Thursday, Dec 01, 2022

Nothing special about Special Category States any longer

Recommendations of 14th Finance Commission, death of Plan panel have reduced Nitish Kumar’s clamour largely to poll-time political posturing.

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Bihar Chief Minister Nitish Kumar has been demanding Special Category Status (SCS) for his state for at least three years now. The pitch had reached a crescendo ahead of the 2014 Lok Sabha elections. Now, with Assembly elections scheduled in October, Nitish is once again clamouring for SCS.

But with the recommendations of the Fourteenth Finance Commission having been accepted, the SCS has been reduced, at best, to a political rallying point — not just for Bihar, but also for Odisha and Jharkhand. Budget 2015-16 has not provided for any such sop. The NITI Aayog, which has replaced the Planning Commission, has no power to allocate funds — therefore, the discretion that the ruling party at the Centre had to dole out special favours to states through the Plan panel, no longer exists.

The National Development Council first accorded SCS in 1969 to Jammu and Kashmir, Assam and Nagaland. Over the years, eight more states were added to the list — Arunachal Pradesh, Himachal Pradesh, Manipur, Meghalaya, Mizoram, Sikkim, Tripura and, finally, in 2010, Uttarakhand. Until 2014-15, SCS meant these 11 states received a variety of benefits and sops.

How is SCS accorded? In the past, the NDC considered factors such as hilly and difficult terrain, low population density and/or a sizeable share of tribal population, strategic location along borders, economic and infrastructural backwardness, and non-viable nature of state finances.

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What benefits did SCS receive? Despite the mess governments often made of transfers through the Planning Commission, special category states received funds on very favourable terms under several mechanisms. For instance, in 2014-15, 44 per cent of Plan funds, or Rs 2.53 lakh crore, went to states through centrally sponsored schemes (CSS). Special category states had to pay just 10 per cent of the spend on a particular CSS. These 11 states also received a bigger chunk of block grants to states, which accounted for Rs 86,250 crore, or another 15 per cent of Plan funds — much of it as grants.

Nitish is right to claim that the share of central taxes and duties to his state has dropped (to 9.69 per cent) under the Fourteenth Finance Commission from 10.88 per cent in the Thirteenth Finance Commission. But in absolute terms, it has jumped 136 per cent to Rs 4,08,555 crore for the period 2015-16 to 2019-20.
Also, the grants-in-aid for local bodies has jumped to 8.24 per cent or Rs 23,695 crore compared with the 6.49 per cent devolution — or Rs 5,682 crore — under the 13th Finance Commission.

In Budget 2015-16, states received a significantly higher share of central taxes — 42 per cent, or 10 percentage points more than before. While this does mean more untied funds to states, the Finance Ministry also slashed the outlay under the CSS — which has led to an outcry from several states, which are complaining that in effect, they are receiving less money from the Centre than before. This is one issue that is being addressed by a NITI Aayog task force chaired by MP Chief Minister Shivraj Singh Chouhan.


The Finance Ministry’s reasoning for withdrawing sops is that the higher 42 per cent devolution takes into account all needs of states. What has upset Nitish is that the Budget has not allocated funds under the Backward Regions Grant Fund (BRGF) programme and the Integrated Action Plan for Left Wing Extremism (LWE) affected districts. The BRGF covered all 38 districts of the state. Between 2006-07 and 2014-15, these districts were cumulatively allocated around Rs 6,165 crore. In addition, the Centre had approved Rs 12,000 crore during the Twelfth Plan (2012-13 to 2016-17). The state has received only Rs 3,700 crore so far, and has demanded that the balance be released now. But all this found no mention in the Budget, which also did not provide for any assistance to districts affected by LWE.

It is not that the Centre’s outlook towards Bihar has changed only now. An inter-ministerial group set up in July 2011, that submitted its report in 2012, specifically said Bihar did not satisfy any of the criteria set out by the NDC, and hence did not qualify for special category status. The issue is still under the Centre’s examination.

Again, a committee under former Chief Economic Advisor Raghuram Rajan (now RBI Governor) did say that Bihar was a backward state, but ranked it above Odisha — so, purely in terms of backwardness, Odisha deserved SCS more than Bihar. But now that the Fourteenth Finance Commission’s award has been accepted by the government, there is no raison d’etre for special category statuses.

First published on: 28-07-2015 at 04:15:41 am
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