By G Krishna Mohan Rao*
New Delhi: Finance Minister Nirmala Sitharaman, a few days ago, made it clear in Bhuvaneswar that the Centre will not consider the demand for “special category status”, for any state. This resulted in a major economic blow for the states like Bihar, Andhra Pradesh and Odisha, which are vehemently demanding the Union Government for Special Category Status (SCS) for quite some time. The Finance Minister’s announcement came while she was interacting with the media on the 2023-24 Union Budget. Sitharaman was visiting various state capitals to explain the Union Budget and take feedback.
The Bihar Chief Minister Nitish Kumar has been pressing for SCS for some years. Nitish Kumar, who has been chief minister for more than 16 years, consistently slammed the Union Government for not according the Special Category Status to Bihar given the socio-economic backwardness of the state.
Odisha’s Naveen Patnaik, chief minister for the last 23 years, is also at the forefront of pressing for SCS for his state on various grounds. While for Andhra Pradesh, then Prime Minister Man Mohan Singh committed SCS on the floor of the Lok Sabha in 2013 when Telangana was separated from AP. Ever since, Andhra has been demanding, even as the Centre has been delaying the matters for one reason or the reason.
In fact, Bihar and Odisha have been pressing for SCS in order to avail 90% of funds in centrally sponsored schemes, instead of the present arrangement of 60% besides other benefits. Odisha has been seeking change in criteria to accommodate it keeping in mind it’s vulnerable to natural disasters. Earlier this month, in the parliamentary debate on the motion of thanks to President Droupadi Murmu’s address, the Biju Janata Dal MPs strongly pleaded for SCS. The Finance Minister Sitharaman, on February 17, 2023, while denying SCS quoted the 14th Finance Commission, which clearly said “no more SCS to any state”.
Government sources indicated that given the present macroeconomic situation in the country, the Centre cannot grant SCS status as it would affect the other neighbouring states. Today, each state is competing with others in attracting investments and the new tax regime under the present GST system would make it difficult for the Centre to grant SCS. It is said that during the last Lok Sabha, from 2014 to 2019, the then chairman of the parliamentary standing committee on Finance, Veerappa Moily (Congress MP) opposed the SCS vehemently.
Sources said that not only did the Niti Aayog governing council oppose the SCS to states like Bihar and Odisha, but even at the NDC (National Development Council) meetings, this move was opposed, with several arguing against this citing that there was no provision for SCS in the Constitution. Veteran leaders like Nitish Kumar and Naveen Patnaik tried their best through political pressure and other means without any success.
Though there is no provision for SCS in the Constitution, the Centre over the years has been assisting the states, which are facing geographical and socio-economic disadvantages based on Gadgil Formula. It was Jammu and Kashmir which became the first state with SCS in 1969. Based on the parameters indicated in the Gadgil Formula SCS evolved. They include Hilly terrain; low population density / sizeable share of tribal population; strategic location along borders with neighbouring countries; economic and infrastructural backwardness and non-viable nature of state finances.
Based on the above parameters, the states which are enjoying the SCS at present include Jammu and Kashmir, Arunachal Pradesh, Himachal Pradesh, Manipur, Meghalaya, Mizoram, Sikkim, Tripura and Uttarakhand. The 14th Finance Commission made it clear that other than the above states no new states would be granted the SCS. Instead, the Commission said that the resources gap of each state is filled through “tax devolution”, urging the Centre to increase the state’s share of tax revenues from 32% to 42% which has been implemented since 2015.
The states which are given the SCS get several benefits. The Centre pays 90% of the funds required in a centrally sponsored scheme to SCS states as against 60% or 75% in the case of other states, while the remaining funds are provided by the state governments. Unspent money does not lapse and is carried forward. Significant concessions are provided to these SCS states in excise and customs duties as well as Income Tax and Corporate tax.
*Senior journalist
