Analysis – the AP Special Category Status Controversy

There is no point in reviewing the developments surrounding AP special category status issue. The matter has been debated vociferously in public life, on television channels and online groups for the last two years. There are several opinions floating around, without taking all the facts into consideration, so that the opinion seems valid and the grouse legit. So when my good friend Sudhir wrote his debut piece on ABP news blog, I found myself thinking of the issue again. Although, Sudhir placed facts of the situation in AP succinctly, he only wrote about the “what”s but didn’t try to reason about the “why”s. However, one statement that comes out strongly in his piece is – “the matter is emotional now”.

AP bifurcation was one of the most deplorable moments of Indian democracy. As I wrote in an earlier post, there is need for constitutional safeguards so that such incidents can be avoided. The matter hit people of what is today known as Andhra Pradesh very badly. The impact was evident in 2014 election results. During the discussion on AP bifurcation act BJP’s RS MPs acted with a lot of sense which was completely missing in the earlier LS debate. But along with the better sense, also came some unnecessary promises which were recorded in the proceedings. These statements are now coming back to haunt current dispensation, especially Venkaiah Naidu.

The Facts

During election campaign, several leaders made several promises to get electoral benefits from the unadulterated emotion at that moment. To note some of the promises as far as I know:

  • Venkaiah Naidu thundered in Rajya Sabha that Special Category Status must be allotted to Andhra Pradesh considering its situation, not just for 5 years but for 10 years
  • Even the then PM, Manmohan Singh, made a statement that SCS matter must be taken with due consideration by the next executive
  • But neither BJP nor INC insisted on it being a part of the Bifurcation Act. Bifurcation Act in section 95 is also very equivocal on what Andhra Pradesh post bifurcation would get in terms of “special treatment”
  • Modi never mentioned in any of his speeches during election campaign in 2014 that he would grant SCS to AP. There is, however, one speech in Nellore where he used the phrase “special status ka package”. Nowhere else can we find this ambiguous reference again (Bifurcation Act refers to Special Package, not status)
  • TDP leaders mentioned repeatedly in their speeches during election campaign and after coming to power that SCS will be granted to AP. They continue to do so
  • Most AP leaders – TDP and YSRCP included – consider SCS as AP’s right
  • SCS entails some centrally funded projects and some tax incentives
  • Modi government, as a policy, has reduced number of centrally funded projects and increased allocation of tax revenue to all states. The idea is to let states decide how and what programs they want to take up

Given these facts, I think AP leaders’ grouse about SCS is more to do with politics than to do with AP’s benefits.

AP government’s claims on finances

To everybody’s astonishment, AP overtook Telangana in both tax and non-tax revenues in 2016. AP also recorded impressive growth rate. The reason for this performance remains a mystery though several theories have been proposed in public discussion. The mystery behind this performance also brings out another shortcoming in Indian public discourse – lack of experts, lack of data and lack of analysis to understand developing situations. Therefore what interested observers are left with is a mishmash of opinions filled with biases of various kinds.

Despite rise in revenues and impressive growth rate, AP government remains a revenue deficit state. AP CM and TDP leaders brought up revenue deficit to public notice on various occasions. They continue to do so on every given opportunity. There is an implicit assumption that central government has an obligation to fill the revenue deficit because of Bifurcation blues.

Minister for Finance repeatedly explained the revenue deficit issue in both houses of the parliament. There is a contention on AP’s claim of 16000 crore revenue deficit for the year 2014-15. Ministry of Finance estimated AP revenue deficit at 7303 crore as opposed to the claim of AP government that the deficit is 16,300 crore.

CAG noted, in its report in 2016, several irregularities pertaining to tax compliance in the year 2014-15. However, it has to be conceded that these are department level inefficiencies which are generally sorted out by CAG’s reports and guidelines. State government has a mandate to work on these inefficiencies and fill these gaps, which would address revenue issues to a certain extent instead of laying the whole burden on central government.

Expenditure Certificates

A common refrain we keep hearing through media houses from center is that AP government didn’t submit expenditure certificates. Most striking case is to do with funds declared by center for backward regions across the country. Center declared 700 crore funds under BADS (Backward Areas Development Scheme) for Ralayaseema and Uttara Andhra districts. 350 crore were released in the year 2014-2015.

The issue remains even today. Media houses reported on August 19th 2016 that center released 1976 crore funds to AP, including 1176 crore to fill revenue gap for 2014-2015, 450 crore for Amaravati, 350 crore BADS funds despite AP government’s failure to submit expenditure certificates. AP government may have its own reasons for not following these stipulated procedures but center too has its own reasons to be skeptical. For one, center cannot remain mute spectator to non-compliance, however special AP situation may be, to avoid similar non-compliance from other states. It must be said that AP government received more than fair treatment in this regard.

Polavaram Project

One other issue which took prominence due to the prospects in irrigation sector is Polavaram project. Center has released some funds and Minister for Finance said in both houses that NABARD would fund the project and the whole scheme is being planned. Center has a necessity to explain the delay in executing fund raising through NABARD. Center also has a necessity to explain what the NABARD route actually is. So far information in this regard has been sparse. AP government too didn’t raise this question to Ministry of Finance with the enthusiasm that it did about SCS.

