 Recently, the Union Finance made it clear that the Centre will

not consider demands for “special category status” for any

state, dealing a major blow to states like Odisha and Bihar
who have been pushing for it for some years now.
o The rationale for special status is that certain states,
because of inherent features, have a low resource
base and cannot mobilize resources for development.
Special Category Status (SCS)

 Special Category Status (SCS) is a classification given by the

Centre to assist in the development of those states that face
geographical and socio-economic disadvantages.
 This classification was done on the recommendations of
the Fifth Finance Commission in 1969.
 It was granted based on the Gadgil formula. The parameters
were:
o Hilly Terrain;
o Low Population Density And/Or Sizeable Share of
Tribal Population;
o Strategic Location along Borders With Neighbouring
Countries;
o Economic and Infrastructure Backwardness; and
o Non-viable Nature of State finances.
 It was initially granted to only three states: Jammu and
Kashmir, Nagaland, and Assam.
 Special Category Status for plan assistance was granted in
the past by the National Development Council to the
States that are characterized by a number of features
necessitating special consideration.
 11 states namely, Arunachal Pradesh, Assam, Himachal
Pradesh, Jammu & Kashmir, Manipur, Meghalaya, Mizoram,
Nagaland, Sikkim, Tripura and Uttarakhand were granted
special category status.
  Following the recommendations of 14th Finance Commission,
the Special Category States cease to exist and thus, no
special category status has been granted to any State.
 The 14th Finance Commission suggested to fill the resource
gap of such states through tax devolution by increasing it to
42% from 32%.
Difference between Special Category Status and Special Status

 The constitution provides special status through an Act that

has to be passed by 2/3rds majority in both the houses of
Parliament whereas the special category status is granted by
the National Development Council, which is an administrative
body of the government.
o For example, Jammu and Kashmir enjoyed a special
status as per Article 370 and also special category
status. But now that Article 35A has been scrapped
and it has become a union territory with
legislature, special category status doesn’t apply to
J&K anymore.
o However, a wide range of provisions are available to
as many as 10 states that have been listed
under Articles 371, 371-A to 371-H, and 371-J.
 Special status empowers legislative and political rights while
special category status deals only with economic,
administrative and financial aspects.
Significance of Special Category Status

 The Centre pays 90% of the funds required in a centrally-

sponsored scheme to special category status states as
against 60% or 75% in case of other states, while the
remaining funds are provided by the state governments.
 Unspent money does not lapse and is carried forward.
 Significant concessions are provided to these states in excise
and customs duties, income tax and corporate tax.
 Preferential treatment in getting central funds.
 Concession on excise duty to attract industries to the state.
  30 percent of the Centre’s gross budget also goes to special
category states.
 These states can avail the benefit of debt-swapping and debt
relief schemes.
Concerns

 The SCS puts additional economic burden when the increased

devolution is already flowing to the State as recommended by
the FFC.
 It affects the centre state financial relations and hinders
competitive federalism among the states.
Conclusion

 Following the recommendations of 14th Finance Commission,

the Special Category States cease to exist and thus, no
special category status has been granted to any State.
 It is time to revisit the criteria and include other states into
this exclusive category by excluding those who do not need
such assistance any longer.

What is Special Category Status (SCS)?

 About:
o SCS is a classification given by the Centre to
assist development of states that face
geographical and socio-economic disadvantages.
o Constitution does not make a provision for
SCS and this classification was later done on
the recommendations of the Fifth Finance
Commission in 1969.
o Status was first accorded to Jammu and Kashmir,
Assam and Nagaland in 1969.
 o SCS for plan assistance was granted in the past by
the National Development Council of the erstwhile
Planning Commission.
o Eleven States including Assam, Nagaland,
Himachal Pradesh, Manipur, Meghalaya, Sikkim,
Tripura, Arunachal Pradesh, Mizoram,
Uttarakhand and Telangana have been accorded
the special category state status.
 Telangana, the newest State of India,
was accorded the status as it was
carved out of another state Andhra
Pradesh.
o The 14th Finance Commission has done away with
the 'special category status' for states, except for
the Northeastern and three hill states.
 It suggested to fill the resource gap of
such states through tax devolution by
increasing it to 42% from 32%.
o SCS is different from Special status which
imparts enhanced legislative and political rights,
while SCS deals with only economic and financial
aspects.
 For instance, J&K used to have Special
status before Article 370 was repealed.
 Parameters (Based on Gadgil Formula):
o Hilly Terrain;
o Low Population Density and/or Sizeable Share of
Tribal Population;
o Strategic Location along Borders with
Neighbouring Countries;
o Economic and Infrastructure Backwardness; and
o Nonviable Nature of State finances.
What are the Benefits of Special Category Status?
  The Centre pays 90% of the funds required in a centrally-
sponsored scheme to special category status states as
against 60% or 75% in case of other states, while the
remaining funds are provided by the state governments.
 Unspent money in a financial year does not lapse and is
carried forward.
 Significant concessions are provided to these states in
excise and customs duties, income tax and corporate tax.
 30% of the Centre’s Gross Budget goes to Special Category
states.
What are the Concerns regarding Special Category Status?
 It causes Increased burden on Central Finances.
 Also, giving special status to a state leads to demands from
other states too. For instance, demands from Andhra
Pradesh, Odisha and Bihar.
Conclusion
 As suggested by 14th Finance commission, tax devolution to
states has been increased to 42% and the same has been
continued by 15th FC (41%) too to fill the resource gap
without extending SCS.