Explained | Why ‘special category status’ demand by states is back in the limelight

The demand for 'special category status' for Andhra Pradesh and Bihar is likely to get louder with the formation of a coalition government at the Centre. With the new government depending on the support of N Chandrababu Naidu’s Telugu Desam Party and Nitish Kumar’s Janata Dal (United), it will be difficult for the Narendra Modi-led NDA government to shrug off the demand. DH's Gyanendra Keshri explains what exactly is the ‘special category status’ demanded by the states from time to time.

What is special category status?

Special category status is a classification of regions or states by the central government to provide special assistance in the form of tax benefits and financial support for development of the region. It was first introduced in 1969 based on the recommendations of the Fifth Finance Commission.

What are the criteria to provide special status to a state?

The criteria listed by the government include: (1) hilly and difficult terrain (2) low population density and / or sizeable share of tribal population (3) strategic location along the borders with neighbouring countries (4) economic and infrastructural backwardness and (5) non-viable nature of state finances.

Which states have special category status?

In 1969, three states — Jammu & Kashmir (now a Union Territory after revocation of Article 370), Assam and Nagaland — were granted the special category status. Subsequently, 8 more states have been granted such a status. It includes Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Sikkim, Tripura, Himachal Pradesh and Uttarakhand. Telangana was granted a special status tag after it was carved out of Andhra Pradesh in 2014 by the Manmohan Singh-led UPA government.

What are the benefits of special category status?

States that come under special category status get preferential treatment in getting central assistance and tax breaks. For the implementation of the centrally-sponsored scheme, the special category status states are required to contribute just 10% while the central government provides 90% of the fund. For other states the centre provides 60%-70% of the fund. Allotted money if not spent, lapse for the normal states, but in the case of special category states it is carried forward. Special category states are provided tax breaks to attract investments. They are also given preferential treatment in allocation of central funds assistance.

Which are the states demanding special category status?

Several states have been demanding special category status. Bihar has been pitching for special category status since it was bifurcated in 2000. To press for its demand Nitish Kumar-led JDU along with other allies had organised rallies in Patna and New Delhi in 2012 and 2013. Political parties from Andhra Pradesh have hit the road with multiple protests since 2014 demanding special category status. Other states that have been pitching for a special category status are Jharkhand, Chhattisgarh and Odisha.

Why the demands for special category status in the limelight now?

Janata Dal (United) and Telugu Desam Party are set to play a key role in government formation at the Centre as the BJP has failed to get majority on its own. The TDP has won 16 seats while the JD (U) 12 seats, the second and the third largest constituents of the NDA after BJP (240). The TDP had quit the NDA in 2018 on the issue of special category status, but is likely to bring the issue back on the table. A senior JD(U) leader has already made clear that Bihar will press for the tag once again.

What is the Centre’s stand on demands of special category status by states?

The central government has made it clear multiple times that it will not consider the demands for special category status by any new state. Referring to the 14th Finance Commission’s opinion, Finance Minister Nirmala Sitharaman last year said that no more special category status would be given. The 14th Finance Commission (2015-20) recommended increasing the devolution of money to states from the divisible pool of central taxes to 42% from the earlier 32%. The 15th Finance Commission (2021-26) has also kept the tax devolution nearly at the same level. The Centre argues that higher tax devolution provides the states with more resources. Moreover, the concept of plan assistance is no more there as the Planning Commission has been scrapped.