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  • What is ‘Special Category’ status?
    What benefits do states having ‘Special Category’ status enjoy?
  • Who accords the category status to state and how?
  • Which states held Special category status?
  • Lacunas in the working of Special Category status
  • Why the status has been removed?
  • Way ahead now

What is ‘Special Category’ status?

  • ‘Special category’ status is a classification given by Centre to assist in development of those states that face geographical & socio-economic disadvantages like hilly terrains, strategic international borders, economic & infrastructural backwardness and non-viable state finances.
  • The classification came into existence in 1969 as per the suggestion given by the Fifth Finance Commission, set up to devise a formula for sharing the funds of Central govt. among all states.

What benefits do states having ‘Special Category’ status enjoy?

  • Significant concession in excise & customs duties, income tax and corporate tax
  • 30 percent of planned expenditure (central budget) goes to ‘special category’ states
  • Special Category states are benefited because of Normal Central Assistance which was skewed in favour of these states. These states get more funds in terms of NCA and most part of these funds was in the form of grants rather than loans.
  • Special Central Assistance given to SCS is also an additional amount which can be used by the concerned state for economic development.
  • Centre bears 90% of the state expenditure (given as grant) on all centrally-sponsored schemes and external aid while rest 10% is given as loan to state. For general category, the respective grant to loan ratio is 30:70 where as external aid is passed on in the same ratio as received at the centre.
  • Unspent money does not lapse and gets carry forward.

Hence, special-category status catalyses the inflow of private investments and generates employment and additional revenue to state. Since centre bears 90% of state expenditure on all centrally-sponsored schemes, state can take more welfare-based schemes from the new savings.

Further, more grants from centre helps in building state infrastructure and social sector projects. As a result, special-category state gets to bridge its development deficit.

Who accords the category status to state and how?

Special Category’ status had been granted in the past by the Union government to States having certain characteristics based on the recommendations of the National Development Council.

These include

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.

Special Category States

source

Which states held Special category status?

11 states used to have ‘special category’ status, namely, Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Jammu & Kashmir, Himachal Pradesh, and Uttarakhand.

Lacunas in the working of Special Category status

  • Firstly, the way Special Category Status were assigned to a state has been a matter of debate. Various committees used different parameters to classify a state in Special Category status.
  • Some states lobby central government to classify them in special category. This was to be corrected and the consent of majority of state must be taken before granting a special category status to any state.
  • Moreover there should have been a general consensus among states related to principle used for granting the SCS.
  • Secondly, data reveals that even after awarding Special category status not much economic progress has been noticed among states. This may mean that for economic development it’s important to follow sound economic policy. Benefit of SCS may act as a stimulus but rest depends on the individual state policy.
  • Third, the amount of proceeds that states receive has increased after 14th finance commission. So the structure does not seem to have any specific relevance in present context.

Why has the status been removed now?

The Finance Ministry’s reasoning for withdrawing the status is that the higher 42% devolution takes into account all needs of states.

Way ahead?

Following the demand for Special Status by Bihar, a committee was appointed under Dr. Raghuram Rajan in 2013. This committee suggested that States classified as ‘Special Category States’ and those seeking inclusion in that category, would find that their need for funds and special attention more than adequately met by a basic allocation to each State and the categorisation of some as ‘least developed’.

Considering special status to any new State will result in demands from other States and dilute the benefits further. It is also not economically beneficial for States to seek special status as the benefits under the current dispensation are minimal. States facing special problems will be better off seeking a special package.


References:

Any doubts?


  1. Siva Bandla

    Modi is just making jimmicks. .he has done promise near tirupathi that he will make a capital like delhi in amaravathi , and will give special status to AP. When they come to power , those who dont fullfill the promises near tirupati will suffer heavily in somwe way or other , ,former CM of combined AP also did the samething reg tirumala hills and died immedeatly ,,now the Bjp will loose miserbly in next elections and unnecessarly give to congg. . Ok let us see one more new PM in 2019 in rahul gandhi. Good luck sonia , rahul and congg . One more thing is. Modi looting all indians and giving to gujarat. This PM is gujarat PM , just like. Devegowda. Karnataka sleeping PM. .

