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What is Special Category Status (SCS)?


With the General Elections throwing up a fractured mandate, Nitish Kumar’s Janata Dal (United) and Chandrababu Naidu’s Telugu Desam Party are set to play a key role in government formation at the Centre. Consequently, their past demands for special category status (SCS) for Bihar and Andhra Pradesh, respectively, are back in focus. This development highlights the intricacies of coalition politics and the potential influence of regional parties on national policy-making.


GS II: Polity and Governance

Dimensions of the Article:

  1. What is Special Category Status (SCS)?
  2. Why Bihar and Andhra Pradesh (AP) Are Demanding SCS and Its Feasibility?

What is Special Category Status (SCS)?

Criteria for Eligibility:
  • States must meet specific conditions based on the Gadgil formula:
  • Possession of hilly and challenging terrain.
  • Low population density and/or a significant proportion of tribal population.
  • Strategic location along borders with neighboring countries.
  • Economic and infrastructural backwardness.
  • Non-viable state finances.
Historical Context:
  • Introduced in 1969 following the recommendations of the Fifth Finance Commission, chaired by Mahavir Tyagi, to support backward states.
  • Initially granted to Assam, Jammu and Kashmir, and Nagaland.
  • Formalized in April 1969 with the approval of the Gadgil formula by the National Development Council (NDC).
  • Subsequently, more states received SCS upon attaining statehood, including:
  • Himachal Pradesh (1970-71), Manipur, Meghalaya, Tripura (1971-72), Sikkim (1975-76), Arunachal Pradesh, Mizoram (1986-87), Uttarakhand (2001-02).
  • Currently, 11 states hold SCS, including Assam, Nagaland, Himachal Pradesh, Manipur, Meghalaya, Sikkim, Tripura, Arunachal Pradesh, Mizoram, Uttarakhand, and Telangana.
  • Telangana, India’s newest state, received SCS due to financial impacts from its separation from Andhra Pradesh.
  • States like Andhra Pradesh and Bihar, along with Odisha, are also demanding SCS.
Benefits of SCS:
  • Central assistance of up to 90% in grants and 10% in loans for centrally sponsored schemes.
  • For non-SCS, Central Assistance is 30% grant and 70% loan.
  • Special Plan Assistance for projects of special importance to the state.
  • Unspent funds do not lapse at the end of the financial year.
  • Tax concessions, although many tax benefits are now integrated into the Goods and Services Tax (GST) regime.

Why Bihar and Andhra Pradesh (AP) Are Demanding SCS and Its Feasibility?

Bihar’s Demand:
  • Bihar has sought SCS since the mineral-rich region of Jharkhand was separated from it in 2000.
  • According to the Centre’s Multidimensional Poverty Index (MPI) report, Bihar is recognized as the poorest state in India.
  • Nearly 52% of Bihar’s population lacks adequate access to essential health, education, and living standards.
  • Although Bihar meets most of the SCS criteria, it does not satisfy the conditions of having hilly terrain and geographically challenging areas.
Andhra Pradesh’s Demand:
  • Following the state’s bifurcation in 2014, the UPA government at the Centre had pledged to grant SCS to AP to offset the loss of revenue and the development hub of Hyderabad.
  • Presently, AP is predominantly an agrarian state with low economic buoyancy, leading to significant revenue challenges.
  • SCS would result in increased grants-in-aid from the Centre. For example, per capita grants to SCS states amount to Rs 5,573 crore per year, whereas AP receives only Rs 3,428 crore.
Feasibility and Financial Considerations:
  • The 14th Finance Commission observed that granting SCS was a strain on the Centre’s resources, a reason cited by the central government for not extending SCS to more states.
  • To address the resource gap without granting SCS, tax devolution to states was increased to 42% as recommended by the 14th Finance Commission, and maintained at 41% by the 15th Finance Commission.
  • With the 16th Finance Commission now in place and working on tax devolution formulas for the five-year period beginning April 1, 2026, providing special category status to Bihar and AP could become a more manageable task.

-Source: Indian Express

June 2024