What is it?

• A Special Category Status (SCS) is a classification given by the Centre to assist in the development of those states that face geographical and socio-economic disadvantages like hilly terrains, strategic international borders, economic and infrastructural backwardness, and non-viable state finances.

Historical background

• The Constitution does not have any provision for categorisation of any state as a Special Category Status State.
• The concept of a special category status was first introduced in 1969 when the fifth Finance Commission sought to provide certain disadvantaged states with preferential treatment in the form of central assistance and tax breaks, establishing special development boards, reservation in local government jobs, educational institutions, etc.
• This formula was named after the then Deputy Chairman of the Planning Commission, Dr Gadgil Mukherjee and is related to the transfer of assistance to the states by centre under various schemes.

When was the first Special Category status bestowed?

• Initially, three states; Assam, Nagaland and Jammu & Kashmir were granted special status but from 1974-1979, five more states were added under the special category. These include Himachal Pradesh, Manipur, Meghalaya, Sikkim and Tripura.
• In 1990, with the addition of Arunachal Pradesh and Mizoram, the states increased to 10. The state of Uttarakhand was given special category status in 2001.

Who grants special status to states?

• Special category status for plan assistance has been granted in the past by the National Development Council (NDC), composed of the Prime Minister, Union Ministers, Chief Ministers and members of the planning commission, who guide and review the work of the commission.
• Some of the features required for special status are:
  • Hilly and difficult terrain
  • Low population density or sizeable share of tribal population
  • Strategic location along borders with neighbouring countries
  • Economic and infrastructural backwardness
  • Non-viable nature of state finances

Benefits states confer with special category status

• States which are granted special category status enjoy several benefits which includes
  • The Centre pays 90 per cent of the funds required in a centrally-sponsored scheme to special category status category states as against 60 per cent in case of normal category states, while the remaining funds are provided by the state governments. 
  • Preferential treatment in getting central funds.
  • Concession on excise duty to attract industries to the state.

Discontinuation of the Gadgil formula-based grants

• The 14th Finance Commission stated that there is no distinction between special and general category States in determining norms and recommendations. 
• The Centre said that the concept of Special Category Status has been effectively discontinued since 2015 when the recommendations of the 14th Finance Commission were accepted.

Why in News?

• Andhra Pradesh Chief Minister Y.S. Jagan Mohan Reddy reiterated that the Central government was obliged to grant Special Category Status to Andhra Pradesh as per the commitment given in Parliament as a precondition to bifurcation.

Why does Andhra Pradesh want to get Special Category Status?

• When Andhra Pradesh was bifurcated in 2014, it sought Special Category Status on the grounds that it was at a disadvantage, since it would lose a significant amount of revenue as a result of Hyderabad going to Telangana, the new state that came into existence on June 2, 2014.
• Andhra Pradesh was promised Special Category Status by the Congress government, which was at the Centre during the state bifurcation.
• Manmohan Singh, who was then Prime Minister, said in the Rajya Sabha that special category status would be extended to Andhra Pradesh for five years to help put the state on a firmer footing. This oral submission by the then PM has been the basis for Andhra Pradesh’s claim to the status. 
• BJP, which was in the opposition, also stated that it would extend it to five more years if it formed the government.

Ongoing tussle

• However, the 14th Finance Commission did away with the distinction between general and special category states since it had taken into account the level of backwardness of states in the proposed transfer of funds to states. 
• The idea was that adequate resources would be allocated through tax devolution and grants to address interstate inequalities. The special category status was therefore restricted to the three hill states ( J&K, Himachal Pradesh and Uttarakhand) and those in the Northeast. 
• It was also decided that a revenue deficit grant would be provided for certain states for which devolution alone would be insufficient. Andhra was one of the states that were to be given a revenue deficit grant.
• The Centre had said it was willing to provide the “monetary equivalent” of a special category state to Andhra Pradesh but would not be able to grant the “special status” that was restricted only to the north-eastern and three hilly states by the 14th Finance Commission.
• The demand for the special category status for the southern state has been a constant issue ever since the inception of Telangana in 2014.

Reference:

1. https://www.thehindu.com/news/national/andhra-pradesh/centre-sticks-to-its-guns-on-special-status/article28130055.ece