Sops under Special Status

‘Special Category Status’ is a classification conferred by the Union government on certain states to push their comprehensive development. The Fifth Finance Commission recommended it 1969 to accord more Central assistance to such designated states.

Inclusion in the list requires states to fulfil the following conditions: i) hilly terrain; ii) low population density and/or sizeable share of tribal population; iii) strategic location along borders with neighbouring countries; iv) economic and infrastructure backwardness; and v) non-viable nature of State finances.

These states enjoy significant sharing in Central excise and customs duties, income tax and corporate tax. It is stipulated that 30 percent of planned expenditure (central budget) goes towards meeting requirements of such states.

Most of the Central funds are also in the form of grants – a main attraction of the Special Category Status. Centre is mandated to meet 90 percent of state expenditure (given as grants) on all centrally-sponsored schemes and external aid.

Even the remaining amount is given as loans to these states. Unspent money in a financial year does not lapse and gets carry forward. Debt swapping and debt relief schemes and relaxation under the Fiscal Responsibility and Budget Management Act also reduce fiscal burden of these states.

As such Special Category Status catalyses inflow of private investments and generates employment and additional revenue to state. However, as per the recommendations of the Fourteenth Finance Commission (FFC), the Central plan assistance to such States is subsumed in increased devolution of funds from the divisible pool to all States – from 32 percent in 13th FC recommendations to 42 percent.

Hence, the Status itself is no longer applicable now. TDP came to power in Andhra Pradesh, promising Special Category Status for 10 years, double the term under the SCS norms. But with NITI Aayog opposing inclusion of AP among SCS States, the Centre cited FFC recommendations as capable of undoing the damage.