The discourse around the “Special Category Status (SCS)” in India has gained momentum again. Recently, the Union Finance Minister announced that no state will be granted a “special category status”, adhering to the ruling of the 14th Finance Commission. This announcement struck a blow to states such as Odisha, Bihar, and Andhra Pradesh, which have been lobbying for this status for a number of years.
Understanding Special Category Status
The SCS is a classification bestowed by the Central government to encourage the development of states that grapple with geographical and socio-economic hurdles. It’s crucial to note that our constitution does not have a provision for SCS and this classification was later introduced based on recommendations from the Fifth Finance Commission in 1969. The first states to be awarded this status in 1969 were Jammu and Kashmir, Assam, and Nagaland.
The National Development Council of the erstwhile Planning Commission approved the SCS for plan assistance in the past. Presently, eleven states including Assam, Nagaland, Himachal Pradesh, Manipur, Meghalaya, Sikkim, Tripura, Arunachal Pradesh, Mizoram, Uttarakhand, and Telangana have received the special category state status. The country’s newest state, Telangana, was presented with the status as it was formed out of another state, Andhra Pradesh.
The 14th Finance Commission’s Role
The 14th Finance Commission put a stop to the ‘special category status’ for states, excluding the Northeastern and three hill states. It recommended covering the resource gap of such states through tax devolution by raising it to 42% from 32%. The SCS differs from Special status, which grants enriched legislative and political rights, while SCS pertains solely to economic and financial aspects. For instance, prior to the repeal of Article 370, J&K held Special status.
Parameters for Special Category Status
The Gadgil Formula forms the basis for determining the eligibility for SCS. It focuses on factors such as hilly terrain, low population density or substantial share of tribal population, strategic location along borders with neighbouring countries, economic and infrastructure backwardness, and non-viable nature of state finances.
Benefits of Special Category Status
The Centre provides 90% of the funds required in a centrally-sponsored scheme to special category status states, compared to 60% or 75% given to other states. The remaining funds are contributed by the state governments. If there is any unspent money in a fiscal year, it does not go to waste but gets carried forward. The central government also offers substantial concessions to these states on excise and customs duties, income tax and corporate tax. Furthermore, 30% of the Gross Budget of the Centre is allocated to Special Category states.
Concerns about Special Category Status
While there are several benefits of the SCS, there are also concerns related to it. The primary concern is the additional burden it places on Central Finances. Another major concern is that if special status is granted to one state, it leads to demands from other states too. For instance, demands have already been made by Andhra Pradesh, Odisha, and Bihar.
As per the recommendation of the 14th Finance commission, to fill the resource gap without extending SCS, tax devolution to states has been increased to 42%, a move that was continued by the 15th Finance Commission, albeit at a slightly lower rate of 41%.