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Demand

for Special

Status

to Andhra Pradesh

after Bifurcation of the State:

Issues and Trends

National Law School of India University, Bangalore

CONTENTS

CERTIFICATE...........................................................................................................................

CHAPTER 1: INTRODUCTION

Andhra Pradesh was bifurcated into Telangana and residuary Andhra Pradesh by the Andhra Pradesh Reorganisation Act, 2014. This resulted in an unfair division of resources, with most of the developed areas including Hyderabad going to Telangana, while Andhra Pradesh was left with mostly backward areas of Rayalaseema. In this situation, it was decided that Hyderabad would be the common capital of both the states for a period of ten years following which it would remain the capital of Telangana while ceasing to be the capital of Andhra Pradesh. Within these ten years, Andhra Pradesh was supposed to develop another permanent capital. Loss of most major areas coupled with the inconvenience of having a capital which was away from the rest of the state put Andhra Pradesh in a state of financial crux.

In order to foster the economic development of the state, the leaders of Andhra Pradesh demanded the grant of “special category status” from the Union. Special category status is accorded to states by Article 371 of the Constitution and is different from “special status” granted by Article 370. While the former is a Constitutional status enhancing legislative power currently granted only to the state of Jammu and Kashmir, the latter is a position accorded by the National Development Council to some states in order to give them some financial benefits. Currently, eleven states have the special category status.

However, Andhra Pradesh’s requests and demands have been turned down by the Union which has now done away with the provision of special category status due to an enhancement in states’ share in central taxes. Keeping all these factors in mind, this paper is an attempt to analyse the special provisions with regard to Andhra Pradesh prior to and post bifurcation. It also delves into the issues and trends in the current day Andhra Pradesh and examines whether there is a real need for special category status for the state.

CHAPTER 2: RESEARCH METHODOLOGY

Research Problem

In this paper, the researcher has attempted to delve into the special provisions given to the states of Andhra Pradesh and Telangana by Article 371D and tries to analyse the situation in Andhra Pradesh post bifurcation and examines if the state really requires “special category status.”

Research Questions

The researcher has addressed the following questions in this research paper:

• What is special category status?
• What are the benefits granted to states by Article 371 and does it pose a challenge

to federalism?

• Why was the state of Andhra Pradesh given special provisions under Article

371D?

• What are the issues being faced by Andhra Pradesh post bifurcation?
• Why is Andhra Pradesh demanding “special category status” from the Union?
• Should special category status be accorded to Andhra Pradesh?

Chapterisation

In order to answer these concerns and to meet the aims and objectives of this paper, the researcher has divided the paper into six chapters. The major analysis commences from the third chapter. The third chapter titled “Special Category Status in a Federal Setup and its benefits” examines the various criteria under which special category status is awarded to states. It also examines whether Article 371 poses a challenge to the federal structure of the country and analyses the benefits of such a status. The fourth chapter is titled “Article 371D: Special Provision With Regard To Andhra Pradesh.” This chapter briefly traces the history of the state from its formation by the State Reorganisation Act to the situations leading to the inclusion of Article 371D in the Constitution. It also examines the constitutionality of the Article. The fifth chapter titled “Demand for Special Status after Bifurcation” examines the reasons for Andhra Pradesh’s demand for special category status. The sixth chapter titled “Issues and Challenges” addresses the major challenges faced by the state post bifurcation and the seventh chapter analyses the whole situation to determine whether special category status should be given to Andhra Pradesh or not. The final chapter summarises the main arguments in the paper.

Research Methodology

The researcher has used a combination of descriptive and analytical methods. Case laws have also been used wherever necessary.

Tools of Data Collection and Citation

CHAPTER 3: SPECIAL CATEGORY STATUS IN A FEDERAL

SETUP AND ITS BENEFITS

The Indian Constitution as envisaged by its makers is a federal constitution. There are certain parameters that determine whether a state is federal in its setup or not. When there is a deviation from the standard structure of a federal state, it challenges the federal structure. The granting of special category status to certain states can be considered as one such challenge to the Indian federal structure. The concept of granting of such a status was first introduced by the Fifth Finance Commission in order to accord preferential treatment to deprived states in terms of central assistance in finance. Initially, only three states, namely Jammu and Kashmir, Assam and Nagaland were accorded special category status by the Constitution. The power to grant special status to a state is vested in the National Development Council which considers certain determinant criteria: strategic location of the state, especially in the border areas of the country; low population density or a substantial share of tribal population; infrastructural and socio-economical backwardness; hilly or mountainous terrain; non viability of state resources.1 With these parameters in mind, eight other states, including all the other North-Eastern states were granted “special category status” The incentive to grant special status arises from the fact that certain states, due to their disadvantageous geographical and social positions, are not in a state to properly mobilise resources to boost development. The states which have been conferred with “special status” enjoy greater devolution of power from the Union as compared to the other states. In this scenario, it is important to examine Article 371 and the challenges it poses to federalism.

