The Hunt for the Special Category Status
The Story of the New Andhra Pradesh
India is a huge landmass with a mind boggling mix of different traditions, religions, languages, customs and ethnicities. Across the entire length of the country, diversity is a common theme. The whole country is held together and run under a constitutional republic with a parliamentary system governing 29 states and 7 Union Territories. When the country was formed and states were created to administer it more effectively, the government set up a panel which came up with the States Reorganization Act. Under the States Reorganization Act these states were reorganised on linguistic basis for easy classification where the structure remained unchanged on a larger scale in spite of heavy migration of people from one place to another.
|7 sister states||Economic backwardness|
|Jammu and kashmir||Disputes and emergency conditions|
Now with the loss of Hyderabad to Telangana, the new state of Andhra Pradesh has effectively lost out close to more than half of a service revenue, more than the a quarter of industrial revenue and around 1/6th of agricultural revenues . When Hyderabad was removed from AP and given to Telangana, the state of AP didn’t have any other region or city to make up for this huge loss in revenue. To help the state for this loss in revenue and to help the state limp back to normalcy, Andhra Pradesh has come up with a demand to be designated as a Special Category State (SCS). Here we’ll look at what is a SCS, what factors are considered to become one, whether the new AP fulfils them or not and what economic benefits may come along if AP becomes one.
As a small introduction into the topic, for allocation among special category states, there has been no explicit criteria for distribution and assets are allotted based on the state’s arrangement measure and past arrangement consumptions. Designation between non special classification states is dictated by the Gadgil Mukherjee equation which offers weight to populace (60%), financial execution (7.5%) and exceptional issues (7.5%). Beyond additional plan resources, special category states can enjoy concessions in excise and customs duties, income tax rates and corporate tax rates as determined by the government. The Planning Commission additionally apportions funds for ACA (help for remotely supported activities and other particular venture) and subsidizes for Centrally Sponsored Schemes (CSS). State-wise distribution of both ACA and CSS stores are endorsed by the Centre.
1. What is Special Category?
The Special Category status is with regards to Centre-State funds. A special class state gets particular treatment in government help and tax reductions or an arrangement is made by the Centre to aid advancement of those states that face land and financial determinants like international Boundaries, monetary and infrastructural backwardness and unreasonable state funds. There were just three such states in 1969, when the Gadgil equation for special category help among states was contrived. The criteria for a state to be allocated special category status are as follows (including but not exclusive to) –
- Hilly and difficult terrain
- Low population density
- Strategic location along the borders of the country
- Economic and infrastructure backwardness
- Non-viable nature for state finances.
2. What are the benefits of this status?
The different types of tax exemptions that special category status provides will help the state to attract industrial investments and help the state to build industrial ecosystem rapidly. With Andhra Pradesh having to build its new capital from scratch, it would be enormous burden to build capital without the central government assistance as state by itself is running with huge deficits.
For a more general classification, the individual concession to forward proportion is 30:70, where the other funds are provided by the centre. The unspent funds doesn’t sit inside state coffers but is instead diverted to other welfare projects. Therefore, the special classification catalyses the inflow of private ventures and creates business and extra income for the state. Some of the beneficial points are:
- Special Category states are profited as a result of Normal Central Assistance which was skewed for these states. These states get more supports regarding NCA and most piece of these assets was as awards instead of credits
- The special status will change the expenditure pattern in the arrangement of infrastructure creation for micro, small, medium and large scale industries.
- With the tax discounts available for goods produced, the people of the state might get certain goods and commodities at lesser prices.
- Furthermore grants from centre helps in building state infrastructure and social sector projects. As a result, special-category state gets to bridge its development deficit.
- Significant concession in excise & customs duties, income tax and corporate tax.
- 30 percent of planned expenditure (central budget) goes to ‘special category’ states
- Special Central Assistance given to SCS is also an additional amount which can be used by the concerned state for economic development.
3. Why special category is needed?
Special category is a concept under which an economic hurdle which constrains the growth of an arbitrary force to pull the economy of the state. A few State lack in natural resources, few have poor geographic conditions, few have unsuitable farming land and farming issues due to weather conditions or any other external factor. Hence, the development of the state depends on many factors. So to alleviate the backwardness, the Planning and Finance Commission of the country introduced Special Category in 1969 to facilitate the states which are going back. Initially Jammu & Kashmir and two more states qualified for this list, but now in the current scenario the number is 11. As of right now, few more states are rising to get this classification and their rights.
Special Category acts like a catalyst to increase the inflow and growth of the state. It focuses on getting the resources into the mainstream market for development in the race of moving forward in this modern era – places where the opportunities exists but the visibility is less, where children are going to school but after few years lost in the crowd of job seekers, where health facility is considered to be a upscale affair and where the connectivity is preposterous.
Special Category Status should not be limited to the specific parameter and should rather contemplate the economic and social backwardness of the area and the people of that state. The allocation of budget and the percentage of taxes upon it can be way more functional if utilized virtuously. Places which are larger in terms of area but exploited inherently end up with no way to go.
90% of grants will be given by the Central and the remaining 10% is given as a loan. The better percentage in taxes, grants and loans will be available. To the states without special status, the center does not give grants more than 30%. Manufacturing and industrial ecosystem will increase due to SCS as there will be significant tax redemption, incentives, huge Industrial discount, and reimbursement. Industrial units will get 100% excise duty tax exemption along with Income Tax exemption. Fright reimbursement is also been provided. 30% discount will be given on the expenditure on plants and machinery. Along with newly-established industries, this will also apply to those industries which were established before the announcement of special status but are extending their establishment now. 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.