Center’s move to take NABARD route to fund Polavaram came very late and the movement in raising funds too has been nothing short of snail paced. Center has a responsibility according to Bifurcation law to execute Polavaram project and AP government has every right to demand that Bifurcation law be implemented in both letter and spirit. Minister for Finance, acknowledge that it has an obligation in his RS speeches but there is no matching action for AP government to be happy about.

The “Why”s!

From here on we are in the domain of total speculation and opinion. Based on the available information, I shall now explain what I see is the reason for this controversy to thrive – The “Why”s.

In my opinion, TDP sees bifurcation as a huge setback. As long as YSR was CM of AP, bifurcation was a virtual impossibility and after his death, there was no leader in INC to control the situation. With bifurcation, came huge loss of business interests for TDP and its sympathizers. It is an open fact that there are significant investments that many TDP leaders and sympathizers made in Hyderabad. So, to TDP, taking AP forward and, more importantly, ahead of Telangana in shortest time possible is a matter of pride as well as that of business priority.

Apart from pride factor, there is CBN’s experience from his previous government. In World Economic Forum summit in Delhi in 2015, CBN gave an interview to Vikram Chandra and explained that he had learned his lessons from his past experience and that he needed to take care of both industrialization and welfare at the same time. There is nothing wrong in inferring such lessons from the past per se. However, the effects of this learning, especially in the form of welfare schemes that AP government has been declaring since last 2 years shows how CBN is trying a to achieve very difficult balance. For a state that is yet to capitalize on its economic prospects, this could be disastrous.

Populist measures are driving continuing revenue deficit for AP. Consequently, AP government is demanding more funds from the government. Media – neither national nor local – has cared to analyze the situation. On the other hand, media has only fanned the flame. AP government initially tried to explain that SCS may not help much, but in the past 6 months, AP government itself started openly criticizing Modi government and none of the AP BJP leaders countered the propaganda effectively.

In 2014, when AP decided to build a new capital, the total bill was pitted at around 1 lakh crore. Local media in fact hinted that AP government believes that center will fund major share of the burden. However, as per Bifurcation law, center’s burden ends with creating necessary infrastructure that include government buildings, assembly, high court etc. (refer to section 95 in AP Reorganization Act). AP government, had a responsibility to dissuade media from creating a wrong sense of entitlement. Instead, we heard ministers talk in the same light. If it was just a misunderstanding on the part of the cabinet, we may never know but we could guess.

It is an evident fact that Modi government approached tax distribution and funding state government projects in a methodical manner. The states that needed immediate importance like North East states have been given that due notice. As a matter of principle, center government is now disbursing more funds to state governments and reducing number of centrally funded projects. If anything, it is a blessing for a state like AP which has rich and talented human resources.

Unfortunately, however, TDP is fixated about the special category status. There could be a different explanation to this push by TDP : preparation for 2019. It could be that TDP senses a fall out for NDA government in 2019 and therefore would like to remain the only political party which continues to fight for Telugu pride. The slurry of attacks from third tier TDP leadership playing bad cops with first and second tier TDP leadership playing good cops indicates the political game plan. AP BJP has had no answer to any of these strategies that TDP played out in the past 2 years. AP BJP in fact has been a mute spectator to the political heat of the SCS controversy.

Center shouldn’t accord SCS to AP

There is no sweet way to put it – “center should not, as a matter of principle, accord SCS to AP”. Given the situation in India, central government’s position that AP need not be granted SCS is quite logical. In the recently concluded session of RS, almost every state MP, who spoke on the issue, declared that AP should be accorded SCS but with a caveat that their own state qualifies on the same grounds as AP. The caveat is really the crux of the whole argument against according SCS to AP.

SCS to AP will only open up floodgates to dissent from states. There is really no reason for AP to worry. CBN is again showing his understanding of the evolving economic scenario in South East Asia. CBN’s initiatives to align and work with Singapore, China and Japan overlap quite well with Modi government’s general direction to take “Look East” policy to next step – “Act East”. It is also noteworthy that no other state is working with nations east of Bay of Bengal, with equal rigor and passion as AP.

In my opinion, AP government should work with and force central government to

  • make AP priority state in Sagarmala project – AP has immense benefits from Sagarmala project, especially because of the untapped potential of coastline
  • make AP priority state in Inland waterways project – so that ports can leverage on the advantages of inland waterways and respond to the revenue deficit
  • let colleges across AP get accreditation with Marine University in Visakhapatnam and run marine engineering courses – marine engineering jobs are expected to grow at a rate of 9-10 percent till 2024 and AP people should tap into the international job market . To this effect, CBN should do what he did with Hyderabad back in early 2000s. There could be no better place than Visakhapatnam to achieve it
  • provide tax incentives for hardware industries in areas like Rayalaseema which are strategically good places for the industry to thrive – Modi in fact talked about it in his election campaign in AP in 2014

However, AP government is fixated in putting its whole strength into Krishna-Guntur regions. The two districts are receiving unprecedented focus. Reasons are evident but irrelevant to this post. AP government stopped talking about positives in its relation with NDA government since the past 6 months or so. AP government is now in a full frontal publicity mode with AP CM using even Krishna Pushkaram and state sponsored tree plantation drives as an occasion to explain people how hard he was working and how Modi government was not doing necessary bit.

