STATUS OF SPECIAL CATEGORY- A CALL FOR RECOGNITION
The concept of Special Category Status (SCS) for Indian states originated from the 5th Finance Commission’s recommendations in 1969. The main aim of SCS is to support states facing geographic, social, or economic challenges, enabling them to improve their development and catch up with more advanced states. The authority to grant SCS rests solely with the National Development Council (NDC), as there are no specific constitutional provisions, laws, or executive orders governing this status.
Criteria for Granting Special Category Status
Typically, a state qualifies for the SCS if one or more of the following criteria are satisfied:
- Classical hilly and inhospitably rigid topography
- Too much volatile and underdeveloped state finances
- Inequitable economic development and lack of infrastructure in the region
- Sparsely populated or one characterized by tribal domination
- International borders on both sides of the state
Advantages of Special Category Status for States
States with SCS designation benefit from significant financial assistance from the central government. The centrally sponsored schemes are such that the state is expected to finance only 10% of the funds, while 90% is funded by the central government. Additionally, there is the benefit of carrying over un-utilized funds from one financial year to the next, ensuring that resources are not wasted. These states also receive 30% of the total budgeted expenditure of the central government in the relevant year, which is an additional financial boost.
States Having SCS Status
The 14th Finance Commission abolished the ‘special category status’ for the states, with the exception of some Northeastern and three hill states. According to the 14th Finance Commission, tax devolution to the states would need to increase to 42% from the current level of 32%. The states that hold SCS status are:
- Madhya Pradesh
- Nagaland
- Assam
- Telangana
- Arunachal Pradesh
- Himachal Pradesh
- Uttarakhand
- Tripura
- Mizoram
- Sikkim
- Meghalaya
Why is it News?
Bihar and Andhra Pradesh are two states that have recently been demanding this status again. Bihar is seeking SCS due to its economic backwardness, which is exacerbated by a low per-capita GDP and high poverty rates. The state’s economic condition worsened after bifurcation, leading to the relocation of industries to Jharkhand and reducing employment opportunities.
Additionally, Bihar faces significant natural challenges, such as regular floods in the north and droughts in the south, affecting agriculture and livelihoods. The state also lacks natural resources and consistent water supplies for irrigation, further hindering development. To address these issues, Bihar’s Chief Minister emphasized the need for SCS to secure around Rs. 2.5 lakh crore in welfare schemes over the next five years.
Andhra Pradesh is pursuing SCS due to economic distress after bifurcation, which created a separate Telangana under the Reorganisation of Andhra Pradesh Act 2014. The state lost significant revenue and its developed capital, Hyderabad, resulting in financial strain. Andhra Pradesh’s total liabilities increased from Rs. 97,000 Crores to Rs. 2,58,928 Crore during the fiscal year 2018-2019.
Fiscal complications, including post-devolutionary revenue shortfalls between 2015 and 2020, amounted to Rs. 66,362 Crores—exceeding the 14th Finance Committee’s projections by Rs. 22,113 Crores. Additionally, the state argues that it inherited 59% of the population and liabilities, but only 47% of the revenues, leading to an inequitable distribution of resources.
WHAT DOES THE 14TH FINANCE COMMISSION HAVE TO SAY ABOUT THE SPECIAL STATUS?
Reasons for the 14th Finance Commission’s Rejection of Special Category Status
- Financial Strain on Central Government: Offering additional financial support, tax incentives, and other privileges to states with SCS places a heavy burden on the central government’s finances, raising concerns about long-term budget sustainability.
- Unequal Allocation of National Resources: Providing SCS to certain states, while excluding others, can create disparities between states by causing imbalanced distribution of national resources.
- Increased Reliance and Decreased Self-Reliance: States with SCS may become overly dependent on federal support, diminishing their motivation to generate independent revenue and build sustainable economies.
- Extended Duration Beyond Intended Period: Some states continue to enjoy the benefits of SCS long after its intended temporary period, reflecting a failure to conduct regular reviews of the need for further assistance.
- Absence of a Constitutional or Legal Framework: SCS is not based on any constitutional or legal provisions. It is given through administrative decisions by bodies such as the National Planning Council or the central government, making the status subject to policy changes and inconsistencies.
Disclaimer: This blog is for informational purposes only and does not constitute any legal advice. Readers should seek expert legal counsel before taking any action based on the content.