Context:  This article is based on the news “Bihar Cabinet passes resolution seeking special category status to State” which was published in the Hindu. Recently, Bihar’s Chief Minister urged the Union Home Minister to give the Status of Special Category State for Bihar, during the meeting of the Eastern Zonal Council (EZC).

• Earlier, the Bihar Cabinet passed a resolution seeking special category status for the State.

Why is Bihar demanding the Status of a Special Category State?

• Poverty and Backwardness: High levels of poverty and backwardness characterize Bihar.
  • For Instance, According to the Bihar caste survey, 34.1 percent of Bihar’s 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.
  • For Example, 73.63% of the geographical area of North Bihar is considered to be prone to floods. 

• • Out of 38 districts, 28 districts get flooded (of which 15 districts are worst affected) causing huge loss of property, lives, farmlands, and infrastructure. 
  • Impact of Bifurcation: The bifurcation of Bihar, leading to the creation of Jharkhand, resulted in the relocation of industries. 
  • This shift diminished employment opportunities and reduced investments in Bihar.
• Economic Disparities: The per capita net state domestic product at current prices( Base Year 2011-12) for Bihar is 49,470 (FY 2021-22).
  • This is far less when compared to states such as Maharastra(2,15,233) and Gujarat (2,50,100).
• Bihar meets most of the criteria for the grant of Special Category Status, it does not fulfill the requirement of hilly terrain and geographically difficult areas.

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

What is a Special Category Status?

• Special Category Status 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 based on the Fifth Finance Commission’s recommendation.
• Criteria for Granting SCS:
  • 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.
• Initial States Granted Special Category Status (1969): Jammu & Kashmir, Assam, and Nagaland were the first three states to receive Special Category Status.
• Current State with SCS: Eleven States — Assam, Nagaland, Himachal Pradesh, Manipur, Meghalaya, Sikkim, Tripura, Arunachal Pradesh, Mizoram, Uttarakhand, and Telangana — have been accorded the special category state status.
  • Telangana, the newest State of India, was accorded the status.
• Constitutional Absence: The constitution does not include any provision for categorization of any State in India as SCS state.
• Special Category Status Cease to Exist: Following the recommendations of the 14th Finance Commission, the Special Category States cease to exist, and thus, no SCS has been granted to any State. 

Also Read: Caste Survey in Bihar 2023

What are the benefits of Special Category Status (SCS)?

• Financial Grants:
  • Under the Gadgil-Mukherjee formula, SCS States used to receive nearly 30% of total central assistance.
  • However, with the abolition of the Planning Commission and changes in funding mechanisms, assistance is now part of the increased devolution of divisible pool funds for all states (increased to 41% in the 15th Finance Commission from 32%).
• 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 general category states.
• 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: These states can avail the benefit of debt-swapping and debt relief schemes
• Carry-Forward Provision for Unspent Funds: Special category states have the facility that if they have unspent money in a financial year; it does not lapse and gets carried forward for the next financial year.

What are the challenges associated with Special Category Status?

• Fiscal Implications: Granting Special Category Status can strain Central Finances due to increased financial commitments to supported states.
• Demands from other states: Giving special status to a state leads to demands from other states too. 
  • For instance, demands from Andhra Pradesh, Odisha and Bihar.
• Assigning SCS criteria: Lack of consent among states on criteria used to assign SCS status to a state 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.
• Increased Allocation: The increased allocation (42%) to states after the 14th Finance Commission raises questions about the current relevance of the SCS structure.
• Uniform Treatment for States: The principle of treating all states equally, as emphasized by the Finance Commission, creates challenges in granting special category status selectively to specific states.

Way Forward

• Consensus on Criteria: A critical need for a consensus among states regarding the principles guiding the grant of Special Category Status (SCS).
• Economic Policy Integration: While SCS benefits act as a stimulus, the real impact rests on individual state economic policies.
• State Capacity Empowerment: States should recognize their industrial strengths, fostering a policy environment for self-reliance rather than excessive reliance on central support.
• Alternative Approaches: Explore alternative approaches like the one suggested by the Raghuram Rajan Committee, emphasizing a ‘multi-dimensional index’ for fund allocation.
  • In 2013, the Raghuram Rajan Committee set up by the Centre, placed Bihar in the “least developed category” and suggested a new methodology based on a ‘multi-dimensional index’ for devolving funds instead of a SCS, which can be revisited to address the State’s socio-economic backwardness.

Conclusion:

Bihar Chief Minister Nitish Kumar’s demand for the Status of a Special Category State during the 26th Eastern Zonal Council meeting reflects the ongoing efforts to address the developmental needs of the region.