    1. prakhar kushwah

      ok now this is interesting.
      You want Rahul Gandhi to be the next PM of our country.
      Mr. Siva, I think your argument is completely out of context and full of nonsense. Your state was divided during the congress govt.
      For your kind information, let me enlighten you for the criteria required for “Special Category Status”.
      1. Hilly terrain areas.
      2. Border (if your state shares border with other country)
      3. Infrastructure.
      4.Low population density.
      5.Non-viable nature of state finances.

      Now, why did the Modi Govt. didn’t gave your state ‘Special Category status’ because you don’t have any border issues.
      the central govt,. is ready to provide all financial aid as finance minister already mentioned in press conference today.
      what you want ..??
      you want an asshole to be the pm, of our country.
      A 48 year old guy calling himself youth, you wanna elect an idiot who dosen’t know the ABCD of India, indian constitution, whose whole family has been involved in scams, and corruptions. Don’t you read anything.
      your statement,” Modi looting all indians and giving to gujarat”..–> such a bullshit statement.
      Dude your state is far behind Gujrat. Don’t dream of becoming like Gujarat. You won’t be able to.
      Whole world has recognized Gujarat model.
      and by the way, oddisaa is the least developed state followed by Bihar, madhya pradesh etc.
      There should be Special Category status for them also.
      but you will not say anything because people like you who jo yaha ka khate hai..yaha ki naukri lete hai…par tum jaise log hi vajah ho telangana k liye.
      Sonia gandhi rahul gandhi are not even proper GANDHI’S. Phele bhai saheb aap history padhe.
      The decision made by the govt. is proper and valid.
      and what guarantee do you have k congress will fulfill AP’S wish.
      Jab wo is desh k hi sage nahi ho sake..tere state k liye ghanta honge.
      apne neta owaisi se bol jaake.
      ab q chup h wo.
      people like you should be educated properly. you are much more harmful then illiterate guys.
      padhe likhe gawar.

      1. LS CORPORATE SERVICES

        Velli modi gadi madda guduvu
        Ma state ki anayam cesadu dani gurinchi matladadu
        Picha na —– ga
        (sorry for vulgar things but, should scold guys lie u, who diverts topic)

      2. Joshua Lingala

        Mr. Prakhar, I think the origins of Sonia Gandhi and Rahul Gandhi have nothing to do with the Union govt not granting SCS to Andhra Pradesh. The pressing issue here is Special Category Status and not the Genesis of Sonia or Rahul. Even though I’m from Hyderabad, Telangana, I fully support the idea of granting SCS to Andhra. It’s amusing to see you conveniently forgetting the fact that the BJP has fully supported the AP Bifurcation Act 2014 in both Lok Sabha and Rajya Sabha. The then LoP in Rajya Sabha Mr. Venkaiah Naidu has strongly opposed SCS for 5 years and demanded for 10 years which was duly done. So kindly don’t lecture us on the criteria for according SCS to Andhra Pradesh.
        What Gujarat model are you talking about ?? The one which turned out to be a Jhumla entailed by the BJP barely scraping a victory in Gujarat 2017 Vidhan Sabha elections. The people of Gujarat have rejected the so called Gujarat model of development. Before lecturing us to be educated “properly”, I wish you a speedy recovery from Modiji’s Utopian world. Don’t be blind to facts which sometimes could be inconvenient. Happens to everyone. Good luck !

      3. surya prakash velicheti

        Now you speak of the requirements for a special category status like hilly terrains, border issues etc….I would like to ask one question. Do you think Modi does not know all these things. Why he promised SCS knowing that AP is a non hilly terrain and doesn’t share border…Is he a dumb guy or AP suddenly became a non hilly region from hilly terrain…AP was promised SCS in parliament.If the words in parliament don’t have the credibility, then what is the point of living a democratic country.

  2. Siva Balan

    Now have they totally removed special status for all the states

  3. Bollodi Bokka

    This is a shit article. 42% devolution is just to compensate the abolished state taxes by implementing GST, but not giving more funds to their kitty. This is highly misleading information to the readers.

    1. Supradeep Reddy Alamuru

      The article is not misleading, you are being misled by your leaders and emotions. This is not a political forum, this is a study forum, so have your business done else where.