If Modi government decides to accord SCS to AP alone, it would be a political victory for TDP in AP and with BJP’s irrelevance in the state would reduce BJP to a political non-entity. It would also put central government in a spot with other states demanding SCS, which would render the whole concept of SCS quite meaningless. To paraphrase Syndrome in The Incredibles “when everybody is special, no one will be”.

References, for the interested:

  1. AP reorganization bill – http://www.prsindia.org/uploads/media/Telangana/AP%20Reorganisation%20Bill,%202014.pdf
  2. Andhra Pradesh pips Telangana in Revenue Collection – http://timesofindia.indiatimes.com/city/hyderabad/Andhra-Pradesh-pips-Telangana-in-revenue-collection/articleshow/51735944.cms
  3. AP stands 1st in GDSP growth rate – http://timesofindia.indiatimes.com/city/hyderabad/AP-stands-1st-in-India-in-GSDP-growth-rate/articleshow/52709609.cms
  4. CAG finds AP calculation flawed – http://www.deccanchronicle.com/nation/politics/030416/cag-finds-andhra-pradesh-calculations-flawed.html
  5. Andhra Pradesh seeks 13776 crores, gets 5000 crore – http://www.deccanchronicle.com/nation/current-affairs/030716/andhra-pradesh-seeks-rs-13776-crore-gets-rs-5000-crore.html
  6. http://www.newindianexpress.com/states/andhra_pradesh/Centre-Rejects-Andhra-Pradeshs-Plea-for-More-Funds/2016/05/05/article3416386.ece
  7. What is special category status? – http://www.prsindia.org/theprsblog/?p=2593
  8. http://economictimes.indiatimes.com/news/politics-and-nation/chandrababu-naidu-hits-out-at-centre-over-unfulfilled-promises-to-andhra-pradesh/articleshow/53707873.cms
  9. http://www.thehindu.com/news/national/andhra-pradesh/huge-revenue-deficit-has-ap-officials-worried/article8066443.ece
  10. http://www.thehindu.com/news/national/andhra-pradesh/revenue-deficit-ap-heading-for-difficult-times/article6640465.ece
  11. http://zeenews.india.com/news/andhra-pradesh/andhra-pradesh-budget-govt-pegs-revenue-deficit-at-rs-4868-cr-outlay-up_1864283.html
  12. http://www.newindianexpress.com/states/andhra_pradesh/CAG-Raps-Andhra-for-Growing-Fiscal-Deficit/2016/03/31/article3355509.ece
  13. CAG report on AP revenue sector – http://www.cag.gov.in/content/report-no-2-2016-revenue-sector-government-andhra-pradesh
  14. CAG report on AP revenue sector http://www.cag.gov.in/sites/default/files/audit_report_files/Andhra_Pradesh_Revenue_Sector_Report_2_2016.pdf
  15. http://www.abplive.in/blog/andhra-pradesh-is-angry-and-heres-why
  16. ‘A.P. slack in utilising funds for capital, backward districts’ – http://www.thehindu.com/news/national/andhra-pradesh/article9009796.ece
  17. Center releases 1976 crores to AP – http://www.thehindu.com/news/national/andhra-pradesh/centre-releases-rs-1976-cr-to-ap/article9003709.ece
  18. No UCs, no funds : Center to AP – http://www.deccanchronicle.com/nation/current-affairs/280616/no-ucs-no-funds-centre-to-ap.html
  19. Pushkaram nearing end, special status trapeze awaits Andhra CM – http://www.newindianexpress.com/opinion/Pushkaram-nearing-end-special-status-trapeze-awaits-Andhra-CM/2016/08/22/article3591146.ece
  20. Marine Engineering facts – http://www.bls.gov/ooh/architecture-and-engineering/marine-engineers-and-naval-architects.htm
  21. Page number 78 – India – Potential to become one of the leading maritime nations in the world – https://www.utu.fi/en/units/tse/units/PEI/research/Documents/SmartComp%20Research%20Report%20October%202013%20final.pdf

PS: As a side note, much congratulations to Sudhir for his debut on an out-an-out Hindi heartland media house like ABP news. That even Hindi heartland media houses, who have little or no consideration of the happenings of the south, consider Sudhir’s opinion worthy of publication speaks volumes of the impact of the social media and bloggers who analyse news and current affairs. I came in touch with him 2009 and from what I observed since then, his journey in op-ed writing has been a total joy for readers like me due to his a balanced approach to reason and argument. All the best wishes to one of the most respected bloggers and online media critics.

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2 comments

  1. sprakasht · · Reply

    Very nice analysis….the logic is presented very well

    1. Thank you sir.

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