The Bihar government has recently made headlines by stating that it still demands the special category status (SCS) for the state. The centre bestows this classification to aid the development of states facing geographical and socio-economic disadvantages.
Understanding Special Category Status (SCS)
Special category status is a designation granted by the central government to stimulate the growth of states living through geographical and socioeconomic challenges. The concept emanated from the recommendations of the Fifth Finance Commission in 1969. Its basis was the Gadgil formula, providing guidelines for the distribution of central assistance among states.
These parameters rendering states eligible for SCS include hilly and challenging terrains; low population density or a significant tribal population; strategic location along borders with neighbouring countries; economic and infrastructure backwardness; and non-viability of state finances.
The Inception of Special Category Status
In 1969, Jammu and Kashmir, Assam, and Nagaland were the first recipients of the SCS. Over time, eight more states – Arunachal Pradesh, Himachal Pradesh, Manipur, Meghalaya, Mizoram, Sikkim, Tripura, and Uttarakhand – have been included. However, it’s worth noting that there’s no constitutional provision for SCS.
Previously, Special Category Status for plan assistance was granted by the National Development Council to states with distinctive characteristics justifying special consideration. Presently, the central government assumes this responsibility.
Changes in the Delivery of Special Category Status
The 14th Finance Commission introduced significant modifications to the SCS in states. It ceased the SCS for states, barring the Northeastern and three hill states. Rather than continuing with SCS, it recommended fulfilling each state’s resource gap through ‘tax devolution’. The commission also proposed an increased share of tax revenues for states from 32% to 42%. This increased revenue share has been in force since 2015.
The Advantages of Special Category Status
States accorded with SCS receive several benefits, majorly in terms of financial assistance. The central government substantially funds the centrally-sponsored schemes in these states, contributing 90% of the required funds. This is a significant rise compared to the 60% or 75% funding provided to other states. The remaining funds are met by the respective state governments. Additionally, unspent money does not lapse and is instead carried forward.
The SCS states also enjoy substantial concessions in duties and taxes. These include excise and customs duties, income tax, and corporate tax, thereby creating a favorable economic environment for growth and development.
