Special Category Status

• 21 Feb 2023

Prelims: Special category States, Gadgil formula

Mains: Benefits and issues associated with Special category status.

Why in News?

Recently, Union Finance Minister made it clear that the Centre will not consider demands for “special category status” for any state as the 14^th Finance commission has clearly said no special status can be given.

• This comes as a blow to states like Odisha, Bihar, Andhra Pradesh which have been pushing for it for some years now.

What is Special Category Status (SCS)?

• About:
  • SCS is a classification given by the Centre to assist development of states that face geographical and socio-economic disadvantages.
  • Constitution does not make a provision for SCS and this classification was later done on the recommendations of the Fifth 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.
  • The 14^th Finance Commission has done away with the 'special category status' for states, except for the Northeastern and three hill states.
    • It suggested to fill the resource gap of such states through tax devolution by increasing it to 42% from 32%.
  • 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    • For instance, J&K used to have Special status before Article 370 was repealed.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.

What are the Benefits 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 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.

What are the Concerns regarding Special Category Status?

• It causes Increased burden on Central Finances.
• Also, giving special status to a state leads to demands from other states too. For instance, demands from Andhra Pradesh, Odisha and Bihar.

Conclusion

• As suggested by 14^th Finance commission, tax devolution to states has been increased to 42% and the same has been continued by 15^th FC (41%) too to fill the resource gap without extending SCS.

Source:TH