The government has done well to not give in to Andhra Pradesh (AP) chief minister Chandrababu Naidu’s demand for special category state (SCS) status for AP. Finance minister Arun Jaitley’s point, that the Centre cannot be partisan, giving preferential treatment to only some states, is well taken. It is true AP has been left poorer after the split but, as the FM observed on Wednesday, a Bihar or an Odisha would be equally justified in claiming SCS status. In fact, both states—as also Jharkhand, Uttar Pradesh, Chhattisgarh and Rajasthan—have in the past asked for SCS status. Given the Fourteenth Finance Commission (FFC) had advocated that the SCS provision be phased out over a period of time, it is to the credit of the BJP that it has not pandered to the whims of its ally. In this context, the Congress Party president Rahul Gandhi’s statement that his party would be willing to give AP the status of an SCS, if it is voted to power, is irresponsible and smacks of political opportunism. Indeed, no government—either in the states or at the Centre—should make promises that have serious political and financial commitments over long periods. In fact, electoral promises of loan waivers—of the type that Prime Minister Narendra Modi announced for Uttar Pradesh—should be disallowed since they involve large sums of money loaned by banks and create a moral hazard. There is no denying that AP is worse off as a consequence of the split since the more prosperous areas of the erstwhile AP are in Telangana.
This fact was noted by the FM who recognises AP deserves added assistance. Naidu should be reassured by the FM’s package to support the state, which is in keeping with the spirit of prime minister Manmohan Singh’s proposal in 2014, when the Andhra Pradesh Reorganisation Act was framed. Singh had said AP would be provided funds on the terms which are reserved for SCS states. That’s exactly what the FM is doing. Jaitley has promised that for the period 2015-2020, the Centre will fund 90% of the CSS or Centrally Sponsored Schemes in the state. Typically, the norm for non-SCS states is that the Centre funds 60% of the cost; but the FM has agreed to fund 90%, as it is for SCS states. Jaitley has also promised that if the state sets up a Special Purpose Vehicle (SPV) to route funds through NABARD, the Centre would repay 90% of the NABARD loan. This is in response to Naidu’s demand for NABARD funds for specific projects which he preferred to multilateral aid. While Naidu may be dissatisfied with the `1,600 crore offered by the Centre as revenue deficit grant for the 22-month period between June 2014 and March 2016—since it is much lower than the `12,100 crore which the state was asking for—the Centre cannot be bailing out every state. Indeed, some states have been behaving irresponsibly, by announcing loan waivers, for instance. A study by ICRA of the finances of 22 states showed how the combined capital outlay had contracted 6% between April and December 2017, partly because revenue growth had slowed down. States must manage their budgets better, ensuring they don’t end up spending disproportionate sums as revenue expenditure.