Special Category Status and States
At present there are 11 States that enjoy Special Status and Special Category Status. What's in store for the rest? What's the difference between these two tags? Read ahead.
Did Northeast Get a Raw Deal from the 14th Finance Commission?
The Fourteenth Finance Commission has been widely hailed as a watershed in centre-state relations in India. The Prime Minister’s focus on cooperative federalism received a major boost when the Commission recommended a devolution of 42 per cent tax revenues – a jump by a massive 10 percentage points – to the states. However, some have criticised the cut in central outlays for various social sector schemes. The government claims it could have done no better because the pool of money available with it had decreased due to increase in devolutions. The more serious protest, in my opinion, has come from the Chief Ministers of the Northeastern States.
Eight Northeastern States including Sikkim which are members of the North Eastern Council have adopted a resolution expressing the fear of discontinuation of special category status of Northeastern States following the recommendations of 14th finance commission and the Union budget of 2015-16. At the time when states like Bihar and Andhra Pradesh are demanding special category status, it is important to examine what the new institutional framework is with regards to the same. If there is any dilution or complete scrapping of the special category status, as is being widely alleged, what will be its likely impact?
Which are the states with special category status? And why have they been accorded such status?
The Special Category Status has been awarded to eleven states – Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland and Tripura, Sikkim, Jammu & Kashmir, Himachal Pradesh and Uttarakhand – by the National Development Council. The special characteristics that necessitate special consideration for these states include: (i) hilly and difficult terrain, (ii) low population density and/or sizeable share of tribal population, (iii) strategic location along borders with neighbouring countries, (iv) economic and infrastructural backwardness and (v) non-viable nature of state finances.
As we can see, all the Northeastern States possess the special category status. There are number of advantages available to Northeastern States, many (not all) on account of special category status. However, the 14th Finance Commission has explicitly ruled out any distinction between special and general category states. The Commission asserts that it has “taken into account the disabilities arising from constraints unique to each State to arrive at the expenditure requirements.” The 14th Finance Commission also noted the need for continued special focus on Northeastern states, “particularly in terms of social and economic infrastructure with inter-state significance.” The Commission further stated, “We, therefore, believe that the proposed new institutional arrangement should have a special focus on these States, particularly in terms making investments in infrastructure.” The Commission went on to urge “that the suggested new institutional arrangement also consider taking up issues related to identifying and recommending resources for inter-state infrastructure schemes in the North-eastern States.”
Since the 14th Finance Commission ruled out distinction between special and general category states, did it necessarily mean Northeastern States suffering as a consequence? The overall share of the North Eastern states in all the sharable taxes except service tax has increased from 6.15% in 2010-15 (13th Finance Commission) to 7.91% in 2015-present (14th Finance Commission). The corresponding share in service tax has also seen a jump from 6.24% to 8.06%. Assam is the only state that has seen a decline.
But Northeastern States enjoyed certain other privileges which have now apparently gone. The eight Northeastern States along with Jammu and Kashmir, Himachal Pradesh and Uttarakhand enjoy liberal funding norms for “Externally Aided Projects” (EAP). The loan burden for EAPs is shared by Government of India and Special Category States in the ratio of 90:10. The difference between special and generally category states with respect to funding for EAPs can be discerned through an extract from a handbook of Department of Economic Affairs:
“As all the external development finance from the external agencies is received by the Central Government, such development finance is passed on to the State Governments through the central budget in the form of “Additional Central Assistance for Externally Aided Projects (ACA for EAPs)”. For the Agreements signed prior to 01.04.2005, external development finance to “Non-Special Category States” was released as ACA for EAPs in the loan/grant ratio of 70:30. However, now for the Agreements signed on or after 01.04.2005, transfer of external development finance to “Non-Special Category States” is done on “back-to-back” basis on same terms and conditions as attached to such development finance by external funding agencies. For “Special Category” States viz., Arunachal Pradesh, Assam, Himachal Pradesh, Jammu & Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura and Uttarakhand, external loan is still being transferred on loan/grant ratio of 10:90, as was done prior to 01.04.2005.”
