SPECIAL CATEGORY STATUS(SCS)

1. Context

Telugu Desam Party (TDP) president N Chandrababu Naidu emerged as a key player in national politics, after his party won 16 seats in the Lok Sabha election. TDP is in alliance with the Jana Sena Party and the BJP in Andhra Pradesh. Naidu’s support is critical for the BJP, which has only 240 seats in Lok Sabha. In return, Naidu is likely to extract several promises and assurances, the most important of which will be the status of a Special Category State for Andhra Pradesh

2. What is a Special Category Status?

Special Category Status (SCS) is a classification given by the Indian government to certain states that face geographical and socio-economic challenges. This status provides these states with special assistance and various concessions from the central government to address their unique challenges and promote their development. The concept was introduced in 1969 based on the recommendations of the Fifth Finance Commission.

Key features of Special Category Status include:

Central Assistance: States with SCS receive more significant financial assistance from the central government. This includes higher grants and subsidies for central schemes.
Concessional Funding: The central government provides financial support in the form of a 90:10 ratio for centrally sponsored schemes (CSS), where 90% of the funding is a grant from the central government, and only 10% is to be provided by the state. For other states, this ratio is typically 60:40.
Tax Concessions: Industries set up in these states may receive various tax benefits to encourage industrialization and economic development.
Debt Relief: These states often get better terms for debt repayment and lower interest rates on loans from the central government.
Infrastructural Development: Special Category Status can also bring prioritization in infrastructural development projects, including roads, airports, and railways, which are crucial for connectivity and growth.
Higher Plan Assistance: States with SCS are entitled to higher central plan assistance for their development projects.

States that have been accorded Special Category Status typically face challenges like hilly and difficult terrain, low population density or the presence of sizeable tribal populations, strategic international borders, economic and infrastructural backwardness, and non-viable state finances.

Which states presently have SCS?

Currently, 11 States in India — Arunachal Pradesh, Assam, Himachal Pradesh, Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, and Uttarakhand — have SCS

Source: The Hindu

3. What are the criteria for SCS designation?

Five factors that are considered before granting SCS to a State:

Hilly and difficult terrain
Low population density and/or sizeable share of tribal population
Strategic location along international borders
Economic and infrastructural backwardness
Non-viable nature of State finances

4. Why is Andhra Pradesh demanding Special Category Status?

Andhra Pradesh has been demanding Special Category Status (SCS) for several reasons, primarily linked to the economic and developmental challenges it faced following the bifurcation of the state in 2014, which led to the creation of the new state of Telangana.

Here are the key reasons for Andhra Pradesh's demand:

Economic Disadvantages Post-Bifurcation: The bifurcation resulted in Andhra Pradesh losing Hyderabad, a major economic hub with substantial revenue generation, to Telangana. This left Andhra Pradesh with reduced revenue sources and significant fiscal challenges.
Promise Made During Bifurcation: The central government, during the process of bifurcation, had assured Andhra Pradesh that it would be granted Special Category Status for a period of five years to help the state cope with the economic impact. This promise was seen as a crucial measure to ensure the state's development and financial stability.
Infrastructure and Developmental Needs: Post-bifurcation, Andhra Pradesh had to build a new capital (Amaravati) and develop its infrastructure from scratch. Special Category Status would provide the state with higher central assistance and concessional funding to support these massive developmental needs.
Comparative Disadvantage: Andhra Pradesh argues that without Special Category Status, it is at a disadvantage compared to states like Telangana, which inherited significant infrastructure and economic assets. SCS would help bridge this gap by providing additional financial resources.
Political and Public Pressure: There is significant public and political pressure within Andhra Pradesh for the fulfilment of the promise of Special Category Status. The demand has become a major political issue, with various parties and leaders pushing for it as a means to ensure the state's economic growth and development.
Developmental Incentives: Special Category Status brings various benefits, including higher grants from the central government, tax incentives for industries, and more favourable terms for debt and funding of central schemes. These incentives are seen as essential for boosting industrialization, employment, and overall economic growth in the state

5. What does The 14th Finance Commission say about the Special Category status?

The 14th Finance Commission, which was constituted in January 2013 and submitted its report in December 2014, made several key recommendations regarding the concept of Special Category Status (SCS).

