Making Seemandhra special

Written by Raj Kumar Ray | Updated: Mar 12 2014, 09:35am hrs
What all benefits special category states receive

Along with the Finance Commission-mandated devolution formula that currently stipulates transfer of 32% of the Centres gross tax revenue to states, the special category statesthere are 11 such states right now of Indias total 28are entitled to get 30% of the Centres Plan assistance. That apart, special category states get 90% of the total central assistance to state Plans as grants and the rest 10% as loans (the ratio for other states is 30% grants and 70% loans).

The Centre gives full exemption from excise duties to companies setting up industrial units in special category states for the first 10 years of production besides income tax exemption of 100% for the first five years and 30% for the next five. Companies also get capital investment subsidy at the rate of 15% of their investment in plant and machinery.

Which states enjoy the special category status

Eight north-eastern states, Jammu & Kashmir, Himachal Pradesh and Uttarakhand enjoy the special category status. This is based on criteria of their being hilly, sharing international borders, having relatively low per capita income and a low industrial base that restricts them from scaling up revenues and meeting their expenditures.

Initially, three statesJ&K, Assam and Nagalandqualified as per a formula framed by former Planning Commission deputy chairman DR Gadgil in 1969. After subsequent revisions in the Gadgil formula, the list of special category states expanded to include 11 states. Seemandhra would be 12th state to be included in the list.

Which states are demanding special status

Apart from Seemandhra, Bihar has been the most vocal among the states demanding special treatment. Chhattisgarh, Jharkhand and Odisha have also been demanding the special category status for a decade now, citing economic backwardness.

Why has Seemandhra been accorded special status

According to the BN Srikrishna committee, the Seemandhra region is economically weaker than Telanganathe per capita income calculated in terms of district domestic product (DDP) of the Telangana region including Hyderabad was R27,006 per annum in FY08 while it was R23,860 for Rayalaseema and R26,655 for Coastal Andhra. The IT boom and faster industrial development pushed up Hyderabads per capita income by more than three times to R39,145 in FY08 from R12,745 in FY94, which has, in turn, aided relatively faster growth in the Telangana region as compared with the other two regions.

In terms of sales tax collections, Telangana accounted for 82.8% of the overall undivided states receipts with Hyderabad alone accounting for 75.2%. As against this, Seemandhra region accounted for 17.2%, Coastal Andhra 14.3% and Rayalaseema 2.9%. Even in terms of FDI inflows, Telangana cornered almost a half while Coastal Andhra attracted 43% and the remaining 7% flowed to Rayalaseema. In the past five years, the disparity may have grown considering the rapid urbanisation and growth in economic activity in and around Hyderabad.

After division, Seemandhra is perceived to remain economically weaker and would require financial assistance to sustain the present expenditure level.

What are the components of the Seemandhra package

The government has announced the special category status to Seemandhra for five years. The Centre has also promised fiscal measures including offer of tax incentives to promote industrialisation and economic growth in both the states. A special development package for the backward regions of Seemandhra on the lines of KBK (Koraput-Balangir-Kalahandi) special Plan in Odisha and the Bundelkhand special package in Madhya Pradesh and Uttar Pradesh has also been announced. The Centre will help in rehabilitation and resettlement for the Polavaram project and will also compensate for any resource gap (the difference in revenues and expenditures) that may arise in Seemandhra, through budgetary support.