Bihar, Andhra Pradesh likely to demand for special category status (SCS)

Context: The talks over special category status for the states of Bihar and Andhra Pradesh have once again gained momentum after the victory of the BJP-led National Democratic Alliance (NDA) in the 2024 Lok Sabha elections.

About Special Category Status (SCS): 

  • It is a classification granted by the Centre to assist the development of States that face geographical or socioeconomic disadvantages. 
  • Also to safeguard the interest and aspirations of certain backward regions or to protect cultural and economic interests of the tribal people or to deal with the disturbed law and order in some parts of India.
  • It was introduced in 1969 on the recommendation of the Fifth Finance Commission (FC). 
  • The criteria for SCS are based on Gadgil Mukherjee formula: 
    • Hilly and difficult terrain
    • Low population density and/or sizeable share of tribal population 
    • Strategic location along international borders 
    • Economic and infrastructural backwardness and 
    • Nonviable nature of state finances.
    • The 14th and 15th Finance Commissions have increased the devolution of divisible pool funds to states from 32% to 41%. However, since 2014, it was formally done away with. 

Constitutional provision of SCS: 

  • The Indian Constitution does not provide for ‘special category states.’ However, 10 states have special provisions under Articles 371, 371-A to 371-H, and 371-J.

States under SCS:

  • Assam, Nagaland, Himachal Pradesh, Manipur, Meghalaya, Sikkim, Tripura, Arunachal Pradesh, Mizoram, Uttarakhand, and Telangana, have been designated as special category states.

Why are Bihar and Andhra Pradesh demanding Special Category Status?

  • Bihar: Bihar has been asking for it ever since the mineral-rich Jharkhand was carved out of it back in 2000.
    • Bihar has been ranked as the poorest state in India, according to the Centre’s ‘Multidimensional Poverty Index’ (MPI) report. It is estimated to have nearly 52% of its population, without having proper access to requisite health, education and living standards.
    • While the state meets most of the criteria for the Special Category Status, it does not fulfil the criteria of hilly terrain and geographically difficult areas.
  • Andhra Pradesh: 
    • After its bifurcation in 2014, Andhra Pradesh has also seen many of its political leaders demanding a Special Category Status on the grounds of revenue loss due to the city of Hyderabad going to Telangana.

Benefits provided to SCS:

  • For Special Category States 90% of the Central assistance is given as grant and 10% as Loan. In the case of Non-Special Category States, however only 30% of NCA is given as grant and 70% as Loan.
  • Special packages are purely discretionary. They may be need-based, but the need is not the proximate reason for granting a special package, which is an additional grant under Article 282, which falls under ‘Miscellaneous Financial Provisions’.
  • Tax sops  such as concession on Customs duty, income tax and corporate tax etc. for industrial development. 
  • Special category states can carry forward unspent money from one financial year to the next without it lapsing.

Benefits for Special category status: 

  1. To preserve cultural identity (Goa).
  2. To address socio-economic and infrastructural backwardness (Bihar).
  3. To compensate for the loss of taxation rights under the GST mechanism.
  4. To provide special support for recovery and resilient infrastructure due to frequent natural calamities, such as earthquakes, floods, or cyclones (Odisha).
  5. To enhance infrastructure for national security, particularly in areas near international borders (Rajasthan).

Challenges associated with SCS: 

  • It places an additional economic burden on the center and fosters a culture of economic dependency among states.
  • Granting special status to one state often prompts similar requests from other states.
  • It will weaken the foundations of fiscal federalism, as it will result in diverting national resources away from other States, which too may have pressing needs.
  • May be driven by political motives instead of objective criteria.

Way forward

Recommendations of Raghuram Rajan Committee: 

  • Suggested “multi-dimensional index” of backwardness is proposed, based on per capita consumption according to National Sample Survey Organisation (NSSO) data, poverty ratios, and other measures aligned with the multi-dimensional approach to defining poverty in the 12th Five-Year Plan.
  • States that score 0.6 and above on the Index may be classified as “least developed”; States that score below 0.6 and above 0.4 may be classified as “less developed”; and States that score below 0.4 may be classified as “relatively developed”.
  • Each state should get a basic fixed allocation and an additional allocation depending on its development needs and development performance.
  • Design specialized programs that address the needs of vulnerable groups with a focus on preserving their cultural identities.
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