Article 371 cannot be said to challenge federalism. On the other hand, it is just a manifestation of asymmetric federalism in India. Asymmetric federation does not pose any harm to the federal structure and improves the functioning of a federal state. Asymmetric federalism refers to “federalism based on unequal powers and relationships in political, administrative and fiscal arrangements spheres between the units constituting a federation.”2 An idealist federation, which envisages equal distribution of power between the centre and the federal units, is not practical in reality. An understanding of the Constitution of India will suggest that there is a clear domination of the Union over the states in India. Thus such an asymmetry may either be horizontal or vertical.

Asymmetric arrangement of the Indian federal units has a long history. The Indian Constitution adopted in 1950 categorised states into four: Part A consisting of states directly ruled by the British; part B consisting of princely states that had signed individual treaties with the Government (This included Jammu and Kashmir which was given special powers with matters in respect to accession);part C consisting of the other princely states; part D consisting of states that gained independence from other foreign powers such as the French and the Portuguese.

The benefits arising from “special category status” are manifold. The states get significant concessions in most types of direct and indirect taxes including income tax, corporate tax and excise duties. Around 30 percent of the Normal Central Assistance (NCA), which is the main source of central financial support, will be allocated exclusively for these 11 states. Moreover, 90% of the NCA will be given as grants to special category states while the other states are given only 70% as loans. If special status is granted to a state, its industries will receive a 100% exemption from excise duties.

1 Hemanta Kumar Nayak, Conceptual Clarity on Special Category Status , Odisha Review 53(2013). 2 M. Govinda Rao, Asymmetric Federalism in India 3(Working paper No.04#8, Santa Cruz Centre for International Economics, 2004). 3 Special Category status and centre-state finances ,(April 12, 2013) available at http:// www.prsindia.org/theprsblog/?p=2593 (Last visited on May 17,2017).

Owing to this, industries will be incentivised to set up plants in special category states, thus increasing the job prospects in these areas.4 The tax rebates have another advantage: it makes the goods relatively cheaper in the state. In case of sanctioned special status states, the Centre builds the water projects. Water projects are generally funded by the Accelerated Irrigation Benefits Program of the Centre. States without grants get a maximum of 25% grants for such projects. But with special status, 90% of the funds will be granted by the government. Moreover, in case of foreign loans to states, the Centre will pay up to 90% of the loan, apart from paying the complete interest amount. In addition to these benefits, the special category states are also allowed to carry forward their unspent money, a privilege the other states lack.

CHAPTER 4- ARTICLE 371D: SPECIAL PROVISION WITH

REGARD TO ANDHRA PRADESH

The state of Andhra Pradesh was formed as a result of the reorganisation of the states in India on linguistic basis.5 As a result, two sets of culturally and historically disparate people were forced to live in the same state formed purely on a linguistic basis. At that point of time, Mulki rules prevalent in the state was regarded as a threat to their identity by the people of the non-Telangana regions. The Mulki rules referred to a set of rules that were promulgated during the time of the Nizam and which granted special concessions to people of the Hyderabad-Telangana region.6 The Parliament gave statutory recognition to these rules by inserting Article 371 through the Constitution (Seventh Amendment) Act, 1956 which provided for the establishment of the Telangana Regional Committee. In 1972, the Supreme Court upheld the validity of the Mulki Rules, thus leading to large scale protests in the other areas of Andhra Pradesh.7 Following demands for a separate Andhra Pradesh, the then Prime Minister Indira Gandhi reached a settlement with the leaders of Andhra Pradesh and laid down a six-point formula in order to prevent future tensions.8 The six-point formula was given legal validity by the Constitution (32 nd^ Amendment) Act, 1973 which inserted Article 371D, thus granting certain special provisions to the state of Andhra Pradesh.9 The six point formula demanded accelerated development in the backward areas of the states, better employment opportunities and the establishment of a central university in the state. The main object of Article 371 D is to provide equitable opportunities to different areas of the state in the matter of employment and career prospects. The provisions aimed at a uniform approach for "accelerated development of the backward areas" of the state, and to provide "equitable opportunities" to all the areas in the state in relation to matters of education and employment in public services.

