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Special Category State

News Date:02-Apr-2013

The Special category issue has once again occupied the centre stage. After union Finance Minister P Chidambaram mentioned in his budget speech the Centre’s willingness to reconsider the criteria for determining states that deserve a special category status (SCS), the question has picked up a momentum rather substantially. Bihar Chief minister Nitish Kumar was the first to heap praise on Chidambaram saying, "this is big victory for the people of Bihar. It will eventually pave the way for according special status to Bihar’.Nitish’s speaking well of Chidambaram has of course acquired political overtones, some seeing this as a precursor to a possible tie-up between the JD (U) and the Congress. But that’s a different story. What the finance minister said in his 2013-14 Budget speech last Thursday needs a revisit. The FM’s contention was that the present criteria for determining backwardness are based on terrain, density of population and length of international borders. And, so, it will be more relevant if measures like distance of the state from the national average under such criteria as per capita income, literacy and other human development indicators are used. He, in fact, proposed a new set of criteria and reflects them in future planning and devolution of funds. Right away, special category status is officially accorded to states which have some distinct characteristics such as backwardness and social conflict, besides the three major qualifications mentioned above. Once a state gets a special category status, the Centre gives up to 90 per cent of its assistance to be treated as grant. Other states not categorized as SCS get 30 per cent of central assistance as grant. Remaining 10% or 70 % of the central funds, as the case may, is treated as loan. The story of the special category consideration is at least three decades old. In 1969, while devising formula for sharing central assistance among states, the Fifth Finance Commission following the Gadgil formula, had accorded special status to 3 states-later on it went up to 11 - on the basis of the three ‘known’ criteria. Currently, there are 11 states who enjoy the special status — Arunachal Pradesh, Assam, Himachal Pradesh, Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura & Uttarakhand. As per the Gadgil formula, a special category state also gets preferential treatment in federal assistance and tax breaks. The special category states get significant excise duty concessions, which help these states attract large number of industrial units to establish manufacturing facilities within their territory. The special category states have yet another advantage. Unlike other states, there is no hard budget constraint as the central transfer is reasonably high. Through the enactment of Fiscal Responsibility and Budget Management (FRBM), these states also avail the benefit of debt swapping and debt relief schemes which facilitate reduction of the average annual rate of interest. Not for nothing that there is a big clamor for SCS by state after state! But the big question is which state is backward and which is not? Bihar is of course economically backward and also falls on Indo- Nepal border. Chhattisgarh and Odisha have been demanding special category status due to extreme poverty and also the fact these two neighboring states are Naxalite-ridden.There are state like Goa,Jharkhand and Rajasthan who have been demanding the special category status. Unfortunately, whenever there has been a demand for special category status from states, they have been perpetually rejected by the centre on the pretext that bowing to such demands would spark off similar demands from other states and make it difficult for the centre to balance them. And, yet, the list only goes up by the day! Odisha has been one state which has been constantly at loggerheads with the centre on this particular issue. Curiously, Odisha Chief Minister Naveen Patnaik has not reacted to Chidambaram’s gesture to the backward states although he has been pressing for the special category status to ever since he captured power in a dozen years ago citing the state as one of the poorest in the country. But Odisha’s demand for a special category status is more than three decades old. In 1979, a resolution was passed in the state assembly to this effect and the issue has been raised by different governments and at different fora, only to get a rebuff. There are three specific reasons why Odisha-and logically Chhattisgarh too- should get a SCS status: very high concentration of scheduled tribe and scheduled caste population, adverse human development indicators and high incidence of poverty. In other words, Odisha and Chhattisgarh meet all the criteria for special category status excepting that these two states don’t have an international boundary. Now that Mr. Chidambaram has agreed to revise the criteria it is only to be hoped that the states will get some kind of a status, if not complete special category status! But then one has to wait till a new government takes over in the next couple of months. Special category status is too big an issue left to departing governments.


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