The report of the 14th Finance Commission as well as the Union Budget of 2015-16 is silent over the fate of various modes of Central Assistance like Normal Central Assistance (NCA), Special Plan Assistance (SPA), Special Central Assistance (SCA) and other Additional Central Assistance (ACA). A Niti Aayog documentassessing the National Development Agenda in the context of Fourteenth Finance Commission and the Union Budget of 2015-16 categorically mentions that “allocation for Block grants given by the erstwhile Planning Commission to States/ UTs in terms of Normal/ Additional Central Assistance/ Special Plan Assistance, etc. has been discontinued in 2015-16.” These schemes have been subsumed into the increased devolution that has been effective based on the recommendations of 14th Finance Commission.
Normal Central Assistance (NCA) was a lump sum amount provided as a Central Assistance to supplement state resources for financing state plans. NCA was an untied fund distributed on the basis of Gadgil-Mukherjee formula. It was allocated by the erstwhile Planning Commission and was released by the Ministry of Finance in 12 monthly instalments. As per the revised Gadgil-Mukherjee formula, 30 per cent of the Normal Central Assistance is earmarkedfor special category states. Besides, the assistance is provided in the grant-loan ratio of 90:10 and 30:70 to special and general category states respectively.
We have already talked about Additional Central Assistance for Externally Aided Projects. There were also other types of Additional Central Assistance for special category states. Special Plan Assistance (SPA) was meant only for special category states. The projects identified by the state which were not covered under any central scheme and involved non-recurrent expenditure were eligible for SPA based on the recommendation of erstwhile Planning Commission. Special Plan Assistance also comprised of 90 per cent grants. Special Central Assistance (SCA) was given by the erstwhile Planning Commission for special projects like Hill Areas Development Programme (HADP) and Western Ghat Development Programme (WGDP). The grant ratio was 90% of the project cost.
Before coming to Centrally Sponsored Schemes (CSS), let us ascertain the impact of scrapping NCA, SCA, SPA and ACA on the Northeastern states. During the 10th and 11th Plan, Northeastern states received as much as Rs 34,764 crores and Rs 73,374 crores respectively from these four kinds of Central Assistance. Assam, the largest beneficiary of these Central assistance programs among the Northeastern States, received Rs 22,673 during the 11th Plan.
Now, the Centrally Sponsored Schemes. The Union Budget 2015-16 presented by Finance Minister Arun Jaitley delinked a total of eight Centrally Sponsored Schemes (CSS) claiming lack of funds due to greater devolution of tax revenues. This includes Backward Region Grant Fund (BRGF) which is crucial for many Northeastern States. As recently as in 2014-15, Rs 438.72 crores was allocated to North Eastern states under BRGF. Assam alone received around half of this amount – Rs 213.65 crores. In addition to this, many schemes will now see an altered financing pattern where the states will contribute higher resources than before. National Health Mission, National Livelihoods Mission, Integrated Child Development Service (ICDS) are among the schemes that will involve much greater financial contribution from the states.
The massive cut in central funding is bound to impact North Eastern states much more than other states. Northeastern States contribution to Centrally Sponsored Schemes ranges generally between 10% and 20% whereas for other states it is generally between 20% and 50%. The special category states also enjoy some tax incentives and concession in excise and custom duties but “there is no explicit linkage between the incentives and the special status.” The incentive structure varies across the special category states.
The Chief Ministers of Northeastern States are repeatedly requesting the central government to reinstate the special category status. Some developments do indicate that this might indeed happen. Under the aegis of Niti Aayog, a sub-group of Chief Ministers has been “constituted to examine the current CSS and recommend their suitable rationalisation.” The sub-group is chaired by Shivraj Singh Chouhan, Chief Minister of Madhya Pradesh and has his counterparts from four special category states of Arunachal Pradesh, Jammu and Kashmir, Manipur and Nagaland. According to media reports, the draft report of the sub-group suggests CSS to be divided into two broad groups – a) core schemes which have legislative backing and are funded by Centre and State in the ratio 60:40 for general category states and 90:10 for special category states; and b) optional schemes which are funded by Centre and State in the ratio 50:50 for general category states and 80:20 for special category states.
