Syllabus
GS Paper 2 – Functions and Responsibilities of the Union and the States, Issues and Challenges Pertaining to the Federal Structure, Devolution of Powers and Finances up to Local Levels and Challenges Therein.
Context:
Bihar cabinet passed the resolution seeking Special Category Status (SCS) to the State by the Union Government.Apart from Bihar, Odisha and Andhra Pradesh are also demanding SCS.
Introduction
Although the Constitution does not have any provision designating states with a Special Category Status (SCS), certain regions in India, historically disadvantaged compared to others, have received financial assistance from the Central government. This support was allocated through the National Development Council (NDC), a former Planning Commission body.
What is Special Category Status?
- It is a classification given by the Centre to assist in the development of those states that face certain geographical and socio-economic disadvantages.
- The SCS was introduced in 1969 on the recommendations of the Fifth Finance Commission to benefit certain disadvantaged states with preferential treatment.
- The grants for SCS were based on the Gadgil formula.
- The criteria outlined in the Gadgil Formula include:
- Hilly terrain
- Low population density
- A sizeable share of tribal population
- Strategic location along borders
- Economic and infrastructure backwardness
- Nonviable nature of state finances
- Presently, 11 states have SCS – Assam, Nagaland, Himachal Pradesh, Manipur, Meghalaya, Sikkim, Tripura, Arunachal Pradesh, Mizoram, Uttarakhand, and Telangana.
Presently, Centre says no more states can be given SCS since the 14th Finance Commission effectively removed the concept of SCS. Instead, it advised the Centre to raise the state’s share of tax receipts from 32% to 42%, which has been in place since 2015.
Special Status Vs. Special Category Status
| Aspect | Special Status | Special Category Status |
| Granting Authority | Passed through an Act with 2/3rd majority in both houses of Parliament | Granted by the National Development Council, an administrative body of the government |
| Example | Jammu and Kashmir had special status under Article 370 and special category status | After the abrogation of Article 35A and the change in Jammu and Kashmir’s status to a union territory, it no longer holds special category status |
| Applicability | Provided through specific constitutional provisions such as Articles 371, 371-A to 371-H, and 371-J | Applied based on criteria like hilly terrain, low population density, tribal population, strategic location, economic and infrastructure backwardness, and nonviable state finances |
| Provisions Covered | Empowers legislative and political rights | Deals with economic, administrative, and financial aspects |
Benefits of SCS:
- Central government pays 90% of the funds in centrally sponsored schemes while other states get 60% to 75% of the funds.
- Preferential treatment in getting central funds.
- In case of unspent money, the states with SCS have the provision to carry it forward.
- These States can avail the benefit of debt-swapping and debt relief schemes.
- SCS states also enjoy a significant concession on excise, customs duties, income tax, and corporate tax.
- 30% of the Centre’s Gross Budget goes to Special Category states.
Concerns:
- Impact on Economic Burden: Granting Special Category Status (SCS) imposes an additional economic burden, especially when increased devolution, as advised by the Finance Commission (FFC), is already being directed to the state.
- Center-State Financial Relations: SCS affects the financial dynamics between the center and the state, creating complexities and impeding the spirit of competitive federalism among states.
- Ripple Effect on Demands: Bestowing special status upon one state often triggers similar demands from others, potentially leading to a chain reaction of requests and diluting the intended benefits.
- Challenges for New Entrants: When a new state is accorded special status, it may instigate demands from existing states, complicating the landscape and diminishing the advantages associated with such a designation.
- Limited Economic Benefits: Pursuing special status does not necessarily translate into significant economic advantages for states, as the current system offers relatively meagre benefits.
Way forward:
- Reassessment and Expansion of Exclusive Group: It is imperative to reassess the criteria for special status, considering the addition of new states to this exclusive group while concurrently removing those that no longer necessitate such support.
- Strategic Utilization of Industrial Strengths: States are encouraged to comprehend their industrial strengths and formulate a policy framework that enables them to harness their unique resources. This approach aims to foster self-reliance rather than dependency on support from the central government.
Source: News on Air
Practice Question
Is it opportune to reevaluate the criteria for Special Category Status (SCS), considering the inclusion of new entrants into this distinguished category while simultaneously excluding those states that no longer require such assistance? Provide a critical analysis. (Answer in 150 words)