Here's a summary of its stance and recommendations:

The 14th Finance Commission recommended discontinuing the practice of granting Special Category Status to states. It suggested that the distinction between Special Category and non-Special Category states should be removed for a more uniform approach to state assistance
To compensate for the discontinuation of Special Category Status, the Commission recommended a significant increase in the share of states in the divisible pool of central taxes from 32% to 42%. This aimed to give states greater financial autonomy and more resources to address their specific needs
The Commission proposed that all states should be treated equally in terms of devolution of funds, thereby removing any preferential treatment that Special Category Status provided. This was intended to simplify the financial assistance mechanism and ensure a more transparent and equitable distribution of resources.
Although the 14th Finance Commission recommended discontinuing SCS, it acknowledged the need for special assistance to certain states facing unique challenges. It suggested that such states could receive targeted central assistance through specific schemes and programs rather than through a separate category status.
The Commission emphasized the use of objective criteria for the allocation of resources to states, including factors like population, income distance, area, forest cover, and demographic performance. This approach aimed to ensure that funds were distributed based on measurable needs and performance indicators rather than a special status designation.

6. Which states are demanding the Special Category Status?

Several states have been demanding Special Category Status (SCS) from the central government. These demands stem from various economic, developmental, and political considerations. Here are some of the states that have actively sought SCS:

Andhra Pradesh: Andhra Pradesh has been one of the most vocal in demanding SCS, primarily due to the economic disadvantages it faced following the bifurcation of the state in 2014, which led to the creation of Telangana. The loss of Hyderabad, a major economic and revenue-generating city, has been a significant factor in this demand.
Bihar: Bihar has been consistently demanding SCS to address its developmental challenges, including high poverty rates, low per capita income, and underdeveloped infrastructure. The state argues that SCS would help accelerate its economic growth and improve living standards.
Odisha: Odisha has sought SCS citing its high tribal population, frequent natural disasters, and overall economic backwardness. The state government believes that additional central assistance and concessions would aid in its development efforts.
Rajasthan: Rajasthan has also demanded SCS, highlighting its large desert areas, water scarcity issues, and economic challenges. The state seeks special financial support to overcome these hurdles and promote sustainable development.
Chhattisgarh: Chhattisgarh, with its significant tribal population and issues related to naxalism (left-wing extremism), has been advocating for SCS to receive better financial assistance for security and developmental initiatives.

7. What are the Benefits of SCS?

The benefits of Special Category Status (SCS) in India include various financial and developmental incentives aimed at addressing the unique challenges faced by certain states. Here are the primary benefits:

States with SCS receive more significant financial assistance from the central government.
This includes grants and funds for development projects and centrally sponsored schemes.
For centrally sponsored schemes (CSS), SCS states typically receive funding in a 90:10 ratio (90% central funding and 10% state funding), compared to a 60:40 or 50:50 ratio for other states.
This reduces the financial burden on the state government.
Industries and businesses setting up operations in SCS states may receive various tax benefits and incentives.
These concessions aim to promote industrialization and economic development in these regions.
SCS states often get better terms for debt repayment, including lower interest rates on loans from the central government.
SCS states receive priority for central government projects related to infrastructure development, such as roads, airports, and railways.
States with SCS are eligible for additional grants and subsidies from various central government schemes.
SCS states that face specific challenges, such as insurgency or border security issues, receive additional support from the central government for maintaining peace and security.
States with difficult terrain, extensive forest cover, and unique geographic challenges receive support for environmental conservation and sustainable development.

8. Way Forward

The sustainability of development in SCS states can be questionable if it relies heavily on central grants. Long-term development requires building internal capacities and resources, which might not be adequately addressed through SCS alone

For Prelims: Indian Polity and Governance

For Mains: GS-II:Indian Polity and Governance

Source: Indianexpress

Share to Social

UPSC Article

SPECIAL CATEGORY STATUS(SCS)

Related Articles