      1. Siva Ruthvik

        You are right sir, most of the people in our state are blindly following the opposition parties and they are very weak in logical thinking.

    2. Discuss

      @bollodibokka, first please desist from use of uncivil language such as “shit”, only use language which you would in the mains exam, in an interview or if you were an officer of the govt in a public office.
      Second, 42% devolution was a recommendation of the Fourteenth Finance Commission since it was a request of the states. This 42% devolution will give greater freedom to states in running programs.
      Hence please research before using such strong language.

  4. Goutham Kumar

    there will be very backward areas in a.p so centre will give the proper reason for giving special status or category

  5. NANDINI Nandini

    hindi discussions

  6. Deepak Jasal

    Actually I am belong to Rajasthan.How we start in our coulerful Rajasthan Please reply me

  7. Mayur Barbole

    During the era of planning after independence planning commission gained greater role .
    Thought nonconstitutional and non statutory body it outlined finance commission and more resource flow from centre to states were based on recommendation of PC
    Inorder to bridge the horizontal gap between fiscally weaker ,hilly border states and other states concept of special category states was introduced in 1969 which gave priority to SPCs for their financial needs
    However,more fiscal devolution to states as recommemded by 14 FC,
    doing away earlier one size fits all policy and encouraging decentralized planning by formation of NITI ayog which pricipled on concept of cooperative federalism are encouraging steps towards equitable horizontal distribution for all round development of all states. however states like Bihar and Telangana are demanding special category states .Though there demands are driven by their fiscally weaker character their also lie hidden driving force of political gain .
    Special category status accorded to several states has not necessarily improved their conditions . many studies report stagnant position of these states. hence states demanding special status should rethink their claims on such rationale basis whether such demand will effectively help for all round development rather than just myopic political gains and vote bank politics.

  8. Mayur Barbole

    Earlier plan assistance for states was recommended by planning commission by ways of grants and loans .
    •For special category states – grant component =90% and Loans = 10%
    (Grant % more bcz these states are hilly ,fiscally poor ,border states hence not capable to repay loan)
    •For other states 30% grant and 70% loan

    Distribution for above assistance to state plans is governed by gadgil mukhargee formula(earlier known as gadgil formula)
    There are around 10-11 SCS

  9. gurshinder sidhu

    Where is the summary posted???

    1. Discuss

      Summaries will be offered in some time. We plan summarise the most discussed debates at the end of the week.

  10. Sajina Ban

    NDC is exist still now. ..

  11. Sajina Ban

    There are 3 difference between special category states and state with a special status
    1 . special states that jammu and kashmir has is quaranteed by the constitution of India. Special category status is not .It is decided by excicutive order
    2 . special status is empowered position of legislative power and political rights. Special category is only an economic and administrative category with some fringe financial benefits.
    3 . power to grant special category status lies with NDC .power to grant a special status is only in the ambit of the parliament and that too with a 2/3 majority. ..

    1. Sajina Ban

      Here special status of jammu kashmir is article 370. That is opposed by Br ambedkar. .he said to SK Abdullah ” you wish india should protest your border ,she should build road in your areas ,she should supply supply you food grains and kashmir should get equal status as india”.now we can analyse why FC increase tax devolution to states from 32 % to 42%.

    2. Rohit Pande

      Thanks. Just a quick question, with NDC gone… Special category status will cease to exist right?

      However – JnK remains undisturbed right?

      1. Sajina Ban

        NDC is still now .But in niti ayog yojana the governing council replaces NDC. NAMO is the chairman of NDC now .But expectation in structural changes in NDC is short waiting matter ..that will happen soon. .happy news civil servant also. NDC have different function. ..not only five year planning

        1. Sajina Ban

          NDC 57 meeting is held on 27th December 2012. 58 th meeting is not yet held.

  12. Gaurav Sharma

    Background:
    SCS, as a concept evolved during 5th FYP. Initially there were only 3 states in SCS category but gradually the number became 11. To understand the concept of SCS, first we need to understand the framwork which governs the transfer of funds from Centre to states. Pre 2015 Budget and 14FC. Earlier thhere were 2 types of transfer- Statutory and Discretionary. Statutory transfers/Grants were decided on the basis of FC – Article 280, while Discretionary grants were decided on the basis of recommendation of PC.

