Special Category Status

• IAS NEXT, Lucknow
• 27, Dec 2021

Reference News:-

The government has informed the Lok Sabha that it has extended a special package in lieu of the Special Category Status (SCS) to Andhra Pradesh.

Assistance provided:

• An amount of ₹19,846.199 crore under the Andhra Pradesh Reorganisation Act, 2014.
• As per the recommendations of the respective Finance Commissions, Revenue Deficit Grant of ₹22,112 crore for 2015-20 and ₹5,897 crore for 2020-21 had been released.

Significance:

The special assistance measure would make up for the additional Central share the State might have received during 2015-16 to 2019-20, if the funding of Centrally Sponsored Schemes (CSS) would have been shared at the ratio of 90:10 between the Centre and the State.

What’s the issue?

Andhra Pradesh has revived its demand for Special Category Status (SCS).

• It was the bifurcation promise and 15th Finance Commission report that stated that ‘grant of SCS lies in the hands of the Centre’. SCS was promised to Andhra Pradesh by the then Congress government at the Centre in 2014, at the time of bifurcation which resulted in the formation of Telangana.
• The then Opposition party BJP too agreed to it and even stated that SCS would be extended by five more years if it was voted to power.

What is Special Category Status?

• There is no provision of SCS in the Constitution; the Central government extends financial assistance to states that are at a comparative disadvantage against others.
• This classification was done on the recommendations of the Fifth Finance Commission in 1969.

It was based on the Gadgil formula. The parameters for SCS were:

1. Hilly Terrain;
2. Low Population Density And/Or Sizeable Share of Tribal Population;
3. Strategic Location along Borders With Neighbouring Countries;
4. Economic and Infrastructure Backwardness; and
5. Nonviable Nature of State finances.

Some prominent guidelines for getting SCS status:

1. Must be economically backward with poor infrastructure.
2. The states must be located in hilly and challenging terrain.
3. They should have low population density and significant tribal population.
4. Should be strategically situated along the borders of neighboring countries.

Who grants SCS status?

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.

• Now, it is done by the central government.

Benefits:

Besides tax breaks and other benefits, the State with SCS will get 90% of all the expenditure on Centrally sponsored schemes as Central grant. The rest of the 10% will also be given as a loan at zero percent interest.

Concerns associated:

Considering special status to any new State will result in demands from other States and dilute the benefits further. It is also not economically beneficial for States to seek special status as the benefits under the current dispensation are minimal. Therefore, States facing special problems will be better off seeking a special package.

Present scenario:

The 14th Finance Commission has done away with the ‘special category status’ for states, except for the Northeastern and three hill states.

• Instead, it suggested that the resource gap of each state be filled through ‘tax devolution’, urging the Centre to increase the states’ share of tax revenues from 32% to 42%, which has been implemented since 2015.