4 Need of Special category status for Andhra Pradesh: All you need to know (September 16,2014) available at http://blog.socialprachar.com/2017/01/24/andhra-pradesh-need-special-category-status/ (Last visited on May 17,2017). 5 State Reorganisation Act,1956. 6 Satya N Rapelly, History for Separation , available at http://www.telanganablogs.org/ref/ History_for_Separation.pdf (Last visited on May 17,2017). 7 Karen Leonard, People, princes and Paramount Power 67(1978). 8 Six - Point Formula, available at http://www.aponline.gov.in/Apportal/HomePageLinks/ PresidentialOrder/Presidential_Order.pdf (Last visited on May 17, 2017). 9 Id.

Before the 2014 general elections, the then incumbent Prime Minister Manmohan Singh made a statement on the floor of the House promising to grant special category status to Andhra Pradesh. This statement was the recognition of the unfair bifurcation which resulted in Andhra Pradesh losing almost of all of its major industrial areas and therefore also announced a 5 year tax concession for all industries which would be set up in the new state from the day of bifurcation. Though opposition parties including the BJP demanded this concessionary period to be extended to 10 years, this implied that the special status to be accorded would only be temporary.

However, the Fourteenth Finance Commission in its report, recommended for doing away with the distinction of special category and general category states.15 Instead, it suggested that allocation of adequate resources through fiscal measures such as tax devolution and grants would enable states to challenge inter-state inequalities effectively. Therefore, the Union has refused to grant special status to Andhra Pradesh citing the reason that it does not make sense to do so in the current situation, taking into account the fact that states’ share of central taxes had shot up by 10%, and because Andhra will receive special grant of Rs.350 crores for the development of 7 backward districts.

However, the supporters of special category status for the status are unhappy even with the current fiscal position as the “unscientific and hurried” bifurcation had put a huge financial burden on the state.

14 PM Manmohan Singh announces special package for Seemandhra, India Today(February 20,2014) available at http://indiatoday.intoday.in/story/pm-manmohan-singh-announces-special-package-for- seemandhra/1/344650.html(Last visited on May 17, 2017). 15 Prateek Sibal, Why Andhra Politicians Should Stop Fretting Over Special Category Status , Huffpost(1st^ August, 2016) available at http://www.huffingtonpost.in/prateek-sibal-/why-andhra- politicians-should-stop-fretting-over-special-categor/( Last visited on May 17, 2017). 16 Sreenivas Janyala, Andhra Pradesh wants Special treatment: Why, and why the Govt isn’t keen , Indian Express(August 8, 2016) availabale at http://indianexpress.com/article/explained/andhra-pradesh-wants- special-treatment-why-and-why-the-govt-isnt-keen-2960372/ (Last visited on May 17, 2017).

CHAPTER 6: ISSUES AND CHALLENGES

The bifurcation of the state, which was done in a haphazard manner and was disagreed to by large sections of both the Telangana and Andhra factions, has created a lot of cumbersome issues, some of which are yet to be addressed.

The Andhra Pradesh Reorganisation Act provided for the status of Hyderabad as the common capital for both Telangana and residuary Andhra Pradesh for a period of ten years. After this period, it would cease being the capital of Andhra Pradesh while continuing to remain as the capital of Telangana. The implications of this are several. For one thing, all the important legislative, administrative and judicial offices of the state of Andhra Pradesh will continue to operate from Hyderabad for ten years. This situation seems similar to that of Chandigarh, which serves as the common capital of both Punjab and Haryana. However, on a closer introspection, matters are more complicated in case of Andhra Pradesh. Unlike Chandigarh, which shares its boundary with both Punjab and Haryana, Hyderabad is exclusively within the territorial limits of Telangana and does not share a common boundary with Andhra Pradesh. This physical separation of the capital from the state had created multitudinous problems. The Act provided that the assets would be divided on the basis of location and liabilities on the basis of ratio of population. This provision in the act is completely unfair to the residuary Andhra Pradesh since its areas are more densely populated, while being economically backward.

The location of the High Court, secretariat and other governmental offices in Hyderabad has made the situation rather complicated. This entails that getting access to the top judicial body and major governmental bodies in the state would make commutation difficult as Hyderabad is located in the centre of Telangana, and not in the borders. The allocation of training centres and governmental companies have further worsened the problem, with both the states claiming right over the 9 th^ and 10 th Schedule institutions which are situated in Hyderabad, the common capital.