    Grants like NCA, ACA, SCA etc used to come under discretionary grants decided by PC and in these grants SC used to play an important role. SCS were given priority not only in allocation but allocations to them were mostly in form of grants while for non-SCS it was mostly loans. Plus, ration was 90:10. But, now with the end of PC, these CAs are also no more relevant. And hence there is no point of SCS status.

    1. Don John

      NCA, ACA, SCA ??

      1. Pragya Mishra

        NCA – normal Central assistance
        ACA – Additional CA
        SCA – Special CA

    2. Rini Sen

      NDC is still there right?

      1. Gaurav Sharma

        I think NDC is not functional anymore.
        This is from a news article of 20th Aug.
        “”Earlier there was a Planning Commission, a National Development Council. Now there is nothing,” Banerjee said at the state secretariat here.”

        1. Abhijit Thorat

          NDC is there while PC is gone 🙂

      2. Rohit Pande

        @Rini
        It is an extra-constitutional and non-statutory body.

        NDC is the listed as an advisory body to Planning Commission but it’s advice is not binding.

        The last they met was sometime in 2012 – ab PC hi nahi raha… I am not sure what else is in for NDC anymore. Anyone – more info on this?

  13. Narayana Sarma

    Guys Please Review This!

    The ‘Special Status’ has been given to all North-East states, Uttarakhand, Himachal Pradesh, Jammu and Kashmir, Andhra Pradesh through articles 370 and 371 of Indian Constitution. The criteria applied for these states were 1). Hilly terrain 2). Low population density 3). Located along strategic borders 4). Economically backward. The recent demand for ‘Special Status’ by the state of Bihar stands pointless as the economic benefits are minimal and diluted.

    During the fourth and fifth 5-year plans, there was a huge difference between special status accorded states and general category states in terms of economic perspective. Its the D R Gadgil formula which introduced this difference. But this has been done away with by the Central Government in last few years.

    The economic benefits are minimal in special category status compared to others. How? The special category states are ‘Sweet Spots’ for Externally Aided Projects, as 90% of the grants are sponsored by the Centre. This is not the case in other states. However, such projects are ‘Very Few’ in number.

    In addition to this, the economic benefits have been diluted, especially after the Union Budget 2015-2016, in which the allocation for Accelerated Irrigation Benefit Programme (AIBP) has been drastically reduced to Rs. 1000 Crs. The centre’s steps to dilute Gadgil-Mukherjee formula proves it is not special anymore.

    Despite these drawbacks, the states are demanding the ‘Special Status’. The centre’s claim that the increase in devolution of taxes to states from 32% to 42% by 14th Finance Commission eliminates the need for such status is ‘Highly Acceptable.’ It is also politically non-feasible to accord new states with special tag.

    1. Sai Praveen

      SC status not given to AP

    2. Rini Sen

      Very lucid and clear! I have a few questions –

      1. Special status is guaranteed by constitution of India – has it been given only to J&K? Rest of the states get it via NDC right?

      2. “But this has been done away with by the Central Government in last few years.” – what are we using right now? Raghuram Rajan’s formulae??

      Rest of the answer is very crisp. Please tell me more about AIBP!

      1. Narayana Sarma

        Thanks for pointing out the mistake. Yes i should have used the term “Special Category” for states other than J&K as well as NDC instead of constitution. By ‘done away with’ i meant the grants are not 90% anymore. Its still gadgil formula.

  14. Shubham Bhardwaj

    Spcl category status is now just a political trump card for winning elections
    Just as reservation is caste based and not economic based so is spcl category status which is elections based and not need based

  15. Garima Aneja

    There was an article in indian express last week by nk singh.. The case he made was that special category status has not benefitted the states much and he substantiates as to how there has been marginal improvement in their condition.. We can extract some points out from there

    1. Rini Sen

      Hey Garima – As per the new Raghuram Rajan formulae – the allocation of funds was to be on the base of NEEDS & PERFORMANCE right?