If such a report which explicitly recognising distinction between special and general category states is accepted, then there is a chance of other benefits of the former being reinstated as well?
However, there is a bigger question. Is the utility of special category status overstated? NK Singh, a former Member of Parliament and Member of erstwhile Planning Commission, certainly thinks so. He says, “Special area-based sops have outlived their relevance and utility. There is no substitute for conventional economics. Development propped by sops alone is short-lived.” A more interesting comment was offered by Bibek Debroy, a current member of Niti Aayog. While he was not directly responding to utility of special category status, he nonetheless hinted his stance, “Hilly and difficult terrain isn’t specific to the 11 special-category states. Other states also grapple with hilly and difficult terrain. Indeed, at one level, particularly for large and heterogeneous states, it isn’t even a state-level problem. It’s a district-level problem, or perhaps even more localised than that.”
Is special status for large administrative units such as states a manifestation of our lethargic economic planning? Special status first came into picture when the Fifth Finance Commission awarded it to Assam, Nagaland and Jammu and Kashmir in 1969. Subsequently more states have been added to the list and still some are in the queue. Has the time come to take more granular entities like districts to build a financial devolution framework? Perhaps yes. The danger, however, with such a leap is falling between two stools.
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Key News and Op-eds::
[Discuss] Hollow promise of ‘special status’
Demand for Special Category Status is being used to pursue political goals instead of furthering the development goals. Discuss.
More Open Questions –
- Whether the 10 states like JK, HP, UK and Seven Sister states special or special category?
- Whether it is decided by Gadgil formula or Gadgil-Mukherjee formula?
- What exactly are the advantages of special status?
- Nitish Kumar is vying for special category status, right? 5. What will be the perks now as the central allocation reduces amount for special (or Special category) states?
The discussion will be summarised and updated the next day.
Nothing special about Special Category States any longer
Bihar Chief Minister Nitish Kumar has been demanding Special Category Status (SCS) for his state for at least three years now.
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.
Why? The NITI Aayog, which has replaced the Planning Commission, has no power to allocate funds.
In Budget 2015-16, states received a significantly higher share of central taxes — 42 per cent, or 10 percentage points more than before.
Special Status vs. Special Category Status – What’s the difference?
- Special Status is guaranteed by the Constitution of India through an Act passed by the two-third majority in both houses of the Parliament (example – J&K)
- Special Category Status is granted by the National Development Council, an administrative body of the government.
While Special Status empowers legislative and political rights, Special Category Status deals only with economic, administrative and financial aspects.
Centre ruled out Special Category Status (SCS) for Bihar
Why?
- Reason given is that the 14th Fin Commission had not made any difference between general states and SCS for the horizontal distribution among them.
- However, special assistance on lines of what was provided to Andhra Pradesh post bifurcation has already been allotted to Bihar and West Bengal in this year’s budget.
Ordinance route not possible for granting special category to AP
Special category status is usually based on the recommendations of the National Development Council (NDC).
What are the parameters?
- Low resource base, hilly & difficult terrain
- Low population density or sizeable share of tribal population
- Backwardness, border states/ sharing the international border
- Economic & infrastructural backwardness
- Non-viable nature of state finances
‘Special Category Status’ is the new catch phrase
- Till a few days ago, words such as ‘Samaikyandhra’ and ‘integrationist’ were the buzzwords in Andhra Pradesh politics.
- But, now ‘Special Category Status’ appears to be the catch phrase.
Is this the new carrot that is being dangled by the Congress for the people of both the regions? Former Rajya Sabha Member Yelamanchili Sivaji feels so.
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