Special Category Status (SCS)- Why is Bihar demanding the Special Category Status?

Source: This post on Special Category Status (SCS) has been created on the article “Why is Bihar demanding the Special Category Status?” published in The Hindu on 27th November 2023.

UPSC Syllabus Topic: GS paper 2- Indian polity- Issues and challenges pertaining to the federal structure.

News: The article discusses Bihar’s request for Special Category Status to help with its development challenges, such as poverty and lack of resources. This status would bring more financial aid and benefits. Other states also want this status, but it’s hard to get due to government policies.

What is Special Category Status (SCS)?

SCS is a classification for states in India that face specific challenges, like difficult terrain or socio-economic issues. It was introduced in 1969, based on the fifth Finance Commission’s recommendations.

Five Factors for SCS: (i) hilly and difficult terrain (ii) low population density and/or sizeable share of tribal population (iii) strategic location along international borders (iv) economic and infrastructural backwardness and (v) non-viable nature of state finances

Benefits of SCS:

Financial Benefits: Previously, SCS states received about 30% of central assistance based on the Gadgil-Mukherjee formula. However, post the 14th and 15th Finance Commission (FC) recommendations and the Planning Commission’s abolition, assistance changed to a shared pool of funds, increasing from 32% to 41% for all states.

Favorable Funding Ratios: In SCS states, the Centre-State funding ratio for centrally sponsored schemes is 90:10, more beneficial than the typical 60:40 or 80:20 for the general category.

Additional Incentives: SCS states enjoy concessions in customs, excise duties, income tax, and corporate tax rates to encourage investments and industry setup.

For more information on SCS read here

Why does Bihar want SCS?

Economic Backwardness: About one-third of Bihar’s population lives in poverty. The state has a low per-capita GDP of around ₹54,000, marking it as one of India’s poorest states.

Impact of Bifurcation: Bihar’s bifurcation led to industrial decline, with many industries moving to Jharkhand, resulting in fewer employment opportunities.

Natural Challenges: The state faces regular floods in the north and droughts in the south, impacting agriculture and livelihoods.

Need for Welfare Funding: Bihar’s Chief Minister highlighted the need for SCS to secure approximately ₹2.5 lakh crore for various welfare measures over five years.

Lack of Resources: Bihar argues its lack of natural resources and continuous water supply for irrigation contributes to its underdevelopment.

Note: States like Andhra Pradesh and Odisha also want SCS. Andhra Pradesh cites revenue loss after bifurcation, and Odisha points to natural disasters and a large tribal population (nearly 22%). However, the Central government, referring to the 14th FC report, has consistently rejected their requests, stating that no state should receive this status.

What should be done?

Reassessing Criteria for SCS: Given Bihar’s situation, there’s a need to revisit the criteria for SCS, especially considering Bihar meets most except for the hilly terrain and geographically difficult areas.

Alternative Funding Models: Following the Raghuram Rajan Committee’s suggestion, exploring new funding models based on a multi-dimensional index.

Addressing Bihar’s Specific Needs: Bihar urgently needs significant support for poverty alleviation, focused aid for disaster management and agriculture, and policies that attract new industries and create job opportunities.

Question for practice:

Evaluate the implications of granting Special Category Status (SCS) to states like Bihar?