HPAS/Allied Mains 2022 Answer Writing Challenge Day 247: Model Answer

Question: Discuss the Pros and Cons of Special Category status. (8 marks/ 120 words)

Answer:

Special category status is a classification given by the Centre to assist development of states that face geographical and socio-economic disadvantages.

This classification was done on the recommendations of the Fifth Finance Commission in 1969. It was based on the Gadgil formula. The parameters for SCS 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
• Nonviable Nature of State finances.

Initially, three states; Assam, Nagaland and Jammu & Kashmir were granted special status but from 1974-1979, five more states were added under the special category. These include Himachal Pradesh, Manipur, Meghalaya, Sikkim and Tripura.

Pros of Special Category status:

1. Preferential treatment in federal assistance and tax break.
2. 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.
3. Unspent money does not lapse and is carried forward.
4. Significant concessions are provided to these states in excise and customs duties, income tax and corporate tax.
5. Significant excise duty. Thus, these states attract large number of industrial units to establish manufacturing facilities within their territory leading to their economy flourishing.
6. The special category states do not have a hard budget constraint as the central transfer is high.

Cons of special category status:

1. Some states lobby central government to classify them in special category. E.g. Bihar have been vociferously demanding special category status to the State since 2005.
2. Data reveals that after granting special category status not much progress has been noticed among states.
3. After the 14th Finance commission announcement of tax devolution to states increased from 32% to 42%, so that matter central assistance discontinued to even special category states.
4. It hinders the competitive federalism among the states.