      Need based – 10 components & I think the %allocation of Need = 78%… rest if dependent on dev. performance and a fixed quota…

      @Rohit – I agree… these should be performance based but then not that be prejudiced against those states who will take so much time or are already under very abject poverty??

      1. Gaurav Sharma

        On a related note, 14th FC has reduced the weightage of Fiscal Discipline to 0% from 10%. Now I think, there is no weightage of performace.

        1. Rohit Pande

          That’s even bad man.

    2. Rohit Pande

      Link please!

      Here’s what could be a logical analysis to it –

      1. Assistance should be tied to clearly defined time bound performance metrics.
      2. If not, most of the backward states will have no incentive to improve.
      3. Analyse and outline what the forward states did right in their development path that the backward states have failed to do.

  16. Ashish Kumar

    Regarding special category status: 1. Whether the 10 states like JK, HP, UK and Seven Sister states special or special category? 2. Whether it is decide by Gadgil formula or Gadgil Mukherjee formula? 3. What exactly are the advantages of special status? 4. Nitish Kumar is vying for special category status, right? 5. What will be the perks now as the central allocation reduces amount for special (or Special category) states?

  17. Sajina Ban

    Role of finance commission and article 280 ,275 is discussing one .This is like new el nino ..

    1. Sumer Shah

      How does article 280, 275 come in here to play a role?

  18. Sajina Ban

    Reguram rajan report is opposing political needs of special category status ..kadgil 1969 report categorization using hilly terrain is not acceptable one because that is only affect district not states but Mugarjee -kadgil report and kadgil 2000 women and poor states friendly nature

    1. Rohit Pande

      @Sajina – I digged a better op-ed from 2013 (Sept) which criticises the Raghuram’s report…
      http://www.livemint.com/Opinion/LoS2qnWnqwgPTzdCaPgsxN/Is-the-Rajan-committee-report-unfair-to-special-category-sta.html

      1. Sajina Ban

        I can’t criticise raguram rajan report. What his report saying?
        1 . Those seek inclusion in special category status (scs) would find their need for fund and special attention more than adequately met by basic allocation to each state and the categorisation of some as least developed
        2.it is not politically feasible to consider special status to any new states as any such decision will result in demand from other states. ..
        just listening factors happening here because residual andhra seeking same status now..

        1. Sajina Ban

          Br ambedkar is creditworthy to establish finance commission of india. .

    2. Sumer Shah

      I have a basic question. After the formation of Neeti Agog – Planning commission has gone, right. NDC is still there?

      So those 11 states will have the same status or that will also go out after the 14th FC coming! Please help.

  19. Discuss

    We are kickstarting the *daily discussions*.

    The Discuss cards will form a part of an existing story so that you get to have a good understanding of the topic at hand.

    Feel free to digress within the bounds of the topic – Discuss 14th FC, Discuss the legacy of NDC & J&K’s allotment as a special state.

    1. Pramendra Panwar

      can any one explain me judicial innovation???

15th Finance Commission: Is it just a South India vs North India debate?

Note4students

Mains Paper 3: Economy | Indian Economy Issues relating to planning

From UPSC perspective, the following things are important:

Prelims level: Fifteenth Finance Commission, Article 270 of the Indian Constitution

Mains level: Debate on the effect of 15th Finance commission’s changed terms of reference


Context

Fifteenth Finance Commission’s terms of reference (ToR)

  1. The Fifteenth Finance Commission’s terms of reference (ToR) have evoked a sharp response from southern states
  2. The ToR mandates the Commission to use 2011 population for tax sharing and devolution of resources instead of 1971 population as was the practice in the past
  3. Between 1971 and 2011, except Telangana, population shares of four southern states in total declined from 22.01% to 18.16%
  4. Use of 2011 population for sharing resources means a decline in the flow of resources to these states

Beyond southern states

  1. Between 1971 and 2011, population share has declined in 10 states other than the four southern states
  2. These are Assam, Goa, Himachal Pradesh, Odisha, Punjab and West Bengal
  3. Thus, use of 2011 population would also affect economically less prosperous states like Assam, Odisha and West Bengal

