Special Category Status and States

Apr, 10, 2018

15th Finance Commission: Is it just a South India vs North India debate?

Note4students

Mains Paper 3: Economy | Indian Economy Issues relating to planning

From UPSC perspective, the following things are important:

Prelims level: Fifteenth Finance Commission, Article 270 of the Indian Constitution

Mains level: Debate on the effect of 15th Finance commission’s changed terms of reference


Context

Fifteenth Finance Commission’s terms of reference (ToR)

  1. The Fifteenth Finance Commission’s terms of reference (ToR) have evoked a sharp response from southern states
  2. The ToR mandates the Commission to use 2011 population for tax sharing and devolution of resources instead of 1971 population as was the practice in the past
  3. Between 1971 and 2011, except Telangana, population shares of four southern states in total declined from 22.01% to 18.16%
  4. Use of 2011 population for sharing resources means a decline in the flow of resources to these states

Beyond southern states

  1. Between 1971 and 2011, population share has declined in 10 states other than the four southern states
  2. These are Assam, Goa, Himachal Pradesh, Odisha, Punjab and West Bengal
  3. Thus, use of 2011 population would also affect economically less prosperous states like Assam, Odisha and West Bengal

Tax-sharing formula

  1. In the past, the tax-sharing formula was a combination of factors reflecting equity, need and efficiency
  2. Population being a neutral indicator of need has been used by all 14 finance commissions

Fundamental question about the use of population

  1. Any finance commission is required to assess fiscal needs of states for tax sharing and grants
  2. Binding Commission’s work to a particular reference population is arbitrary and unfair to all the stakeholders including the Commission

Policy on resource sharing

  1. The policy on resource sharing needs to make a distinction between tax sharing and grants
  2. Tax sharing is to correct the vertical and horizontal imbalances arising due to constitutional assignment of tax powers and expenditure responsibilities between the Union and states
  3. Also, as per the Article 270 of the Indian Constitution, tax share recommended by the Finance Commission does not form part of the consolidated fund of the Union government, implying this is not a component of Union budget

Way forward

  1. Any incentive or reward should be done through a grant mechanism instead of horizontal tax sharing
  2. It is too early to conclude the outcome of the use of 2011 population on resource sharing
  3. The ultimate outcome would depend on how the Commission treats various factors in the horizontal allocation of resources
Apr, 04, 2018

[op-ed snap] India should begin discussing the delimitation question

Note4students

Mains Paper 2: Polity | Functions & responsibilities of the Union & the States, issues & challenges pertaining to the federal structure

From UPSC perspective, the following things are important:

Prelims level: 15th Finance commission, Delimitation commission

Mains level: Debate related to 15th Finance commission’s methodology & North-South divide


Context

Strident tones against 15th Finance commission

  1. There is fear that the 15th Finance Commission might use the 2011 Census to determine the share of each state in the nation’s resources
  2. In doing so, the richer and less populous states in South India may end up contributing more than they receive

Why is redistribution necessary?

  1. Richer regions contribute to the well-being of poorer regions, and redistribution happens in all modern democracies
  2. All states are part of a national project of balanced economic development

Why is there an opposition to redistribution?

  1. Indian states exhibit a continuing divergence in economic development
  2. There is a trend contrary to the global trend among rich and poor countries
  3. The divisible resources are going increasingly to the poorer states
  4. These also happen to have much higher fertility rates, hence their population share is rising

Fears related to 15th FC redistribution

  1. Finance commissions are a constitutional mechanism to ensure some degree of logic and transparency in the allocation rule
  2. Over the years, their main criteria have been population and backwardness
  3. Fifteenth finance commission will be considering 2011 census instead of 1971 census used by previous finance commissions and this might lead to more finances being allocated to populous north Indian states

The question of delimitation

  1. India’s Constitution puts an upper limit of 550 elected members in the lower house of Parliament
  2. Until the early 1970s, it was the general practice to redraw constituencies based on the most recent population available, but the total number of members was constant
  3. The idea of redrawing was to have each member of Parliament (MP) represent roughly an equal number of voters, hence the redrawing of constituencies
  4. Parliament passed an amendment during the Emergency years in 1976, freezing all delimitation as per the 1971 census, up to the census of 2001
  5. In 2000, another amendment postponed the day of reckoning to 2026
  6. Thus, only after 2026 will we consider changing the number of seats in Parliament

