IN NEWS: Recently, the Bihar state Cabinet passed a resolution seeking the grant of special category status (SCS) to Bihar. The demand comes in the backdrop of the findings from the “Bihar Caste-based Survey, 2022”, which revealed that nearly one-third of Bihar’s population continues to live in
poverty.
Special category status
- It is a classification granted by the Centre to assist the development of States that face geographical or socio-economic disadvantages. The SCS was introduced in 1969 on the recommendation of the fifth Finance Commission (FC).
- Five factors such as
- Hilly and difficult terrain
- low population density and/or sizeable share of tribal population
- strategic location along international borders
- economic and infrastructural backwardness
- non-viable nature of state finances, are considered before granting SCS.
- In 1969, three States — Jammu & Kashmir, Assam and Nagaland — were granted the SCS. Subsequently, eight more States including Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Sikkim, Tripura, Himachal Pradesh, and Uttarakhand were given the SCS by the erstwhile National Development Council.
- The SCS States used to receive grants based on the Gadgil-Mukherjee formula, which earmarked nearly 30% of the total central assistance for States to the SCS States.
- However, after the abolition of the Planning Commission and the recommendations of the 14th and 15th FC, this assistance to SCS States has been subsumed in an increased devolution of the divisible pool funds for all States (increased to 41% in the 15th FC from 32%).
- Additionally, in the SCS States, the Centre-State funding of centrally sponsored schemes is divided in the ratio of 90:10, far more favorable than the 60:40 or 80:20 splits for the general category States.
- Besides, there are several other incentives available to the SCS States in the form of concession in customs and excise duties, income tax rates and corporate tax rates to attract investments to set up new industries etc.
- The Gadgil Formula comprising (i) Population 60% Per Capita Income (PCI) 10% Tax Effort 10% On-going Irrigation & Power Projects [10%] and (v) Special Problems [10%] was used during 4th FYP (1969-74) and 5th FYP (1974-78).