Tax-sharing formula

  1. In the past, the tax-sharing formula was a combination of factors reflecting equity, need and efficiency
  2. Population being a neutral indicator of need has been used by all 14 finance commissions

Fundamental question about the use of population

  1. Any finance commission is required to assess fiscal needs of states for tax sharing and grants
  2. Binding Commission’s work to a particular reference population is arbitrary and unfair to all the stakeholders including the Commission

Policy on resource sharing

  1. The policy on resource sharing needs to make a distinction between tax sharing and grants
  2. Tax sharing is to correct the vertical and horizontal imbalances arising due to constitutional assignment of tax powers and expenditure responsibilities between the Union and states
  3. Also, as per the Article 270 of the Indian Constitution, tax share recommended by the Finance Commission does not form part of the consolidated fund of the Union government, implying this is not a component of Union budget

Way forward

  1. Any incentive or reward should be done through a grant mechanism instead of horizontal tax sharing
  2. It is too early to conclude the outcome of the use of 2011 population on resource sharing
  3. The ultimate outcome would depend on how the Commission treats various factors in the horizontal allocation of resources

[op-ed snap] India should begin discussing the delimitation question

Note4students

Mains Paper 2: Polity | Functions & responsibilities of the Union & the States, issues & challenges pertaining to the federal structure

From UPSC perspective, the following things are important:

Prelims level: 15th Finance commission, Delimitation commission

Mains level: Debate related to 15th Finance commission’s methodology & North-South divide


Context

Strident tones against 15th Finance commission

  1. There is fear that the 15th Finance Commission might use the 2011 Census to determine the share of each state in the nation’s resources
  2. In doing so, the richer and less populous states in South India may end up contributing more than they receive

Why is redistribution necessary?

  1. Richer regions contribute to the well-being of poorer regions, and redistribution happens in all modern democracies
  2. All states are part of a national project of balanced economic development

Why is there an opposition to redistribution?

  1. Indian states exhibit a continuing divergence in economic development
  2. There is a trend contrary to the global trend among rich and poor countries
  3. The divisible resources are going increasingly to the poorer states
  4. These also happen to have much higher fertility rates, hence their population share is rising

Fears related to 15th FC redistribution

  1. Finance commissions are a constitutional mechanism to ensure some degree of logic and transparency in the allocation rule
  2. Over the years, their main criteria have been population and backwardness
  3. Fifteenth finance commission will be considering 2011 census instead of 1971 census used by previous finance commissions and this might lead to more finances being allocated to populous north Indian states

The question of delimitation

  1. India’s Constitution puts an upper limit of 550 elected members in the lower house of Parliament
  2. Until the early 1970s, it was the general practice to redraw constituencies based on the most recent population available, but the total number of members was constant
  3. The idea of redrawing was to have each member of Parliament (MP) represent roughly an equal number of voters, hence the redrawing of constituencies
  4. Parliament passed an amendment during the Emergency years in 1976, freezing all delimitation as per the 1971 census, up to the census of 2001
  5. In 2000, another amendment postponed the day of reckoning to 2026
  6. Thus, only after 2026 will we consider changing the number of seats in Parliament

Population Surge & its effect on Parliament seats

  1. In 1971, India’s population was 548 million, and by 2031, the first census after 2026, it may well be close to 1.4 billion
  2. Redrawing boundaries and distributing the existing 550 MPs might mean that the south will lose a lot of seats to the north
  3. Even if more members are added to the Lok Sabha, that incremental gain will mostly go to the northern states

Resolving 15th FC’s dilemma

  1. The weightage given to population can be reduced to 10% or even 5%
  2. The focus could be on other parameters like per capita income and intrastate inequality
  3. Newer aspects like direct devolution to the lowest tiers of government, or giving credit for an increase in forest cover and improvement in health indicators can be adopted

Way forward

  1. We may desire “equality” of constituencies, but economic development and demographic patterns do not develop uniformly across the country
  2. Just as the nation took more than 12 years to come to a consensus on “one nation one tax” (i.e. the roll-out of the goods and services tax), a national consensus exercise should be started to sort out issues much before 2026

