Special status stalemate: Cooperative federalism put to the test

The current spat between Andhra Pradesh Chief Minister N Chandrababu Naidu and Bharatiya Janata Party (BJP) President Amit Shah shows how long a shadow the creation of Telangana, and its economic impact, continues to cast over the state’s politics. At the time, politicians in Andhra Pradesh worried that the loss of Hyderabad would dig a significant hole in the residual state’s revenue. As a result, they demanded that the state be granted “special category” status, which involves a step-up in central assistance that is usually reserved for hilly, remote or particularly disadvantaged states. Manmohan Singh, when he was prime minister, eased the process of bifurcation through a verbal assurance that special status would be granted, but under the BJP-led National Democratic Alliance (NDA) government no such status has been forthcoming. For Mr Naidu, this had become a major political embarrassment given that his party was part of the NDA; and so, in order to prevent the Opposition, especially the YSR Congress, from cornering the Telugu Desam Party on the subject, Mr Naidu led the TDP out of the alliance.

Mr Shah, last week, wrote a nine-page letter to Mr Naidu outlining his case that the Centre had done as much as it could for Andhra Pradesh, and thereby criticising Mr Naidu’s exit from the NDA. Mr Shah listed multiple central-funded development projects and accused the TDP government of failing to utilise even the funds it was granted. The Centre’s argument essentially is that no new states can be granted special category status and it has offered to create a special purpose vehicle, or SPV, in which it will park extra funds. Mr Shah’s letter asked why Mr Naidu refused to accept that solution, and if it was because such funds would be harder to divert, implying Mr Naidu was seeking special category status to fund corruption. He also questioned the methods used to calculate the revenue deficit figure of the Andhra Pradesh government. An incensed Mr Naidu read out the letter in the state’s Legislative Assembly and responded to many of the points, arguing, for example, that the Comptroller and Auditor General of India had calculated the revenue deficit figure, that 32 per cent of funds for the new capital had been spent and not 8 per cent, and that an SPV, rather than funds controlled by elected leaders, would be an infringement on state sovereignty and interests.

It is clear that the divide between the BJP and the TDP — indeed, most Andhra Pradesh parties, such as the YSR Congress — is deep. Yet the demand of politicians in Andhra Pradesh for special category status, if granted, might lead to a race to the bottom. Bihar has long argued for similar status. Other states also would want special financial packages, including those with high debt such as West Bengal and Tamil Nadu. The 14th Finance Commission in 2015 increased the states’ share of net Union tax revenues to 42 per cent from 32 per cent. According to Finance Minister Arun Jaitley, following this, the case for special status does not exist. On the other hand, Mr Naidu is correct in arguing that a promise made by a prime minister in Parliament to a state should be honoured. Some via media will have to be found in which Andhra Pradesh’s peculiar situation is addressed. The government prides itself on cooperative federalism — it is time to put that to the test.