SPECIAL CATEGORY STATUS TO STATES Current event - Recently | 𝗖𝗗𝗦 𝗢𝗧𝗔 - 𝟮𝟬𝟮𝟯 🇮🇳

SPECIAL CATEGORY STATUS TO STATES

Current event - Recently states like Andhra Pradesh and Bihar have demanded Special Category status

Special category state :

Genesis: The concept of a special category state was introduced in 1969 by the Fifth Finance Commission.
The rationale for special status is that certain states, because of inherent features, have a low resource base and cannot mobilize resources for development.
The decision to grant special category status lies with the National Development Council.
No provision in constitution: The Constitution of India does not include any provision for the categorization of any state in India as a special category state.

Criteria for special category status :
(a) Hilly and difficult terrain, (b)Low population density or sizeable share of tribal population,
(c) Strategic location along borders with neighbouring countries,
(d) Economic and infrastructural backwardness
(e) Non-viable nature of state finances

Gadgil Formula:

Gadgil formula was evolved in 1969 to determine how much central assistance should be provided to state plans in India.
It gave the following criteria:

Population [60%]
Per Capita Income (PCI) [10%]
Tax Effort [10%]
On-going Irrigation & Power Projects [10%] and
Special Problems [10%]
In 1991 a revision committee under Pranab Mukherjee was constituted to accord special category status to states.

What is the difference between special category status and special status?

Special status is provided through the Constitution whereas the special category status is granted by the National Development Council, which is an administrative body of the government.

For example, Jammu and Kashmir enjoyed a special status as per Article 370 and also special category status. But now, with revocation of special status, Jammu and Kashmir has only special category status.

Benefits to special category status states

1. The central government bears 90 percent of the state expenditure on all centrally sponsored schemes and external aid while the rest 10 percent is given as a loan to the state at zero percent rate of interest.
2. Preferential treatment in getting central funds
3. Concession on excise duty to attract industries to the state.
4. 30 percent of the Centre's gross budget also goes to special category states.
5. Debt swap: These states can avail the benefit of debt-swapping and debt relief schemes.
6. Exemptions: States with special category status are exempted from customs duty, corporate tax, income tax and other taxes to attract investment.
7. No lapse: Special category states have the facility that if they have unspent money in a financial year; it does not lapse

Why is special category status no more relevant?

Discontinuation of Gadgil formula: After the dissolution of the planning commission and the formation of NITI Aayog, the recommendations of the 14th Finance Commission were implemented which meant the
discontinuation of the Gadgil formula-based grants.
No improvement: States having Special category status have not shown any perceptible improvements in the areas where they received tax incentives.
Intensification of demand: Granting status to some states like Bihar and Andhra Pradesh would lead to the intensification of demand by other states.

Conclusion: A new concept of least developed states can be introduced after removing the concept of special category status as recommended by Raghuram Rajan Committee based on certain parameters such as per capita consumption expenditure, urbanization rate , financial inclusion etc.

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