Why South India states are objecting to Finance Commission’s mandate

Note4students

Mains Paper 2: Polity | Functions & responsibilities of the Union & the States, issues & challenges pertaining to the federal structure

From UPSC perspective, the following things are important:

Prelims level: 15th Finance Commission

Mains level: Issues related to the distribution of resources between states


News

Opposing 15th Finance Commission

  1. A political storm is brewing in South India over the determination of how India distributes its pooled tax revenues among its many states
  2. Several chief ministers and opposition leaders of southern states have expressed vehement opposition to one particular mandate of the present Fifteenth Finance Commission: to use 2011 census population figures instead of 1971 for the purpose of tax devolution

Why such opposition

  1. The Indian union made a compact with all its states in the mid-1970s to freeze federal allocations based on population size at 1971
  2. This was done to ensure states which had managed to tackle their population growth were not penalized by way of lower allocations
  3. The growth rate in population dropped uniformly across all states, but the fall in South India was rapid, creating a distinct divergence between the number of people in the North versus the South
  4. Since the present finance commission has the mandate to use newer population figures, which brings both economic and demographic divisions into the picture, the fear among southern states is that the degree of redistribution would increase

Back2Basics

Fifteenth Finance Commission

  1. The Fifteenth Finance Commission of India is a finance commission constituted in November 2017
  2. The commission was set up to give recommendations for five fiscal years commencing on 1 April 2020
  3. The main tasks of the commission were to “strengthen cooperative federalism, improve the quality of public spending and help protect fiscal stability”
  4. Finance Commission is established by the President of India under Article 280 of the Indian Constitution
  5. The Finance Commission (Miscellaneous Provisions) Act, 1951 additionally defines the terms of qualification, appointment, and disqualification, the term, eligibility and powers of the finance commission
  6. As per the Constitution, the Commission is appointed every five years and consists of a chairman and four other members

[op-ed snap] Re-imagining federalism to fulfil India’s potential

Note4students

Mains Paper 2: Polity | Functions & responsibilities of the Union & the States, issues & challenges pertaining to the federal structure

From UPSC perspective, the following things are important:

Prelims level: Seventh Schedule, Finance Commission, Election Commission, Supreme Court, Article 356, Planning Commission, S.R. Bommai case, Article 311, Part IX of the Constitution

Mains level: Issues related to federal structure


Context

Union-state relationship in recent years

  1. The Union-state relationship has become one of the core issues ahead of the next general election
  2. This climate gives us an opportunity to examine our federalism beyond partisan politics.
  3. We are approaching the third phase of federalism since the founding of our republic

First phase of federalism

  1. The traumatic events surrounding the partition of India and fears of balkanization made our founding fathers opt for a highly centralized Union
  2. States were given a well-defined legislative and executive jurisdiction in the Seventh Schedule of the Constitution
  3. Institutions like the Finance Commission, Election Commission, and Supreme Court were created to ensure some degree of fairness in dealing with the states
  4. But, Article 356, the all-India services, Planning Commission, the introduction of licence-permit-quota-raj—all these eroded the states’ powers significantly

Second phase of federalism

  1. The S.R. Bommai case verdict (1994) made abuse of Article 356 largely a thing of the past
  2. Successive Finance Commission reports on resource transfer, end of license raj, the decline of discretionary public sector investments, the rise of regional parties and abolition of Planning Commission—helped create a more balanced federal India
  3. Indian federalism has matured quite a bit, and the states have far greater control of their economic and political management than in the earlier phase

Structural problems persist

  1. A rigid, uniform political model imposed on all states and local governments disregarding local needs
  2. A dysfunctional bureaucracy protected by Article 311
  3. The generalist, all-purpose all-India services that do not bring specialized skills required to manage various services
  4. Poorly drafted Part IX of the Constitution that created over-structured, under-powered local governments
  5. Needless rigidity in Union legislation on subjects like education with resultant failure to improve outcomes despite vast expenditure

What has this led India to?

