AP CM misleading people on SCS

In the edit page article on the Special Category Status on April 21, V Ramu Sarma concluded that debates on the subject are only resulting in noise pollution reaching a crescendo. He wished in future that we would be wiser than we are and enlightened opinions would make a lasting impact on the viewers/readers. This week I would like to discuss the same topic and I’m not sure whether readers would be in the end get a better clarity on the issue or get more confused.

I am going to narrate a different angle to the SCS issue which is being drowned in the present-day debates of cacophony of discordant notes as mentioned by Ramu Sarma. Everyone is in agreement that the SCS is not part of the the AP State Reorganisation Act but is part of the statement made by the Prime Minister of India on the floor of the Parliament and accordingly needs to be implemented and the benefits passed on to the residuary state of Andhra Pradesh. To get a better appreciation of what the Prime Minister of India told in the Parliament on that day I would like to reproduce two paragraphs of the statement by Prime Minister of India which are relevant for the issue under consideration.

“First for the purpose of Central assistance, special category status will be extended to the successor state of Andhra Pradesh comprising 13 districts including the four districts of Rayalaseema and the three districts of North Coastal Andhra for a period of five years. This will put the state finances on a firmer footing. Second, the bill already stipulates that central government shall take appropriate fiscal measures including offer of tax incentives to the successor states in order to promote industrialisation and economic growth in both the states. These incentives will be along the lines extended to some other states.”

First, as could be seen, the promise of SCS is only with reference to Central assistance but does not include industrial incentives. Industrial incentives as already stipulated in the act will be made available to both the states and will be on the lines extended to some other states, which means they need to be extended to Telangana as well.

Given this framework for Central assistance as well as industrial incentives, let us examine the events that took place after the formation of NDA government at the Centre and the bifurcation of state of Andhra Pradesh. Whether we like it or not, the truth is that the SCS as such does not exist. Quoting the 14th Finance Commission where they mentioned that they do not make a distinction between special and general category states in determining their norms and recommendations, the Government of India decided to abolish the SCS category. But the north-eastern states are beneficiaries of all the benefits which they were getting under the special category status but under a different mode.

After the formation of the Niti Aayog, a subcommittee of chief ministers was formed and based on their recommendations for the north-eastern states the funding pattern was retained as before. Further under the north east industrial scheme 2017, industrial incentives were continued as such. Thus, the SCS as such does not exist today even when it existed it only refers to the central assistance and the industrial incentives were not part of the special category status and were made available under a different scheme.

The central assistance made available to the north-eastern states through the recommendations of the subcommittee of chief ministers is also made available to us in the name of a special package. In the normal course to access this assistance under this scheme one needs to have a shelf of projects which can be posed to the multilateral agencies and the amounts drawn.

As could be seen from a note prepared by the state government accessed by me as member of the JFFC Committee, the contention of the state government was that based upon the historical performance of the state in preparing such projects and posing them to multilateral agencies, they may at best be able to access Rs 1000 crore per year and Rs 5000 crore in five years under CSS (central sector schemes) and EAP (externally aided projects) put together. Since the amount that the state is entitled to, as calculated, is around Rs 15,000 crore, an alternative system of getting the benefit needs to be worked out.

It was a request from the state government to permit them to access this amount by borrowing from other financial agencies like NABARD and HUDCO and exempt the state from FRBM limits. GOI did not agree for an exemption from FRBM limits and informed the state government accordingly in July 2017. It was only in January 2018 that the state government responded for providing an amount of Rs 16,447 crore which was by then the amount that was calculated to be accessed under this package through internal funding agencies like NABARD and HUDCO instead of under externally aided projects.

Suggestion from the GOI was to set up a separate special purpose vehicle for accessing these amounts so that they will not come under FRBM limit. At this stage, the state government has taken a U-turn and started campaigning for non-existent special category status in place of the special package. In fact, seen from any angle the special package is far more advantageous to the state government for accessing the funds from the Government of India compared to what would have come as part of the SCS as far as the central assistance is concerned. Under the SCS, one needs to have a shelf of projects to access the funds.

As explained by the state government, based upon their historical performance, there is no way they could have accessed more than Rs 5,000 crore in a period of five years whereas setting up of this SPV and permission to borrow from institutions like NABARD could have facilitated drawl of about Rs 15,000 crore in the same period of time. It is at that point of time, the state government rejected the proposal without any reason and went on clamouring for a non-existent special category status.

This decision by the Chief Minister of Andhra Pradesh looks to be guided by political considerations rather than considerations of the interests of the state. It was around this time only the request of the state government for increasing the number of constituencies was finally rejected by the central government after a prolonged guessing. I understand certain projects posed to multilateral agencies have matured under special package and were ready for disbursement. Since the state government rejected the special package, is the state government going to reject such disbursals? I hope not.

This brings us to the second issue of industrial incentives, which are clearly not part of the SCS but are being made available to north-eastern states under a different scheme altogether. But whatever comes as industrial incentives to Andhra Pradesh will be equally applicable to Telangana both as per the act as well as the statement of the Prime Minister on the floor of the Parliament.

A better alternative would be to ask for a package for developing industrial infrastructure in north coastal Andhra and Rayalaseema and bring down the cost of making available developed land with such facilities to the industries incentivising setting up of industries in these areas in the place of tax incentives to the industries. This would facilitate better industrial development rather than providing tax incentives to industries.

Thus, the Government of Andhra Pradesh is deliberately misleading the people by not revealing the facts and the correspondence they have indulged in with the Government of India and is trying to project the SCS as the issue when they’re well aware that it does not exist anymore. Further, under the SCS which is scheme-specific, the state government itself has admitted they may not be able to draw more than Rs 5,000 crore in a five-year period whereas the special package provides the flexibility of accessing up to Rs 16,447 crore as calculated by state government from internal financial institutions like HUDCO and NABARD.