Reports that the North-eastern states would no longer enjoy special-category status got the chief ministers very worried. Special-category states get preferential treatment in central assistance and tax sops. When the Gadgil formula for sharing central Plan assistance among states was devised in 1969 there were only three states on the list. Today, besides the eight states of North East India there is also Uttarakhand, Jammu and Kashmir and Himachal Pradesh. Bihar, Haryana, Telengana besides others are now vying for this status on the argument that they too require a special fillip. Special-category states receive a higher share of the Union Government’s resource allocation because of the harsh terrain, backwardness and other social problems. All of them also happen to be Border States. North East India shares 96% of its borders with foreign countries and only 4% with India.
Special-category states get significant excise duty concessions so they can attract industries to locate manufacturing units within their territory. This has been a sore point with neighbouring general-category states. Also, 30% of the Centre’s gross budgetary support for Plan expenditure goes to special-category states. Earlier, 70% of the Plan assistance given to the states was in the form of loans and the balance 30% as grants. In the case of special-category states, 90% of Plan assistance was given as grants, and only 10% as loans. The 12th Finance Commission recommended that the Centre give only grants, and leave it to the states to raise loans as they wanted. Since then, the 90% grants: 10% loans formula for special-category states is restricted to centrally-sponsored schemes and external aid. For general category states, external aid is passed on in the exact mixture of loan and grants in which it is received at the Centre. And for them, in the case of centrally-sponsored schemes, only 70% of the central funding is given as grant.
Understandably the North Eastern states require special concessions by virtue of the topographical disadvantages. Connectivity within the region and with the rest of the country is still very poor. Meghalaya does not have a full-fledged, functioning airport and depends on Guwahati for air and rail travel. The railway line from Guwahati- Dudhnoi- Mendipathar was only recently started. Khasi-Jaintia Hills are still not connected by railways. Without a special funding formula, the states would not be able meet their financial requirements. Also most of the states of the North East were created for political expediency and were not financially viable. The Union Government was expected to meet the revenue deficit of the states. The Modi Government seems to think differently. First by abolishing the Planning Commission, the NDA has thrown the states out of their comfort zones. Earlier state governments would present their Plan budgets before the Commission and if their presentations were convincing they usually came back with a package deal. Now, with Niti Ayog the Union Government would be using respective Union Ministries to fund schemes that are considered imperative. This change-over is likely to hurt states that have been profligate and unable to generate internal revenue. But perhaps this is the Modi Government’s way of holding the states to account!