Special Category Status For Bihar: What it Is? Its Benefits and Challenges

Context: This article is based on an Editorial “Bihar Cabinet passes resolution seeking special category status to State” which was published in the Hindu. Recently, In the 26th Eastern Zonal Council (EZC) meeting, Bihar’s Chief Minister appealed to the Union Home Minister, emphasizing the need for Special Category Status for Bihar.

About Special Category Status

• A Classification for the Development:  SCS is a classification provided by the Centre to support the development of states facing geographical or socio-economic disadvantages.
• Introduction: It was introduced in 1969 on the Fifth Finance Commission’s recommendation.
  • Jammu & Kashmir, Assam, and Nagaland were the first three states to receive SCS.
  • Current Scenario: Eleven States — Assam, Nagaland, Himachal Pradesh, Manipur, Meghalaya, Sikkim, Tripura, Arunachal Pradesh, Mizoram, Uttarakhand and Telangana.
    • Telangana, the newest State of India, was accorded the status.
• Criteria Used for Granting  Special Category Status:
  • Hilly and difficult terrain
  • Low population density and/or a significant tribal population
  • Strategic location along international borders
  • Economic and infrastructural backwardness
  • Non-viable nature of state finances

Must Read: 26th Eastern Zonal Council (EZC) Meeting Held at Patna, Bihar

Why is Bihar CM demanding the Special Category Status For Bihar?

• Bihar meets most of the criteria for the grant of SCS, it does not fulfill the requirement of hilly terrain and geographically difficult areas.
• Economic Disparities: The per capita net state domestic product at current prices (Base Year 2011-12) is far less than Maharashtra and Gujarat.
• High Poverty and Backwardness: As per the Bihar caste survey, 34.1% of households are poor.
• Geographical Challenges: The state faces regular floods in the northern region and severe droughts in the southern part, affecting agricultural productivity and livelihoods.
• • Out of 38 districts, 28 districts get flooded causing huge loss of property, lives, farmlands, and infrastructure.
  • Impact of Bifurcation: Its bifurcation (the creation of Jharkhand) resulted in the relocation of industries and diminished employment opportunities.

Learn more about Why Bihar CM Demands The Status Of Special Category State, here.

Special Category Status: Benefits

• Financial Grants: As per the 15th Finance Commission, the devolution of divisible pool funds for all states has been increased from 32% to 41%.
• Centre-State Funding for Schemes: In SCS States, the funding ratio for centrally sponsored schemes is favorable at 90:10 (Centre-State), compared to the 60:40 or 80:20 splits for others.
• Incentives for Investments: SCS States enjoy several incentives to attract investments, including concessions in customs and excise duties, income tax, and corporate tax rates.
• Debt Management Privileges: SCS states have benefits of debt-swapping and relief schemes.
• Carry-Forward Provision for Unspent Funds: These states have the facility to carry forward the unspent money in a financial year for the next financial year.

Special Category Status: Challenges 

• Fiscal Implications: It can strain Central Finances due to financial commitments to these states.
• • The increased allocation by the Finance Commission raises questions about the current relevance of the SCS structure.
• Demands from Other States: Giving special status to a state leads to demands from other states. 
• Lack of Consent among states on the Criteria: It has been a persistent issue. 
• Performance Discrepancy: Data indicates that SCS states like Jammu and Kashmir, and Uttarakhand lag behind non-SCS states like Haryana and Punjab in economic progress.
• Uniformity in Treatment: The principle of treating all states equally, as emphasized by the Finance Commission, creates challenges in granting SCS selectively to specific states.

Way Forward

• Consensus on Criteria is required for the principles guiding the grant of SCS.
• Need for an economically integrated policy based on the mutual consent of states and other states.
• Time for a self-reliance policy environment rather than excessive reliance on central support.
• Alternative Approaches should be explored. Example: Need to consider recommendations of the Raghuram Rajan Committee for emphasizing a ‘multi-dimensional index’ for fund allocation.

Conclusion:

The recent appeal by Bihar’s Chief Minister for Special Category Status For Bihar highlights the necessity of a careful balance between recognizing regional challenges and ensuring fiscal responsibility, emphasizing the imperative for a consensus-driven, economically integrated policy framework to promote self-reliance and equitable development.

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