Special Category Status, first recommended by the Fifth Finance Commission in 1969, serves as a way for the Central government to provide extra financial assistance to states facing unique challenges or special needs.
After the recent election, no single party won enough seats to run the government alone. Bihar CM Nitish Kumar from JD(U) and N. Chandrababu Naidu of TDP are key players in the National Democratic Alliance (NDA). Nitish Kumar wants Special Category Status for Bihar and more spots in the government if he helps BJP. Naidu also wants Andhra Pradesh to be a Special Category Status. Both want to make sure their states get what they need. Both leaders’ demands highlight the crucial role of regional parties.
In recent past, there had been a notable surge in demand for Special Category Status, particularly from Bihar and Andhra Pradesh. This demand, championed by the Bihar CM Nitish Kumar and N. Chandrababu Naidu, has reignited discussions on this long-standing issue. Special Category Status, first recommended by the Fifth Finance Commission in 1969, serves as a way for the central government to provide extra financial assistance to states facing unique challenges or special needs.
This renewed focus prompts us to explore the historical background, assignment process, benefits, and qualifying criteria for Special Category Status. Let’s delve into these questions to understand the importance of this status and how it might impact India’s federal structure.
The Center categorizes states with special needs through a system called “Special Category Status.” This started in 1969, when the Fifth Finance Commission suggested it. India has 29 states and 7 union territories. Every five years, based on advice from the Finance Commission, the President gives money from the central government to these states and territories.
Article 275 of the Indian Constitution allows the central government to give extra money to any state if needed. Currently, 11 states in India have Special Category Status. Five more states are asking for this status. It’s like giving them extra support to help them grow and do better.
Special Category Status and Historical Perspective
In 1969, the 5th Finance Commission of India introduced the concept of Special Category Status to help some historically disadvantaged regions. This status provided these regions with central assistance and tax breaks. Central Plan Assistance, determined by the National Development Council (NDC), was given to some states using a formula named after Dr. Gadgil Mukherjee, the Deputy Chairman of the Planning Commission at the time.
Initially, only three states were granted Special Category Status: Assam, Nagaland, and Jammu & Kashmir. This happened during the 4th Five-Year Plan from 1969 to 1974. These states received 9.26% of the total plan assistance.
These three states were considered for special status because they were socially, economically, and geographically backward. States get Special Category Status if they meet certain conditions. These include having hilly and tough terrain, being in strategic border locations, having low per capita income, low population density, a large number of tribal people, and economic and infrastructure backwardness. These states also struggle with their finances.
In the early 1960s, the government had no solid plan for developing these states. Being economically weak, these states could not manage development work on their own due to limited resources. The central government had two options: either to merge these states with their developed neighbors or to provide assistance to improve their conditions. The second option was chosen, and these states were granted Special Category Status to help their development.
Support was really important for states like Assam, Nagaland, and Jammu & Kashmir, which faced various challenges. Over time, other states also received this status, recognizing their need for assistance. However, with the new policies and the 14th Finance Commission’s recommendations, the central government has moved away from this concept, focusing instead on a more equitable distribution of funds among all states.
From 1974 to 1979, five more states were added: Himachal Pradesh, Manipur, Meghalaya, Sikkim, and Tripura. In 1990, Arunachal Pradesh and Mizoram were also granted this status, bringing the total to ten states. Uttarakhand was added in 2001, making it eleven states with Special Category Status.
Until 2014-2015, eleven states enjoyed various benefits and incentives. In recent years, there have been demands from Andhra Pradesh for Special Category Status, and similar demands have come from Bihar, Odisha, Rajasthan, and Goa. In 2018, MPs from Andhra Pradesh disrupted the budget session of Parliament, pushing for this status.
After the Planning Commission was dissolved and NITI Aayog was formed, the 14th Finance Commission’s recommendations were implemented. This ended the Gadgil formula-based grants but increased the share of funds from the divisible pool to all states from 32% to 42%. The central government says the 14th Finance Commission effectively removed the concept of Special Category Status after its recommendations were accepted in 2015.
On August 5, 2019, a new order was issued by the President of India. This order took away the special status that Jammu and Kashmir had under Article 370 of the Constitution.
Currently, it seems unlikely that any more states will be given Special Category Status. The Indian Constitution does not have any provision for categorizing states as Special Category States. However, twelve states have special safeguards under Articles 371, 371-A to 371-H, and 371-J. Article 371-I applies to Goa but does not include any special provisions. The twelve states are Maharashtra, Gujarat, Nagaland, Assam, Manipur, Andhra Pradesh, Telangana, Sikkim, Mizoram, Arunachal Pradesh, Karnataka, and Goa.
