Special Category Status

• SCS is a classification given by the Centre to assist development of states that face geographical and socio-economic disadvantages.
• The Constitution does not make a provision for SCS and this classification was later done on the recommendations of the 5th Finance Commission in 1969.
• Status was first accorded to Jammu and Kashmir, Assam and Nagaland in 1969.
• SCS for plan assistance was granted in the past by the National Development Council of the erstwhile Planning Commission.
• Eleven States including Assam, Nagaland, Himachal Pradesh, Manipur, Meghalaya, Sikkim, Tripura, Arunachal Pradesh, Mizoram, Uttarakhand and Telangana have been accorded the special category state status.
• Telangana, the newest State of India, was accorded the status as it was carved out of another state Andhra Pradesh.
• SCS is different from Special status which imparts enhanced legislative and political rights, while SCS deals with only economic and financial aspects.
• For instance, J&K used to have Special status before Article 370 was repealed.

Parameters (Based on Gadgil Formula):

• Hilly Terrain;
• Low Population Density and/or Sizeable Share of Tribal Population;
• Strategic Location along Borders with Neighbouring Countries;
• Economic and Infrastructure Backwardness; and
• Nonviable Nature of State finances.

Benefits

• In the past, SCS states used to receive approximately 30% of central assistance, determined by the Gadgil-Mukherjee formula.
• However, following the recommendations of the 14th and 15th Finance Commissions (FC) and the dissolution of the Planning Commission, this assistance to SCS States has been subsumed in an increased devolution of the divisible pool funds for all States (increased to 41% in the 15th FC from 32%).
• The Centre pays 90% of the funds required in a Centrally-Sponsored Scheme to special category status states as against 60% or 75% in case of other states, while the remaining funds are provided by the state governments.
• Unspent money in a financial year does not lapse and is carried forward.
• Significant concessions are provided to these states in excise and customs duties, income tax and corporate tax.
• 30% of the Centre’s Gross Budget goes to Special Category states.

Why is Bihar demanding the SCS?

• The poverty and backwardness of the State are argued to be because of the lack of natural resources, continuous supply of water for irrigation, regular floods in the northern region and severe droughts in the southern part of the State.
• Simultaneously, the bifurcation of the State led to the shifting of industries to Jharkhand and created a dearth of employment and investment opportunities.
• With a per-capita GDP of around ₹54,000, Bihar has consistently been one of the poorest States.

Why is Andhra Pradesh demanding the SCS?

• Andhra Pradesh, since its bifurcation in 2014, has asked for SCS on the basis of shrunken fiscal space and revenue loss due to its capital city Hyderabad going to Telangana.
• Former Prime Minister Singh had said that SCS would be “extended to the successor State of Andhra Pradesh ... for a period of five years”, and this oral statement has been the basis of the State’s claim for SCS.

Concerns Related to Special Category Status

• Resource Allocation: Granting SCS entails providing additional financial assistance to the state, which can strain the central government''s resources. Balancing the allocation of funds among various states becomes crucial, and granting SCS might lead to disparities or dissatisfaction among non-SCS states.
• Dependency on Central Assistance: States with SCS often become heavily reliant on central assistance. This could potentially discourage efforts toward self-sufficiency and independent economic growth strategies.
• Implementation Challenges: Even after the grant of SCS, there might be challenges in utilizing the funds effectively due to administrative inefficiencies, corruption, or lack of proper planning. Ensuring that the allocated funds are used for intended purposes is a significant challenge.

Road ahead

• There is a need to revisit and refine the criteria for granting SCS to ensure fairness and transparency. Clearly define the parameters for eligibility based on socio-economic indicators, infrastructure development, and other relevant factors.
• There is a need to encourage states to create comprehensive development plans that focus on sustainable growth, job creation, infrastructure development, and human capital enhancement. SCS should be a part of a broader strategy for holistic development.
• Implement policies that gradually reduce states'' dependency on central assistance by promoting self-sufficiency and economic diversification. Encourage states to generate their revenue streams.