Special Category Status

In News

• Recently, the Union Finance made it clear that the Centre will not consider demands for “special category status” for any state, dealing a major blow to states like Odisha and Bihar who have been pushing for it for some years now.
  • The rationale for special status is that certain states, because of inherent features, have a low resource base and cannot mobilize resources for development.

Special Category Status (SCS)

• Special Category Status (SCS) is a classification given by the Centre to assist in the development of those states that face geographical and socio-economic disadvantages.
• This classification was done on the recommendations of the Fifth Finance Commission in 1969.
• It was granted based on the Gadgil formula. The parameters were: 
  • Hilly Terrain;
  • Low Population Density And/Or Sizeable Share of Tribal Population;
  • Strategic Location along Borders With Neighbouring Countries;
  • Economic and Infrastructure Backwardness; and
  • Non-viable Nature of State finances.
• It was initially granted to only three states: Jammu and Kashmir, Nagaland, and Assam.
• Special Category Status for plan assistance was granted in the past by the National Development Council to the States that are characterized by a number of features necessitating special consideration.
• 11 states namely, Arunachal Pradesh, Assam, Himachal Pradesh, Jammu & Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura and Uttarakhand were granted special category status.
• Following the recommendations of 14th Finance Commission, the Special Category States cease to exist and thus, no special category status has been granted to any State. 
• The 14th Finance Commission suggested to fill the resource gap of such states through tax devolution by increasing it to 42% from 32%.

Difference between Special Category Status and Special Status

• The constitution provides special status through an Act that has to be passed by 2/3rds majority in both the houses of Parliament whereas the special category status is granted by the National Development Council, which is an administrative body of the government.
  • For example, Jammu and Kashmir enjoyed a special status as per Article 370 and also special category status. But now that Article 35A has been scrapped and it has become a union territory with legislature, special category status doesn’t apply to J&K anymore.
  • However, a wide range of provisions are available to as many as 10 states that have been listed under Articles 371, 371-A to 371-H, and 371-J.
• Special status empowers legislative and political rights while special category status deals only with economic, administrative and financial aspects.

Significance of Special Category Status

• 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 does not lapse and is carried forward.
• Significant concessions are provided to these states in excise and customs duties, income tax and corporate tax.
• Preferential treatment in getting central funds.
• Concession on excise duty to attract industries to the state.
• 30 percent of the Centre’s gross budget also goes to special category states.
• These states can avail the benefit of debt-swapping and debt relief schemes.

Concerns

• The SCS puts additional economic burden when the increased devolution is already flowing to the State as recommended by the FFC.
• It affects the centre state financial relations and hinders competitive federalism among the states.

Conclusion

• Following the recommendations of 14th Finance Commission, the Special Category States cease to exist and thus, no special category status has been granted to any State. 
• It is time to revisit the criteria and include other states into this exclusive category by excluding those who do not need such assistance any longer.

Source: TH