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 5^th 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.

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%).

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.