undivided Andhra Pradesh (AP) to create Telangana in 2014, AP was promised SCS by the Union government to compensate for the loss of revenue and Hyderabad, a major economic centre.
• The bifurcation left AP with a larger population and debt but a smaller share of revenues. For instance, Hyderabad contributed a major portion of software exports, which remained with Telangana.
• AP, primarily an agrarian state, has struggled with low economic buoyancy and revenue disabilities, exemplified by its lower per capita revenue compared to Telangana.

Benefits of Special Category Status

• Financial Aid and Grants: SCS states receive higher grants-in-aid from the central government. AP would benefit from increased financial assistance, crucial for its development. Central schemes in SCS states are funded up to 90%, compared to 70% in non-SCS states, providing substantial fiscal relief.
• Industrial and Economic Incentives: SCS provides special industrial incentives such as income tax exemptions, custom duty waivers, reduced excise duty, corporate tax exemptions, GST concessions, and lower state and central taxes. These incentives are vital for industrialization, attracting investments in speciality hospitals, five-star hotels, manufacturing, IT, and higher education institutions.

Challenges

• Granting SCS to AP exclusively is challenging due to demands from other states like Bihar and Odisha, and the 14th Finance Commission’s stance against SCS.
• A potential compromise could involve a time-bound SCS or a package of central projects and financial assistance tailored to AP’s needs, including halting the privatisation of the Vizag steel plant and setting up SEZs.

Conclusion

• The demand for SCS for Andhra Pradesh is rooted in significant economic and financial challenges faced post-bifurcation. While the political landscape provides Naidu with leverage, the feasibility of granting SCS exclusively to AP remains complex, requiring careful negotiation and possible compromises. The outcome will depend on the political dynamics and the central government’s willingness to address AP’s unique developmental needs.

Source:

Indian Express

PRACTICE QUESTION Q. Special Category Status (SCS) allows states to receive preferential treatment in which of the following areas? A) Fiscal incentives B) Educational infrastructure C) Industrial development D) Agricultural subsidies Answer: A