SPECIAL CATEGORY STATUS

Special Category Status (SCS) is a classification given by the Central government to assist the development of states that face geographical and socio-economic disadvantages. SCS was introduced in 1969 on the recommendations of the Fifth Finance Commission. The states with SCS receive several benefits, including:

• The Central government bears 90% of the cost of centrally sponsored schemes in SCS states, while the remaining 10% is borne by the state government.
• In the SCS States, the Centre-State funding of 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.
• SCS States receive several incentives to attract investments, such as concession in customs and excise duties, income tax rates and corporate tax rates.

2.1. The parameters for granting SCS are as follows:

• SCS is granted to states with hilly terrain, making it difficult to develop infrastructure.
• SCS is granted to states with low population density or a sizeable share of tribal population, indicating socio-economic backwardness.
• SCS is granted to states with strategic locations along borders, requiring additional security measures.
• CS is granted to states with economic and infrastructure backwardness, indicating the need for special assistance.
• SCS is granted to states with nonviable state finances, indicating the need for special financial assistance.

States with SCS receive several benefits, including:

• SCS states used to receive grants based on the Gadgil-Mukherjee formula, which earmarked nearly 30% of the total central assistance for states to the SCS states. However, this assistance has been subsumed in an increased devolution of the divisible pool funds for all states.
• In the SCS states, the Centre-State funding of 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.
• SCS states receive several incentives to attract investments, such as concession in customs and excise duties, income tax rates and corporate tax rates.

3. Reasons for Bihar Demanding Special Category Status

Bihar has been demanding SCS for several reasons, including:

• The state has consistently been one of the poorest states in terms of per capita GDP.
• Bihar faces a lack of natural resources, a continuous supply of water for irrigation, regular floods, and severe droughts.
• The bifurcation of the state led to the shifting of industries to Jharkhand and created a dearth of employment and investment opportunities.
• While Bihar meets several criteria for the grant of Special Category Status, it falls short in fulfilling the requirement of hilly terrain and geographically challenging areas.
• This limitation is identified as a primary hurdle in the state's infrastructural development. In 2013, the Raghuram Rajan Committee, constituted by the Centre, categorized Bihar as the "least developed category."
• The committee proposed a new methodology based on a 'multi-dimensional index' for devolving funds, presenting an alternative approach to address the state's backwardness.

• Andhra Pradesh: After the bifurcation of Andhra Pradesh in 2014, the new state of Telangana was formed, which took away the capital city of Hyderabad. Andhra Pradesh has been demanding SCS to compensate for the loss of revenue and infrastructure due to the bifurcation.
• Odisha: Odisha is prone to natural disasters such as cyclones and floods, and it also has a large tribal population. The state has been demanding SCS to address these challenges and promote its development.
• Tamil Nadu: Tamil Nadu has been demanding SCS for a long time, citing its economic backwardness and its contribution to the national economy.
• Karnataka: Karnataka has also been demanding SCS, highlighting its challenges in terms of infrastructure development and its contribution to the IT industry.
• West Bengal: West Bengal has been demanding SCS citing its economic backwardness and significant Muslim population.

5. Central Government's Stance on SCS

• The Central Government has been hesitant to grant SCS to additional states, citing the recommendations of the 14th Finance Commission.
• The 14th Finance Commission recommended that SCS be discontinued for all states except the Northeastern states and the three hill states of Jammu and Kashmir, Himachal Pradesh, and Uttarakhand.
• The commission argued that SCS should be provided only to states facing exceptionally challenging circumstances.