Though the Act envisaged the gradual setting up of a separate capital for the residuary Andhra Pradesh only ten years after the bifurcation, the government of Andhra Pradesh has already decided to shift its secretariat and other important wings to Amaravati, its designated capital which is 285 kilometres away from Hyderabad. The entire shifting process is expected to cost up to Rs 50 crore, an amount that will further create a financial burden on the already disadvantaged state of Andhra

17 Andhra pradesh bifurcation; the problem on either side , Deccan Chronicle(November 2, 2014) available at http://www.deccanchronicle.com/141102/nation-current-affairs/article/andhra-pradesh- bifurcation-problem-either-side (Last visited on 17 May, 2017). 18 Row over tenth schedule institutions in Andhra Pradesh reorganisation Act , The Hans India(March 25, 2016) available at http://www.thehansindia.com/posts/index/News-Analysis/2016-03-25/Row- over-10th-Schedule-institutions-in-APRA/216114 (Last visited on 17 May, 2017).

14th Finance Commission raised the state share in central taxes to 42% from 32%, the

Central Government did away with almost all economic privileges associated with the special

category status.

Moreover, under the parameters listed by the National Development Council for granting special category status Andhra Pradesh can claim none. The demands for special category states in Andhra Pradesh were largely grounded in claims of economic and infrastructural backwardness, due to the loss of Hyderabad and the cost of rebuilding a new capital. However, the Centre’s funding, along with the financial assistance provided for the development of the state by Singapore has improved its economic conditions to a large extent.22 Moreover, its position on top in the Ease of Doing Business Index has further proved that the state has the potential for great economic development in the future.23 This rules out all the parameters considered by the National Development Council for according the status. Its failure to meet the National Development Council criteria was the major reason why the demand for special category status by Andhra Pradesh was rejected.

It is pertinent here to note that benefits of “special category states,” too have diminished and are no longer important. Until 2014, granting of “special category status” indeed meant a windfall of funds from the Union. But since 2014, the Centre has done away with almost if not all of the financial privileges attached to the special category status. Therefore, the state of Andhra Pradesh will definitely not gain any economic benefits from the grant of the status, even if such a status is granted to it. On the other hand, Andhra Pradesh must ensure that the Central government complies with the Andhra Pradesh Reorganisation Act which mandates the Centre to support the state in setting up national institutions, water and rail projects and industrial complexes.25 It can also benefit from reaching a consensus at Inter-State council by seeking funding for its backward regions and liberal allocation of resources under Centrally Sponsored Schemes.

But the question that arises here is whether the Centre’s action in doing away with special category status can be justified. In order to answer this, it is essential to assess the effect of the concessions on the performance of the intended states. The provision of special category states was introduced five decades ago. However, the intended states have not exhibited any evident benefits as a result of this status. Assam’s growth rates have remained slow, while Himachal Pradesh and Uttarakhand have only shown sharp declines in growth rates since an initial spurt.26 Therefore, there is nothing to suggest that the status has been beneficial to the economic development of the intended states.

21 Srinivasa Prasad, Why Andhra Pradesh won't benefit from the special status Naidu wants for state , Firstpost(August 4th, 2016) available at http://www.firstpost.com/india/why-andhra-pradesh-wont- benefit-from-the-special-status-naidu-wants-for-state-2935600.html (Last visited on 17 May, 2017). 22 Sribala Vadlapatlal, Singapore to partner Andhra Pradesh in capital building, The Times of India (September 27, 2015) available at http://timesofindia.indiatimes.com/india/Singapore-to-partner- Andhra-Pradesh-in-capital-building/articleshow/49121326.cms (Last visited on 17 May, 2017). 23 Asit Ranjan Mishra, Andhra Pradesh, Telangana top ease of doing business ranking , Livemint (November 1,2016) available at http://www.livemint.com/Politics/SCiyKfQlC213Pu0Tg2d0qJ/ Andhra-Pradesh-Telangana-joint-toppers-in-ease-of-doing-bus.html (Last visited on 17 May, 2017). 24 AP doesn’t qualify for special category status: Plan panel , Livemint(June 13,2014) available at http://www.livemint.com/Politics/1vBHXsbI8k30xq5DwTjRtK/Seemandhra-cant-be-accorded- special-category-status-Plan-p.html (Last visited on 17 May, 2017). 25 Sibal, Supra note 15. 26 N.K Singh, Special Category Status is Overrated , Indian Express(August 19,2015) available at http://indianexpress.com/article/opinion/columns/special-category-status-is-overrated/ (Last visited on 17 May, 2017).

