Special Packages

Posted 22 Aug 2024

Updated 29 Aug 2024

3 min read

Why in the news?

Recently, the Chief Ministers of Bihar and Andhra Pradesh had demanded special financial packages for their respective States.

Special Packages for both states Bihar and Andhra Pradesh were announced in Union Budget 2024-25.
Announcements made:
- Irrigation and Flood Mitigation: Financial support of Rs. 11,500 crore to projects such as the Kosi-Mechi intra-state link and other schemes in Bihar.
- Purvodaya: Vikas bhi Virasat bhi: Plan for endowment rich states in the Eastern parts covering Bihar, Jharkhand, West Bengal, Odisha and Andhra Pradesh for generation of economic opportunities to attain Viksit Bharat.
- Update on Andhra Pradesh Reorganization Act 2014:
  - Financial support of ₹15,000 crores will be arranged in FY 24- 25.
  - Completion of Polavaram Irrigation Project ensuring food security of the nation.
  - Essential infrastructure such as water, power, railways and roads in Kopparthy node on the Vishakhapatnam-Chennai Industrial Corridor and Orvakal node on Hyderabad-Bengaluru Industrial Corridor.

Special Packages refers to support provided to states facing geographical and socio-economic challenges, offering them additional financial assistance and other benefits.
Constitution has provisions that address the issues of specific States, or States that have a special status with regard to certain matters mentioned in the Constitution.
- For instance, in Articles 371A to H.
On the contrary, special packages are purely discretionary. They may be need-based, but the need is not the proximate reason for granting a special package.
- It is an additional grant under Article 282, which falls under ‘Miscellaneous Financial Provisions’.
- Article 282 (Discretionary Grants): Empowers both Centre and states to make any grants for any public purpose, even if it is not within their respective legislative competence.

Fiscal prudence: Providing special packages would potentially increase fiscal burden on the Centre and also on other States.
Governance issues: Effective utilization of special packages depends on state’s administrative capacity. However, poor governance can lead to mismanagement, under-utilization and leakages of funds, undermining the utility of granting additional resources.
Dependency: Short-term gains from special packages may discourage structural reforms to ensure long-term self-reliant growth, and may lead states to become dependent on central assistance.
Federal issues: Unequal or politically motivated distribution of special packages can strain relationship between central and state governments.
Social Unrest: Perception of uneven or unfair distribution of benefits might lead to social unrest and dissatisfaction among the different communities in the state.
Further, states not receiving special packages might feel neglected leading to inter-state and centre-state conflicts.

Framework: Develop clear, objective framework for allocation of special packages based on measurable criteria like poverty levels, infrastructure deficits, disaster impact etc. and to reduce influence of political lobbying.
Customized development plans: Create customized initiatives to meet each state's specific needs, focusing on areas like infrastructure and employment.
Public-Private Partnerships: Engaging private sector to mobilise additional funding, expertise and to reduce fiscal burden on centre.
Monitoring: Implement strict monitoring and evaluation mechanisms, enhance state’s administrative efficacy to plug leakages, address misuse of funds and ensure efficient utilisation of state’s revenue and central grants.
Decentralization: By providing greater fiscal autonomy, decision-making authority, and prioritizing spending as per local needs, it can reduce demand for special packages.
- E.g. 14th Finance Commission recommended that Centre should intervene in schemes where there are large externalities or national priorities involved.