Given the politically charged nature of democracy and the way autonomous institutions function in India, any change in the SCS list is likely to be controversial. (File)
The concept of special category status was introduced in 1969 by the Planning Commission in the Fourth Five-Year Plan. It was an instrument of positive intervention for allocating higher plan assistance to a few states (through the National Development Council, NDC) that were handicapped due to location and socio-economic factors. Balanced regional development in the country was its prime objective. Initially, only three states, Jammu and Kashmir, Assam and Nagaland, were given this status. Later, all northeastern states and Uttarakhand and Himachal Pradesh were given special category status.
The NDC provided plan assistance to states by using the Gadgil formula — higher weightage to population and economic deprivation — after reserving 30 per cent of funds for the special category states (SCS). The Finance Commission (FC) also recognised J&K, Assam and Nagaland as SCS in 1969. More importantly, the Commission incorporated the essence of the formula in meeting the budgetary deficits of these states as well as in designing the criteria for devolution of taxes. This is reflected in higher per capita transfers to the SCS since the Fifth FC in 1969. The Centre pays 90 per cent to SCS in centrally-sponsored schemes as grants and the rest 10 per cent as loans, as against 60 or 75 per cent grants in the case of other states.
Significant concessions were also provided to them in excise and customs duties, income tax and corporate tax. The real benefit, however, accrued in the form of higher central plan assistance from the Planning Commission. Much of this is now a matter of the past with the Planning Commission being replaced by NITI Aayog. All the Centre to state transfers are being done through FC, except the central sector and centrally-sponsored schemes.
Notwithstanding these structural changes, the demand for securing the SCS status has gone up in recent years, especially with the increasing presence of regional parties in the central government. It has, in fact, become a tool of political bargaining. This is an issue which must be amicably resolved.
In February 2014, then Prime Minister Manmohan Singh had announced in the Rajya Sabha that “for purposes of central assistance, special category plan assistance” would be extended to the successor state of Andhra Pradesh (the old state after excluding Telangana) for five years. Instead of announcing that Andhra Pradesh will be an additional SCS, it was mentioned that appropriate fiscal measures, including tax incentives, will be extended to it. Questions have been raised on whether this statement amounted to the government adding a new state to SCS, its constitutional and fiscal appropriateness and if the declaration of a Prime Minister is binding on a government assuming office after a decade.
The 14th FC did not consider special category states in its recommendations, although it analysed in detail the nature and rationale of the demands of the states and the alternate perspectives. In fact, it showed concern for these underprivileged states by making significantly higher allocation of funds to the NE, Uttarakhand and Himachal Pradesh. It proposed the continuation of higher grants and lower cost sharing for central government and centrally sponsored projects. The Commission also sanctioned special grants for meeting the specific challenges of these states.
The 15th FC made no mention of the SCS. However, the eight northeastern and two hilly states of Uttarakhand and Himachal Pradesh (J&K going off the list after becoming a UT), which accounted for only 5.2 per cent of the population, were assigned 10.5 per cent share of the devolved taxes, resulting in lower shares for the southern and western states. Further, besides the general norm of meeting the revenue deficit of underprivileged states, the 14th and 15th FCs also gave weightage to ecology and area. This resulted in a large amount of divisible taxes coming into the kitty of these states. Importantly, the share of these states in the total allocation has gone up as per the 15th FC compared to that of its predecessor (as well as other states in the plains) due to a higher weightage assigned to ecology or forest cover. The increase is also because the 15th FC gave weightage to indicators as per the population of the 2011 Census and not that of 1971 — the population growth among the SCS during the interim period has been higher than the national average, except in the case of Himachal Pradesh.
Given the politically charged nature of democracy and the way autonomous institutions function in India, any change in the SCS list is likely to be controversial. The Planning Commission had proposed a framework for the identification of SCS, but updating that in the contemporary context would be extremely challenging.
The leaders of aspirant states generally stake their claims for SCS for political purposes, without any proper assessment of the net benefits. Studies have shown that the net benefits a state would get through SCS can easily be achieved through full and proper utilisation of funds under sanctioned projects and tapping existing opportunities, backed up by a reasonable package from the Centre. Given the stand of the NDA government in 2018, it is imperative that “the dream of inclusive development” is pursued through the provision of a package of strategic interventions and special budgetary allocations that are well-targeted and transparent about the costs and benefits.
Kundu is professor emeritus at L J University, Ahmedabad. Bhattacharjee, former director general, Comptroller and Auditor General of India, teaches at the Arun Jaitley National Institute of Financial Management