Population Surge & its effect on Parliament seats

  1. In 1971, India’s population was 548 million, and by 2031, the first census after 2026, it may well be close to 1.4 billion
  2. Redrawing boundaries and distributing the existing 550 MPs might mean that the south will lose a lot of seats to the north
  3. Even if more members are added to the Lok Sabha, that incremental gain will mostly go to the northern states

Resolving 15th FC’s dilemma

  1. The weightage given to population can be reduced to 10% or even 5%
  2. The focus could be on other parameters like per capita income and intrastate inequality
  3. Newer aspects like direct devolution to the lowest tiers of government, or giving credit for an increase in forest cover and improvement in health indicators can be adopted

Way forward

  1. We may desire “equality” of constituencies, but economic development and demographic patterns do not develop uniformly across the country
  2. Just as the nation took more than 12 years to come to a consensus on “one nation one tax” (i.e. the roll-out of the goods and services tax), a national consensus exercise should be started to sort out issues much before 2026
Mar, 30, 2018

Why South India states are objecting to Finance Commission’s mandate

Note4students

Mains Paper 2: Polity | Functions & responsibilities of the Union & the States, issues & challenges pertaining to the federal structure

From UPSC perspective, the following things are important:

Prelims level: 15th Finance Commission

Mains level: Issues related to the distribution of resources between states


News

Opposing 15th Finance Commission

  1. A political storm is brewing in South India over the determination of how India distributes its pooled tax revenues among its many states
  2. Several chief ministers and opposition leaders of southern states have expressed vehement opposition to one particular mandate of the present Fifteenth Finance Commission: to use 2011 census population figures instead of 1971 for the purpose of tax devolution

Why such opposition

  1. The Indian union made a compact with all its states in the mid-1970s to freeze federal allocations based on population size at 1971
  2. This was done to ensure states which had managed to tackle their population growth were not penalized by way of lower allocations
  3. The growth rate in population dropped uniformly across all states, but the fall in South India was rapid, creating a distinct divergence between the number of people in the North versus the South
  4. Since the present finance commission has the mandate to use newer population figures, which brings both economic and demographic divisions into the picture, the fear among southern states is that the degree of redistribution would increase

Back2Basics

Fifteenth Finance Commission

  1. The Fifteenth Finance Commission of India is a finance commission constituted in November 2017
  2. The commission was set up to give recommendations for five fiscal years commencing on 1 April 2020
  3. The main tasks of the commission were to “strengthen cooperative federalism, improve the quality of public spending and help protect fiscal stability”
  4. Finance Commission is established by the President of India under Article 280 of the Indian Constitution
  5. The Finance Commission (Miscellaneous Provisions) Act, 1951 additionally defines the terms of qualification, appointment, and disqualification, the term, eligibility and powers of the finance commission
  6. As per the Constitution, the Commission is appointed every five years and consists of a chairman and four other members
Mar, 19, 2018

[op-ed snap] Re-imagining federalism to fulfil India’s potential

Note4students

Mains Paper 2: Polity | Functions & responsibilities of the Union & the States, issues & challenges pertaining to the federal structure

From UPSC perspective, the following things are important:

Prelims level: Seventh Schedule, Finance Commission, Election Commission, Supreme Court, Article 356, Planning Commission, S.R. Bommai case, Article 311, Part IX of the Constitution

Mains level: Issues related to federal structure


Context

Union-state relationship in recent years

  1. The Union-state relationship has become one of the core issues ahead of the next general election
  2. This climate gives us an opportunity to examine our federalism beyond partisan politics.
  3. We are approaching the third phase of federalism since the founding of our republic

First phase of federalism

  1. The traumatic events surrounding the partition of India and fears of balkanization made our founding fathers opt for a highly centralized Union
  2. States were given a well-defined legislative and executive jurisdiction in the Seventh Schedule of the Constitution
  3. Institutions like the Finance Commission, Election Commission, and Supreme Court were created to ensure some degree of fairness in dealing with the states
  4. But, Article 356, the all-India services, Planning Commission, the introduction of licence-permit-quota-raj—all these eroded the states’ powers significantly

