AP Special Status

Manmohan Singh, in the capacity of as prime minister, gave an assurance in Rajya Sabha that Andhra Pradesh will get Special Category Status (SCS) for 5 years. Narendra Modi and his party supported it before elections. In fact they told, AP will be granted SCS for more than 5 years. But now they keep mum. In a year or so the central government wants to go for elections again. But they are not willing to grant SCS. While they cite “Technical reasons” for depriving status, some analysts and pseudo-economists are campaigning that granting SCS to AP is not good for Indian economy.

Their point is – if SCS is given, it may help AP because of tax incentives, but ultimately the country on the whole will lose some revenue and it may impact India’s fiscal condition. So, even if you are proponent of AP’s development, as a citizen of India, one should oppose special status to AP. If India develops, all states will develop and consequently AP will also develop. This is the argument put forth by them.
However, this is a misconception. Let us take an example. Suppose a state government has an excise (liquor) policy through which it receives huge revenues. It may seem that the State is ‘earning’. But in the long run the State has to invest heavily in healthcare as the liquor policy ruins the health of people. Also, it leads to reduced GSDP (state GDP) because people with ill-health produce less. So it is exactly the opposite for SCS. Giving tax incentives to a state may reduce country’s overall revenue in short term, but in long term it enhances employment and GSDP. It in fact improves India’s GDP and fiscal condition of the country in long run.

NOW, one may question, in that case why can’t India give tax relief to all states as, after all, it helps improve GDP. But it is not the case. There is something called Law of diminishing marginal utility (LDMU) in economics. If you give an apple to hungry person, he may get 100% satisfaction; if you give the same to person who is not very hungry, he may get 50% or even less satisfaction and if u give the same to the person who is full, the satisfaction will be in NEGATIVE percentage. Same way, giving tax relief to the states that already have fully developed infrastructure will lead to negative results as the impetus received because of SCS will be comparatively less than revenues lost because of tax incentives. On the other hand, Infra-starved North East states are like a hungry person and so granting SCS will yeild 100% positive results. Nonetheless, semi-hungry state like AP will definitely get benefited with SCS (at least 50%, as per LDMU analogy).

So it’s high time our politicians CONVINCE the Government of India and other national parties logically to get the status to AP. But the question is, does any political party has such rational and guts!!!