In the contemporary times, special status would only be detrimental to the progress of the economy. Once the GST comes into force, cut on excise duties will prove to be counterproductive.27 Large rate cuts and exemptions on industries will result in an increase in overall costs due to cascading as well. On the other hand, enhancing special packages for development intervention in state projects can very well substitute for the loss of special category status.

27 Id.

BIBLIOGRAPHY

ACTS

Constitution (32nd Amendment) Act, LIST OF STATUTES

Constitution (7th Amendment) Act,

The Andhra Pradesh Reorganisation Act,

The State Reorganisation Act,

Working papers

1. M. Govinda Rao, Asymmetric Federalism in India 3(Working paper No.04#8, Santa

Cruz Centre for International Economics, 2004).

Books

1. D.D Basu’s Indian Constitutional Law , (S.R. Roy and S.P. Sengupta ed., 3 rd^ edn.,

2. Karen Leonard, People, princes and Paramount Power 67(1978).

3. M.P Jain, The Constitution of India, (7th^ edn., 2014).

4. Sujit Choudhary, The Oxford Handbook of The Indian Constitution 555(2016).

Articles

1. Hemanta Kumar Nayak, Conceptual Clarity on Special Category Status , Odisha

Review 53(2013).

2. Need of Special category status for Andhra Pradesh: All you need to know (September

16,2014) available at http://blog.socialprachar.com/2017/01/24/andhra-pradesh-need-

special-category-status/

3. Satya N Rapelly, History for Separation , available at http://www.telanganablogs.org/

ref/History_for_Separation.pdf

Six - Point Formula, available at http://www.aponline.gov.in/Apportal/

HomePageLinks/PresidentialOrder/Presidential_Order.pdf

4. PM Manmohan Singh announces special package for Seemandhra, India Today

(February 20,2014) available at http://indiatoday.intoday.in/story/pm-manmohan-

singh-announces-special-package-for-seemandhra/1/344650.html

5. Prateek Sibal, Why Andhra Politicians Should Stop Fretting Over Special Category

Status , Huffpost(1st^ August, 2016) available at http://www.huffingtonpost.in/prateek-

sibal-/why-andhra-politicians-should-stop-fretting-over-special-categor/

6. Sreenivas Janyala, Andhra Pradesh wants Special treatment: Why, and why the Govt

isn’t keen , Indian Express(August 8, 2016) availabale at http://indianexpress.com/

article/explained/andhra-pradesh-wants-special-treatment-why-and-why-the-govt-

isnt-keen-2960372/

7. Andhra pradesh bifurcation; the problem on either side , Deccan Chronicle(November

2, 2014) available at http://www.deccanchronicle.com/141102/nation-current-affairs/

article/andhra-pradesh-bifurcation-problem-either-side

Row over tenth schedule institutions in Andhra Pradesh reorganisation Act , The Hans

India(March 25, 2016) available at http://www.thehansindia.com/posts/index/News-

Analysis/2016-03-25/Row-over-10th-Schedule-institutions-in-APRA/

8. Prasad Nichenametla, Early capital shift dismays Andhra babus , The Telegraph(June

26 th, 2016) available at https://www.telegraphindia.com/1160626/jsp/nation/

story_93352.jsp

Srinivasa Prasad, Why Andhra Pradesh won't benefit from the special status Naidu wants

for state , Firstpost(August 4 th, 2016) available at http://www.firstpost.com/india/why-

andhra-pradesh-wont-benefit-from-the-special-status-naidu-wants-for-state-2935600.html

Sribala Vadlapatlal, Singapore to partner Andhra Pradesh in capital building, The Times

of India(September 27, 2015) available at http://timesofindia.indiatimes.com/india/

Singapore-to-partner-Andhra-Pradesh-in-capital-building/articleshow/49121326.cms

9. Asit Ranjan Mishra, Andhra Pradesh, Telangana top ease of doing business ranking ,

Livemint(November 1,2016) available at http://www.livemint.com/Politics/

SCiyKfQlC213Pu0Tg2d0qJ/Andhra-Pradesh-Telangana-joint-toppers-in-ease-of-

doing-bus.html

10. AP doesn’t qualify for special category status: Plan panel , Livemint(June 13,2014)

available at http://www.livemint.com/Politics/1vBHXsbI8k30xq5DwTjRtK/Seemandhra-

cant-be-accorded-special-category-status-Plan-p.html

11. N.K Singh, Special Category Status is Overrated , Indian Express(August 19,2015)

available at http://indianexpress.com/article/opinion/columns/special-category-status-is-

overrated/