Second phase of federalism

  1. The S.R. Bommai case verdict (1994) made abuse of Article 356 largely a thing of the past
  2. Successive Finance Commission reports on resource transfer, end of license raj, the decline of discretionary public sector investments, the rise of regional parties and abolition of Planning Commission—helped create a more balanced federal India
  3. Indian federalism has matured quite a bit, and the states have far greater control of their economic and political management than in the earlier phase

Structural problems persist

  1. A rigid, uniform political model imposed on all states and local governments disregarding local needs
  2. A dysfunctional bureaucracy protected by Article 311
  3. The generalist, all-purpose all-India services that do not bring specialized skills required to manage various services
  4. Poorly drafted Part IX of the Constitution that created over-structured, under-powered local governments
  5. Needless rigidity in Union legislation on subjects like education with resultant failure to improve outcomes despite vast expenditure

What has this led India to?

  1. Out of the 49 relatively large nations with gross domestic product (GDP) exceeding $200 billion, India ranks at near bottom on most indicators of basic amenities, infrastructure, education

Global structure of federalism

  1. In no other democracy does the federal constitution impose a uniform structure, electoral system, and bureaucratic apparatus on states and local governments
  2. Even in small unitary Britain, Scotland, Wales, Northern Ireland and London city have their own electoral systems different from the Westminster model
  3. In the US, each of the 50 states have their own constitutions and structure of government
  4. In Australia too, each of the six states and two self-governing territories have their own constitutions
  5. In Germany, every Land (State) has its own constitution with the power and flexibility to design its own governance structure
  6. In Canada, the 10 provinces have the right to decide on the electoral system, form of government and local governance structure

Need for third phase of federalism

  1. The time has come for India to move to the third phase of federalism
  2. Many of our states are larger than 90% of nations on earth
  3. We need to allow each state to have its own model of governance, bureaucracy and local governments
  4. This has to be done with firm safeguards to preserve national unity, separation of powers, fundamental rights and democratic accountability

Way forward

  1. We need more flexible federalism, strengthening India’s unity and integrity, and allowing us to fulfill our potential
Mar, 08, 2018

Special status category no longer exists, says Arun Jaitley

Note4students

Mains Paper 2: Polity | Functions & responsibilities of the Union & the States, issues & challenges pertaining to the federal structure

From UPSC perspective, the following things are important:

Prelims level: 14th Finance Commission, Special category status, Centrally sponsored scheme

Mains level: Debate over special category status to certain states


News

No special category status to Andhra Pradesh

  1. Citing the 14th Finance Commission, the Finance Minister said the category of “special status” no longer exists
  2. Therefore, Andhra Pradesh can no longer be put in that category

Special category status

  1. The special status used to be originally granted to States in the northeast because their own revenue was inadequate
  2. In the case of any Centrally sponsored programme or scheme, the Centre pays 60% of the amount and the State pays 40%
  3. The States enjoying ‘special status’ only have to pay 10% of this contribution
Mar, 06, 2018

Centre considers IAP-like initiative in backward districts

Note4students

Mains Paper 2: Governance | Government policies & interventions for development in various sectors & issues arising out of their design & implementation

From UPSC perspective, the following things are important:

Prelims level: Integrated Action Plan (IAP)

Mains level: Backward area development


News

Transforming backward districts

  1. The Centre is mulling an initiative similar to the Integrated Action Plan (IAP) for the transformation of 115 districts from “backward” to “aspirational”
  2. IAP is being used in Left Wing Extremist (LWE) districts

Why this program?

  1. The Union government has embarked on a policy initiative for rapid transformation of 115 districts lagging in development parameters like nutrition, education, basic infrastructure, agriculture, water resources, financial inclusion and skill development
  2. Thirty-five worst-affected LWE districts are among these districts
  3. For each of these 115 districts, a senior-level official of the rank of additional secretary or joint secretary has been nominated Prabhari Officer

About IAP

  1. IAP was launched in 2010 for LWE districts
  2. Under this, additional central assistance with the focus on the creation of public infrastructure and services is granted to districts
Feb, 08, 2018

Karnataka panel proposes 3-colour official state flag

Image source

Note4students

Mains Paper 1: Social issues | Regionalism

From UPSC perspective, the following things are important:

