The story so far: On November 22, the Chief Minister Nitish Kumar-led Cabinet passed a resolution seeking the grant of special category status (SCS) to Bihar. The demand comes in the backdrop of the findings from the “Bihar Caste-based Survey, 2022”, which revealed that nearly one-third of Bihar’s population continues to live in poverty.
What is a special category status?
It is a classification granted by the Centre to assist the development of States that face geographical or socio-economic disadvantages. The SCS was introduced in 1969 on the recommendation of the fifth Finance Commission (FC). Five factors such as (i) hilly and difficult terrain (ii) low population density and/or sizeable share of tribal population (iii) strategic location along international borders (iv) economic and infrastructural backwardness and (v) non-viable nature of state finances, are considered before granting SCS. In 1969, three States — Jammu & Kashmir, Assam and Nagaland — were granted the SCS. Subsequently, eight more States including Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Sikkim, Tripura, Himachal Pradesh, and Uttarakhand were given the SCS by the erstwhile National Development Council.
What are the benefits attached?
The 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, after the abolition of the Planning Commission and the recommendations of the 14th and 15th FC, this assistance to SCS States has been subsumed in an increased devolution of the divisible pool funds for all States (increased to 41% in the 15th FC from 32%). Additionally, 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. Besides, there are several other incentives available to the SCS States in the form of concession in customs and excise duties, income tax rates and corporate tax rates to attract investments to set up new industries etc.
Why is Bihar demanding the SCS?
The demand for SCS for Bihar has been made by various political parties of the State time and again. The poverty and backwardness of the State are argued to be because of the lack of natural resources, continuous supply of water for irrigation, regular floods in the northern region and severe droughts in the southern part of the State. Simultaneously, the bifurcation of the State led to the shifting of industries to Jharkhand and created a dearth of employment and investment opportunities. With a per-capita GDP of around ₹54,000, Bihar has consistently been one of the poorest States. Highlighting the same in his fresh demand for SCS, CM Nitish Kumar, said that the State is home to around 94 lakh poor families and the granting of SCS will help the government get about ₹2.5 lakh crore required to fund various welfare measures over the next five years.
Do other States also want SCS?
Since its bifurcation in 2014, Andhra Pradesh has asked for a grant of SCS on the grounds of revenue loss due to Hyderabad going to Telangana. Additionally, Odisha has also been requesting for the SCS, highlighting its vulnerability to natural calamities such as cyclones and a large tribal population (nearly 22%). However, the Central government citing the 14th FC report, which made a recommendation to the Centre that no State be accorded the SCS, has repeatedly denied their demands.
Is Bihar’s demand justified?
Although Bihar meets most of the criteria for the grant of SCS, it does not fulfil the requirement of hilly terrain and geographically difficult areas, which is considered to be the primary reason for difficulty in infrastructural development. In 2013, the Raghuram Rajan Committee set up by the Centre, placed Bihar in the “least developed category” and suggested a new methodology based on a ‘multi -dimensional index’ for devolving funds instead of a SCS, which can be revisited to address the State’s socio-economic backwardness.
The writer reads law at RGNUL, Punjab.
- On November 22, the Chief Minister Nitish Kumar-led Cabinet passed a resolution seeking the grant of special category status (SCS) to Bihar.
- The SCS was introduced in 1969 on the recommendation of the fifth Finance Commission (FC).
- The demand for SCS for Bihar has been made by various political parties of the State time and again. The poverty and backwardness of the State are argued to be because of the lack of natural resources, continuous supply of water for irrigation, regular floods in the northern region and severe droughts in the southern part of the State.
