 "w'sho do Andhra Pradesh and Bihar deserve special economic packages?")
Prime Minister Narendra Modi-led NDA 3.0 government has its task cut out ahead of the Union Budget presentation next month. Andhra Pradesh and Bihar are demanding economic compensation for their political support of the Modi government despite being bifurcated 10 and 24 years ago, respectively.
Andhra Pradesh's demand stems from the fact that the state has been denied the special category status despite a promise by former Prime Minister Manmohan Singh when it was divided in 2014. Bihar is also pressing for this status, citing findings from last year’s caste-based survey. Bihar also had previously demanded this status in 2000 when mineral-rich Jharkhand was carved out.
Telangana, bifurcated from Andhra Pradesh, was granted special category status in 2014. However, the 14th Finance Commission, whose recommendations were implemented the following year, suggested phasing out this status except for northeastern and three hilly states: Uttarakhand, Himachal Pradesh, and Jammu and Kashmir.
States with this tag received 90 per cent of funds from the Union Government for centrally-sponsored schemes, compared to up to 75 per cent for other states, along with other fiscal benefits. Additionally, unspent funds did not lapse at the end of the fiscal year.
Finance Ministry sources have stated that this categorisation no longer exists, so special category status is unlikely for Bihar and Andhra Pradesh, though a special economic package may be announced.
The Andhra Pradesh Reorganisation Act, 2014, stipulated that Andhra Pradesh and Telangana would share Hyderabad as their capital for ten years. After this period, Hyderabad shall be the capital of Telangana only.
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The Act also provides for special financial support to develop essential facilities in Andhra Pradesh's new capital including the Raj Bhawan, high court, government secretariat, legislative assembly, legislative council and other essential infrastructure.
Moreover, it offers fiscal measures, including tax incentives, to promote industrialisation and economic growth. Support for backward areas, including physical and social infrastructure, is also included.
But do the economic conditions of these states justify demanding a special economic package? How do other states compare on similar parameters?
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Let's take four parameters: per capita income, debt-to-GSDP ratio, unemployment rate, and multidimensional poverty rate.
The economic case of Bihar
Bihar's Nitish Kumar Cabinet passed a resolution seeking special category status after last year's caste-based survey revealed that about 9.4 million families in Bihar, constituting 34.1 per cent of the total, live in poverty, earning less than Rs 6,000 a month.
The Niti Aayog's multidimensional poverty report showed that 33.76 per cent of Bihar's population was multidimensionally poor during 2019-21, though a decrease from 51.89 per cent in 2015-16. The national multidimensional poverty rate was 14.96 per cent and 24.85 per cent for these years, respectively.
Bihar also has the lowest per capita income in the country. During 2022-23, its per capita income was Rs 54,111, just 32 per cent of the national average of Rs 169,496. It resorts to huge borrowings to fund its expenditure with Bihar's sovereign debt constituting 39 per cent of its economy in 2022-23, the second highest in the country.
The unemployment rate in Bihar has been consistently higher than the national average, although the gap has slightly narrowed in recent years. According to the Periodic Labour Force Survey (PLFS), Bihar had a 3.9 per cent unemployment rate compared to the national average of 3.2 per cent in 2022-23. The state had a 7 per cent unemployment rate against the national average of six per cent during 2017-18 when PLFS started.
Bihar is the only state with lower per capita income and higher multidimensional poverty and unemployment rates than the national average, as well as significant fiscal stress, as indicated by its debt-to-GSDP ratio.
Andhra Pradesh’s poverty rate
In contrast, Andhra Pradesh has a higher per capita income than the national average and a lower proportion of people in multidimensional poverty. Its projected per capita income for 2023-24 was Rs 242,479, about 32 per cent higher than the national average of Rs 184,205. Only 6.06 per cent of its population was in multidimensional poverty during 2019-21.
However, the state's sovereign debt has been over 30 per cent for the last five years until 2023-24, and its unemployment rate (4.1 per cent in 2023-24) has been higher than the national average, even Bihar.
Can other states make the case for special packages?
Jharkhand, carved out of Bihar, also has a lower per capita income than the national average. In 2022-23, its per capita income was Rs 91,870, 54 per cent of the national average. Jharkhand's debt has been over 30 per cent of its economy for the last five years until 2023-24, and 28.81 per cent of its population was in multidimensional poverty during 2019-21, nearly double the national average. However, its unemployment rate has been lower than the national average in recent years.
Telangana, carved out of Andhra Pradesh, fares well on all these parameters.
Uttar Pradesh (UP) and Madhya Pradesh (MP), the two other states divided in 2000, have lower per capita incomes than the national average. UP's projected per capita income for 2023-24 was Rs 93,514, half of the national average. MP's projected per capita income was Rs 142,565, constituting only 77 per cent of the national average.
UP's debt has been around 30 per cent or more of its GSDP for the last ten years. MP's debt is slightly lower but still significant.
Both UP and MP have higher percentages of people in multidimensional poverty than the national average. For 2019-21, UP's rate was 22.93 per cent, and MP's was 20.63 per cent. However, their unemployment rates have not been as high as the national average.
Of the states carved out of MP and UP, Chhattisgarh has a lower per capita income than the national average, while Uttarakhand's is significantly higher. In 2023-24, While Chhattisgarh's projected per capita income was Rs 147,361, around 80 per cent of the national average, Uttarakhand's was Rs 260,201, which was 41 per cent higher than the national average.
However, Uttarakhand has a higher unemployment rate than the national average, while Chhattisgarh has a higher proportion of its population in multidimensional poverty. Neither state has significant fiscal stress.
Among states not divided since 2000, seven have lower per capita incomes than the national average: Assam, Meghalaya, Manipur, Nagaland, Odisha, Rajasthan, and West Bengal. West Bengal also has a high debt-to-GDP ratio, and Odisha has a higher proportion of people in multidimensional poverty. Rajasthan faces challenges in both these areas.
In the northeast, Meghalaya and Assam have higher proportions of people in multidimensional poverty, while Manipur has a higher unemployment rate. Nagaland struggles with both higher multidimensional poverty and unemployment rates than the national average.