Demand for Special Category Status

General Studies Paper-2

Context: The talks over special category status for Bihar and Andhra Pradesh have once again gained momentum after Lok Sabha elections.

About Special Category Status

• It is a classification granted by the Centre to assist the development of States that face geographical or socio-economic disadvantages.
• It was introduced in 1969 on the recommendation of the fifth Finance Commission (FC).
• It was aimed at providing certain states with additional support to overcome geographical and infrastructural handicaps.
• Factors are considered before granting SCS includes
  • Hilly and difficult terrain
  • Low population density and/or sizeable share of tribal population
  • Strategic location along international borders
  • Economic and infrastructural backwardness and
  • Non-viable nature of state finances.
• States Covered: In 1969, three States — Jammu & Kashmir, Assam and Nagaland — were granted the SCS.
  • Subsequently, eight more States including Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Sikkim, Tripura, Himachal Pradesh, and Uttarakhand were given the SCS by the erstwhile National Development Council.

Benefits Attached

• The SCS States used to receive grants based on the Gadgil-Mukherjee formula, which earmarked nearly 30% of the total central assistance for States to the SCS States.
  • However, after the abolition of the Planning Commission and the recommendations of the 14th and 15th FC, this assistance to SCS States has been subsumed in an increased devolution of the divisible pool funds for all States (increased to 41% in the 15th FC from 32%).
  • Additionally, in the SCS States, the Centre-State funding of centrally sponsored schemes is divided in the ratio of 90:10, far more favourable than the 60:40 or 80:20 splits for the general category States.
• Other benefits : SCS states enjoy special industrial incentives such as Income-tax exemptions, custom duty waivers, reduced excise duty, corporate tax exemption for a certain period, concessions and exemptions relating to GST, and lower state and central taxes.

Controversy and Clamour for SCS

• In the intricate tapestry of India’s federal structure, the concept of Special Category Status (SCS) has been a subject of much debate and discussion
• The demand for SCS has been particularly vocal in states like Andhra Pradesh and Bihar.
• Post-bifurcation, Andhra Pradesh’s quest for SCS has been intertwined with its efforts to overcome the loss of revenue and to foster development in the absence of a metropolis like Hyderabad.
• Bihar’s demand hinges on its quest to address endemic poverty and spur industrial growth

Conclusion and Way Forward

• India strides towards becoming a $5 trillion economy, the debate around SCS underscores the need for a nuanced approach to development.
• The lessons learned from the SCS experience could inform future strategies aimed at reducing disparities and promoting a more harmonious development pattern across the nation.
• It is imperative that the spirit of cooperative federalism guides the dialogue on SCS, ensuring that all regions of India can share in the fruits of economic progress.