Prelims level: Provisions related to state flag

Mains level: Regionalism being promoted in various forms across India


News

State flag for Karnataka

  1. A committee constituted last June by the Karnataka government to examine the feasibility of having a separate flag for the state has submitted its report
  2. It has recommended an official three-coloured flag to replace an unofficial two-coloured one currently used to signify local pride
  3. The committee has recommended a flag with the yellow and red of the unofficial flag to be separated by white in the middle with the state symbol on it

Clearance of MHA required

  1. The proposal needs to be forwarded to the Union Ministry of Home Affairs (MHA) for clearance
  2. If adopted with clearance from the MHA, Karnataka will be the second state after Jammu and Kashmir to have an official state flag
  3. Karnataka has had an unofficial state flag since the mid-1960s, used to signify local pride
Sep, 19, 2016

NITI Aayog ruled out special status to Andhra Pradesh: Venkaiah

  1. Union Information and Broadcasting Minister: The Centre was almost prepared to grant the Special Category Status (SCS) to Andhra Pradesh
  2. However, two factors dissuaded it from going ahead:
  • Clamour from nine more States for the same tag had AP been given the status
  • NITI Aayog ruling out the possibility citing the 14th Finance Commission report that had made it clear that it would not make any distinction between special and general category States

Discuss: Given that economic benefits under the Special Category status are minimal and have been diluted over the years, States would be better off seeking a special package. Analyse

Aug, 27, 2015

[Discuss] Hollow promise of 'special status'

Demand for Special Category Status is being used to pursue political goals instead of furthering the development goals. Discuss. 

Hindu Op-ed


More Open Questions – 

  1. Whether the 10 states like JK, HP, UK and Seven Sister states special or special category?
  2. Whether it is decided by Gadgil formula or Gadgil-Mukherjee formula?
  3. What exactly are the advantages of special status?
  4. Nitish Kumar is vying for special category status, right? 5. What will be the perks now as the central allocation reduces amount for special (or Special category) states?

 

The discussion will be summarised and updated the next day.
Aug, 27, 2015

Nothing special about Special Category States any longer


 

Bihar Chief Minister Nitish Kumar has been demanding Special Category Status (SCS) for his state for at least three years now.

But with the recommendations of the Fourteenth Finance Commission having been accepted, the SCS has been reduced, at best, to a political rallying point — not just for Bihar, but also for Odisha and Jharkhand.

 

Why? The NITI Aayog, which has replaced the Planning Commission, has no power to allocate funds.

In Budget 2015-16, states received a significantly higher share of central taxes — 42 per cent, or 10 percentage points more than before.

Aug, 27, 2015

Special Status vs. Special Category Status - What's the difference?

  1. Special Status is guaranteed by the Constitution of India through an Act passed by the two-third majority in both houses of the Parliament (example – J&K)
  2. Special Category Status is granted by the National Development Council, an administrative body of the government.

 

While Special Status empowers legislative and political rights, Special Category Status deals only with economic, administrative and financial aspects.

Aug, 01, 2015

Centre ruled out Special Category Status (SCS) for Bihar

Why?

  1. Reason given is that the 14th Fin Commission had not made any difference between general states and SCS for the horizontal distribution among them.
  2. However, special assistance on lines of what was provided to Andhra Pradesh post bifurcation has already been allotted to Bihar and West Bengal in this year’s budget.
May, 18, 2015

Ordinance route not possible for granting special category to AP

Special category status is usually based on the recommendations of the National Development Council (NDC).

What are the parameters?

  1. Low resource base, hilly & difficult terrain
  2. Low population density or sizeable share of tribal population
  3. Backwardness, border states/ sharing the international border
  4. Economic & infrastructural backwardness
  5. Non-viable nature of state finances
Feb, 28, 2014

‘Special Category Status’ is the new catch phrase

  1. Till a few days ago, words such as ‘Samaikyandhra’ and ‘integrationist’ were the buzzwords in Andhra Pradesh politics.
  2. But, now ‘Special Category Status’ appears to be the catch phrase.

Is this the new carrot that is being dangled by the Congress for the people of both the regions? Former Rajya Sabha Member Yelamanchili Sivaji feels so.

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