SCS not a promise for industrial incentives

It was Winston Churchill who said “lie gets halfway around the world before truth has a chance to get its pants on.” 

The manner in which the meaning of ‘special category status’ is understood in Andhra Pradesh, as compared to the actual wording of the statement of former Prime Minister Manmohan Singh, in Parliament, on special category status at the time of division of the state, fully reflects the above statement of Winston Churchill. 

It went deep into the psyche of the people of Andhra Pradesh that special category status also includes industrial incentives as is made available to the north-eastern states, and accordingly, expectations were built-up in the region. When, in reality, that did not happen, it has resulted in major resentment against the Central government on this point.

It would be worthwhile to examine what exactly Manmohan Singh promised on the floor of Parliament. He said: “for the purpose of Central assistance special category status will be extended to the successor state of Andhra Pradesh 13 districts for a period of five years. This will put the state finances on a firmer footing.” 

In this statement with reference to special category status, there is no mention about industrial incentives. In fact, an analysis of the origins of these two schemes — special category status and industrial incentives — makes it clear there is nothing in common between them. 

Special category status as a scheme was started in 1969, whereas the tax holiday as a scheme was started in 1997, 28 years later. And it was announced independently to different states in the north-east at different points of time.

Industrial incentives as mentioned by Manmohan Singh in his statement in Parliament are as provided and applicable in the Reorganisation Bill and will be available for both the successor states of Andhra Pradesh and Telangana. Hence assumption of tax holiday as available in north-eastern states as part of the special category status, and the consequent disappointment on not getting it, is not based on correct reading of the statement of Manmohan Singh on the floor of Parliament.

The second important issue here is whether the special category status exists now. The 14th Finance Commission unequivocally in their report at para 2.29 stated that they did not make a distinction between special and general category states in determining their norms and recommendations. 
This is further reconfirmed by one of the members of the 14th Finance Commission, Professor Abhijit Sen, who in his dissent note categorically mentioned that this

Finance Commission made five major shifts from the past finance commissions, one of them being doing away with the distinction between the special category status and non special category status states. The other members who replied to this dissent note of Abhijit Sen nowhere contradicted him on this. Thus the 14th Finance Commission did away with the distinction between the special category status and non-special category status states.

Presently, for the north-eastern states, the earlier financing pattern is being continued based upon the recommendations of the committee of ministers who went into the issue of rationalisation of central sector/central sponsored schemes. Industrial incentives are being continued separately as per a circular issued by the industries department. What was offered to north-eastern states based on the recommendation of the committee of chief ministers is also offered to the State of Andhra Pradesh through a special package. 

On the request of the state government to exempt this assistance from FRBM limitations, the state was requested to form a special purpose vehicle (SPV) to channelise these funds so that they can be made available beyond FRBM limitation. The state government was not willing to respond to this request of the central government since it feels it could have a political fallout. This, in essence, is the story of the special category status issue with reference to Andhra Pradesh state, the myth and the reality.

The writer IYR Krishna Rao, formerly chief secretary of the Government of Andhra Pradesh, is at present a member of the BJP.