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DAILY NEWS ANALYSIS

  • 28 November, 2023

  • 5 Min Read

Bihar’s demand for Special Category Status

In light of the “Bihar Caste-based Survey, 2022”which showed that almost 33% of Bihar’s people are poor, the State government seeks Special Category Status.

What is Special Category Status (SCS)?

  • It is a classification granted by the Centre to assist the development of States that face geographical or socio-economic disadvantages.
  • Launch year- It was introduced in 1969 on the recommendation of the 5th Finance Commission (FC).
  • Gadgil formula- It was named after the then Deputy Chairman of the Planning Commission, Dr Gadgil Mukherjee which earmarked nearly 30% of the total central assistance for States to the SCS States.
  • Authority to grant SCS status- National Development Council.
  • Discontinuation- It was discontinued in 2015 after the 14th Finance Commission recommendations.

About

Special Category Status

Special Status

Provision

It is granted by the National Development Council, which is an administrative body of the government

The Constitution (Article 371 to 371-J) provides special status through an Act that has to be passed by 2/3rd majority in both the houses of Parliament

Powers

Deals only with economic, administrative and financial aspects.

Empowers them with legislative and political rights.

Applicable States

11 States - Assam, Sikkim, Manipur, Nagaland, Himachal Pradesh, Mizoram Meghalaya, Tripura, Arunachal Pradesh, Uttarakhand and Telangana.

12 States- Maharashtra, Gujarat, Nagaland, Goa, Assam, Manipur, Andhra Pradesh, Arunachal Pradesh, Telangana, Sikkim, Mizoram and Karnataka.

What are the benefits of SCS?

  • Centre-State funding- 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.
  • Special treatment- Preferential treatment in getting Central funds as 30% of the Centre's gross budget also goes to special category.
  • Incentives- These States can avail the benefit of debt-swapping and debt relief schemes.
  • Tax exemption- States with special category status are exempted from customs duty, corporate tax, income tax and other taxes to attract investment.
  • Concession is provided to excise duty for attracting industries to the State.
  • Carry forward- If they have unspent money in a financial year, it does not lapse and gets carry forward for the next financial year.
  • Increased devolution- 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%).

Other States demanding SCS

  • Andhra Pradesh- Since its bifurcation in 2014, it has asked for a grant of SCS on the grounds of revenue loss due to Hyderabad going to Telangana.
  • Odisha- Due to its vulnerability to natural calamities such as cyclones and a large tribal population (nearly 22%).
  • Centre’s response- It denied citing the 14th FC report, which made a recommendation to the Centre that no State be accorded the SCS.

Why Bihar is demanding SCS?

  • Poverty- As per Bihar caste survey, nearly one-third of Bihar’s population continues to live in poverty.
  • Backwardness- Bihar is one of the most backward States in India with a per-capita GDP of around 54,000 rupees, which is less than half of the national average.
  • Low resource- The State faces challenges such as lack of natural resources, inadequate water supply for irrigation, frequent floods and droughts, and low human development indicators.
  • Industrial decline- Bifurcation of Bihar in 2000 resulted in the loss of mineral-rich areas and major industries to Jharkhand, leaving Bihar with a weak industrial base and low revenue.
  • Poor investment- It has been struggling to attract private investment and create employment opportunities for its large population.
  • Need financial assistance- Bihar has been demanding the SCS since 2010, to get more financial assistance and tax incentives from the Centre.

Is Bihar demand justified?

  • SCS criteria- It does not have hilly and difficult terrain, which is a major factor for granting SCS.
  • Raghuram Rajan Committee- It was set up in 2013 to suggest a new formula for allocating funds to the States.
  • The committee ranked the States based on a multi-dimensional index, which included per capita consumption, poverty ratio, education, health, household amenities, urbanization, financial inclusion, and connectivity.
  • Bihar was ranked the lowest among all the States, indicating its least developed status.
  • The committee recommended that the Centre should provide a fixed amount of funds to each State based on their development needs, and not on the basis of SCS or non-SCS.
  • The committee also suggested that the States should be given more flexibility and autonomy in spending the funds according to their priorities.
  • The committee’s report was not accepted by the Centre, and the SCS issue remained unresolved.

Source:


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