The classification of states as general and special states was recommended by 5th Finance Commission in 1969 (Gadgil-Mukheerjee Formula).
It was based on five considerations:
- Hilly and Difficult terrain
- Low population density and/or sizeable share of tribal population
- Strategic location along borders with neighboring countries
- Economic and infrastructural backwardness
- Non-viable state finance
After 14th Finance Commission recommendations, the Special state grants are subsumed under the normal tax devolution proceeds and grants itself. Hence the Special Status tag has been done away with.
The special assistance package has several benefits over granting special category status to AP because:
- After 14th FC recommendations, the grants for Special states under Gadgil-mukherjee formula is subsumed under devolution of tax proceeds and grants.
- Further it makes no difference between planned and non-planned expenditure. Special package plus the transfers recommended by 14th FC will be much more beneficial than having Special category status.
- It will boost infrastructure: Though special category status comes with income tax and excise duty exemptions on investments, package is generous on building the capital city, polavaram project, several new educational institutions, major port in Dugarajapatanam, units of SAIL and IOC etc.
Andhra Pradesh is not an exact fit to the criteria required for Special category status and fulfillment of such a demand would have opened a pandora box where poor states like Bihar and Odisha start demanding the same status. The need of the hour is giving a good, transparent and accountable governance to the people of newly created state.