EDEN IAS

Special Category Status

Special category status SCS

Special Category Status

Why in the news Special Category Status?

Recently, the Bihar Cabinet passed a resolution requesting the Center to grant Special Category Status (SCS) to Bihar.

Why Bihar is demanding the status of Special Category Status? 

  1. Poverty and backwardness of the State, lack of natural resources, regular floods in the northern region and severe droughts in the southern part of the State.
  2. The bifurcation of the State led to shifting of industries to Jharkhand, which created a dearth of employment and investment opportunities in the State.
    • Apart from Bihar, Odisha and Andhra Pradesh have also been demanding

Origin:

Introduced in 1969 by the 5th Finance Commission. Jammu & Kashmir was the first state to get SCS.

  • Over the years, more states add namely, Assam, Nagaland, Arunachal Pradesh, Himachal Pradesh, Manipur, Meghalaya, Mizoram, Sikkim, Tripura and Uttarakhand.
  • The rationale for special status is that certain states, because of inherent features, have a low resource base and cannot mobilize resources for development.
  • The decision to grant special category status lies with the National Development Now, it is done by Central Government.
  • After the formation of NITI Aayog, 14th Finance Commission recommendations were implemented and effectively removed the concept of SCS.
  • 14th Finance Commission restricted SCS only to north-eastern and three hilly.

No provision in constitution: The Constitution of India does not include any provision for the categorization of any state in India as a special category state.

Criteria for special category status

  • Hilly and difficult terrain,
  • Low population density or sizable share of tribal population,
  • Strategic location along borders with neighboring countries,
  • Economic and infrastructural backwardness
  • Non-viable nature of state finances

Special status vs Special category status-

  • Special status is provided through the Constitution whereas the special category status is granted by the National Development Council, which is an administrative body of the
  • For example, Jammu and Kashmir enjoyed a special status as per Article 370 and also special category status. But now, with revocation of special status, Jammu and Kashmir has only special category status.
Benefits to special category status states
  • The central government bears 90 percent of the state expenditure on all centrally-sponsored schemes and external aid while the rest 10 percent is given as a loan to the state at zero percent rate of interest.
  • Preferential treatment in getting central funds
  • Concession on excise duty to attract industries to the
  • 30 percent of the Centre’s gross budget also goes to special category
  • Debt swap: These states can avail the benefit of debt-swapping and debt relief
  • Exemptions: States with special category status are exempted from customs duty, corporate tax, income tax and other taxes to attract
  • No lapse: Special category states have the facility that if they have unspent money in a financial year, it does not lapse.
Issues of Special Category Status: 
  1. No Uniformity in Assigning SCS criteria: Lack of consent among states on criteria used to assign SCS status to a state has been a persistent issue.
  2. Economic Progress: Data reveals that even aer awarding SCS states like Jammu and Kashmir, Uttarakhand they still lag behind non-category states like Haryana, Punjab etc.
  3. Increased allocation: Amount of proceeds that states receive has increased (42%) aer 14th finance commission making SCS redundant.
  4. Pandora Box: Considering special status to any new State will result in demands from other States and dilute the benefits
  5. Debt sustainability: Outstanding guarantee of the State governments pose a challenge to Debt Sustainability in a situation when the borrower defaults. Ex: 20% in J&K.
Why does the Special Category Status cease to exist?
  1. Discontinuation of Gadgil formula: After the dissolution of the planning commission and the formation of NITI Aayog, the recommendations of the 14th Finance Commission were implemented which meant the discontinuation of the Gadgil formula-based grants.
  2. No improvement: States having Special category status have not shown any perceptible improvements in the areas where they received tax
  3. Intensification of demand by other states: Granting status to some states like Bihar and Andhra Pradesh would lead to the intensification of demand by other states.

Conclusion-

  • A new concept of least developed states can be introduced after removing the concept of special category status as recommended by Raghuram Rajan Committee based on certain parameters such as per capital consumption expenditure, urbanization rate, financial inclusion

Source: The Hindu