After independence, India revealed significant geographical, social, economic, and cultural disparities among its states. Some states had better education, health, and economic conditions, while others, particularly in the north-east and hill regions, lacked development and government policies. These states, however, were strategically and geopolitically important to India.
During the implementation of the Five-Year Plans, no strict rules were initially followed by the central government in supporting economically weaker states. As a result, different regions experienced varying levels of development. The issue of Special Category Status was first raised in the National Development Council meeting in 1969.
So, over the years, more and more states have been given extra help to support their development. This has been done to ensure that the poorer and less developed regions get the attention and support they need.
The National Development Council decides if a state gets special category status based on several criteria. These criteria help identify states that need extra support.
First, a state must struggle with a shortage of resources. This means it does not have enough natural or financial resources to support its needs. Second, the state must have a low per capita income, indicating that the average income of its people is quite low.
Third, the state’s finances must not be viable. This means the state cannot manage its budget and financial needs effectively. Fourth, the state must show signs of economic and structural underdevelopment. This includes poor infrastructure and weak economic activities.
Fifth, the state must have a sizable tribe population. This means a significant portion of its people belong to tribal communities. Sixth, the state must have hilly and challenging terrain, making development difficult.
Seventh, the state must be located in a strategic border region. This means its location is important for national security. Lastly, the state must be sparsely populated, meaning it has few people living over a large area.
The National Development Council, which makes these decisions, includes the prime minister, union ministers, chief ministers, and members of the planning commission.
Benefits of Special Category Status (SCS)
Special Category Status (SCS) provides significant financial help to states. Previously, states with SCS received grants based on the Gadgil-Mukherjee formula, which made up about 30% of total central assistance. After the Planning Commission was abolished and following the 14th and 15th Finance Commissions’ recommendations, SCS assistance was included in a greater share of funds for all states, now set at 41% in the 15th Finance Commission.
SCS states also benefit from a favorable funding ratio. For centrally sponsored schemes, the Centre covers 90% of the costs while the state only needs to cover 10%. In contrast, general category states have to manage with a 60:40 or 80:20 funding split. Additionally, SCS states receive extra incentives such as lower customs and excise duties, and reduced income and corporate tax rates to attract more investments.
Bihar is asking for SCS due to several challenges. The state says its poverty and underdevelopment are due to limited natural resources, an unreliable water supply for irrigation, frequent floods in the north, and severe droughts in the south. The split with Jharkhand also moved many industries away, leading to unemployment and less investment. Bihar’s per-capita GDP is around ₹54,000, which is one of the lowest in India. Chief Minister Nitish Kumar says that Bihar has about 94 lakh poor families, and getting SCS would help generate about ₹2.5 lakh crore, essential for welfare programs over the next five years.
Demands for SCS from Other States
Other states are also demanding SCS. Andhra Pradesh has been seeking SCS since its split from Telangana in 2014 due to the revenue loss after Hyderabad was transferred to Telangana. Odisha is also requesting SCS, pointing out its frequent natural disasters like cyclones and its significant tribal population, which makes up around 22% of the state’s population.
Despite these demands, the Central government has consistently turned them down. The 14th Finance Commission’s report recommended against giving SCS to any state, and the government has followed this recommendation.
Differences between Special Category Status and Special Status
Special Status and Special Category Status are two different things that affect how states in India are treated by the government. Special Status is given by the Constitution and needs a special law passed by a big majority in Parliament. For example, Jammu and Kashmir has Special Status under Article 370. It’s the only state with its own constitution and some laws don’t apply there. But Special Category Status is not the same thing.
Special Category Status is decided by the National Development Council, which helps states that are struggling because of where they are or their problems. Jammu and Kashmir got this status first in 1969, and then 10 more states got it later. The National Development Council made 5 rules for giving this special status.
Andhra Pradesh wants Special Category Status to get extra help from the government. This help could bring more money and business to the state, especially after it lost its capital, Hyderabad, to Telangana. But the government says Andhra Pradesh doesn’t meet the rules for Special Category Status. Instead, they offered a special package to help the state.
So, to sum up, Special Status and Special Category Status is different. Special Status comes from the Constitution, while Special Category Status is decided by the government to help states with problems. Andhra Pradesh wants Special Category Status but didn’t get it because it didn’t meet the rules.
Special Category Status (SCS) in India offers extra benefits to states with tough economic and geographic situations. The National Development Council decides who gets SCS. But, after the 14th Finance Commission’s suggestions and the end of the Planning Commission, the government stopped giving SCS to new states. They now divide money more evenly among all states. Even though Bihar, Andhra Pradesh, and Odisha keep asking, the government says no to SCS for them because they don’t meet the rules. The government probably won’t give SCS to more states soon. They’re focusing on different ways to help poorer areas.