Special status to Bihar, Andhra Pradesh unaffordable?

Nitish Kumar and N Chandrababu Naidu are known for or infamous for moving in and out of alliances. On their part, they say they do it for their states. An alliance that promises a special status for Bihar will get Nitish Kumar’s support and one that offers the same to Andhra Pradesh will get Chandrababu Naidu.

The people of these two states may be impressed! They might think how considerate their chief ministers are about their regions. But what about the people from the rest of the country? Do you think this so-called special status is a joke? Do you know how much it costs the country?

Additional costs incurred on states with special status

To estimate the cost of granting special status to Andhra Pradesh and Bihar, we need to consider several factors:
•    increased central assistance for centrally sponsored schemes
•    tax concessions, and
•    additional grants

First, let’s consider the higher central assistance for centrally sponsored schemes. The current funding pattern in the central-state distribution is 60:40.

Under the special status, the union government will have to pay 90% of anything that goes to Andhra Pradesh or Bihar and these states will pay only 10% of the cost.

The current allocation for centrally sponsored schemes is ₹50,000 crore annually (per state).

The increased burden on the central government will be 30% more (which is the difference between 90% and 60%). The increase in cost per state will be 30% of ₹50,000 crore, which is  ₹15,000 crore. The total cost for the two states will be double of ₹15,000 crore, which is ₹30,000 crore.

Second, let’s consider tax concessions. The estimated cost range is ₹5,000 crore to ₹10,000 crore annually (per state). Thus, the total cost for the two states will be (₹5,000 to ₹10,000 crore)  ×  2 = ₹10,000 to ₹20,000 crore.

Third, the additional grants. The estimated cost will be ₹5,000 crore annually (per state)

The total cost incurred on the two states will be double of ₹5,000 crore that is ₹10,000 crore. The total estimated annual cost is the sum of ₹30,000 crore worth of central assistance, ₹10,000 to ₹20,000 crore worth of tax concessions and ₹10,000 crore as Additional Grants. The total comes to ₹50,000 to ₹60,000 crore annually.

Converting to US dollars, the total comes to a staggering $6.02 billion to $7.23 billion annually.

To conclude, granting special status to Andhra Pradesh and Bihar could cost the Indian national exchequer approximately ₹50,000 to ₹60,000 crore annually, equivalent to around $6.02 billion to USD 7.23 billion annually. Should India outside Bihar and Andhra Pradesh agree to pay this price to keep the BJP in power?

A calculation of the three basic additional costs incurred on a special state makes granting the status to Bihar and Andhra Pradesh unviable, but political exigency may make Prime Minister Narendra Modi grant the wish of Kumar and Naidu.