  1. Out of the 49 relatively large nations with gross domestic product (GDP) exceeding $200 billion, India ranks at near bottom on most indicators of basic amenities, infrastructure, education

Global structure of federalism

  1. In no other democracy does the federal constitution impose a uniform structure, electoral system, and bureaucratic apparatus on states and local governments
  2. Even in small unitary Britain, Scotland, Wales, Northern Ireland and London city have their own electoral systems different from the Westminster model
  3. In the US, each of the 50 states have their own constitutions and structure of government
  4. In Australia too, each of the six states and two self-governing territories have their own constitutions
  5. In Germany, every Land (State) has its own constitution with the power and flexibility to design its own governance structure
  6. In Canada, the 10 provinces have the right to decide on the electoral system, form of government and local governance structure

Need for third phase of federalism

  1. The time has come for India to move to the third phase of federalism
  2. Many of our states are larger than 90% of nations on earth
  3. We need to allow each state to have its own model of governance, bureaucracy and local governments
  4. This has to be done with firm safeguards to preserve national unity, separation of powers, fundamental rights and democratic accountability

Way forward

  1. We need more flexible federalism, strengthening India’s unity and integrity, and allowing us to fulfill our potential

Special status category no longer exists, says Arun Jaitley

Note4students

Mains Paper 2: Polity | Functions & responsibilities of the Union & the States, issues & challenges pertaining to the federal structure

From UPSC perspective, the following things are important:

Prelims level: 14th Finance Commission, Special category status, Centrally sponsored scheme

Mains level: Debate over special category status to certain states


News

No special category status to Andhra Pradesh

  1. Citing the 14th Finance Commission, the Finance Minister said the category of “special status” no longer exists
  2. Therefore, Andhra Pradesh can no longer be put in that category

Special category status

  1. The special status used to be originally granted to States in the northeast because their own revenue was inadequate
  2. In the case of any Centrally sponsored programme or scheme, the Centre pays 60% of the amount and the State pays 40%
  3. The States enjoying ‘special status’ only have to pay 10% of this contribution

Centre considers IAP-like initiative in backward districts

Note4students

Mains Paper 2: Governance | Government policies & interventions for development in various sectors & issues arising out of their design & implementation

From UPSC perspective, the following things are important:

Prelims level: Integrated Action Plan (IAP)

Mains level: Backward area development


News

Transforming backward districts

  1. The Centre is mulling an initiative similar to the Integrated Action Plan (IAP) for the transformation of 115 districts from “backward” to “aspirational”
  2. IAP is being used in Left Wing Extremist (LWE) districts

Why this program?

  1. The Union government has embarked on a policy initiative for rapid transformation of 115 districts lagging in development parameters like nutrition, education, basic infrastructure, agriculture, water resources, financial inclusion and skill development
  2. Thirty-five worst-affected LWE districts are among these districts
  3. For each of these 115 districts, a senior-level official of the rank of additional secretary or joint secretary has been nominated Prabhari Officer

About IAP

  1. IAP was launched in 2010 for LWE districts
  2. Under this, additional central assistance with the focus on the creation of public infrastructure and services is granted to districts

Karnataka panel proposes 3-colour official state flag

Image source

Note4students

Mains Paper 1: Social issues | Regionalism

From UPSC perspective, the following things are important:

Prelims level: Provisions related to state flag

Mains level: Regionalism being promoted in various forms across India


News

State flag for Karnataka

  1. A committee constituted last June by the Karnataka government to examine the feasibility of having a separate flag for the state has submitted its report
  2. It has recommended an official three-coloured flag to replace an unofficial two-coloured one currently used to signify local pride
  3. The committee has recommended a flag with the yellow and red of the unofficial flag to be separated by white in the middle with the state symbol on it

Clearance of MHA required

  1. The proposal needs to be forwarded to the Union Ministry of Home Affairs (MHA) for clearance
  2. If adopted with clearance from the MHA, Karnataka will be the second state after Jammu and Kashmir to have an official state flag
  3. Karnataka has had an unofficial state flag since the mid-1960s, used to signify local pride

NITI Aayog ruled out special status to Andhra Pradesh: Venkaiah

  1. Union Information and Broadcasting Minister: The Centre was almost prepared to grant the Special Category Status (SCS) to Andhra Pradesh
  2. However, two factors dissuaded it from going ahead:
  • Clamour from nine more States for the same tag had AP been given the status
  • NITI Aayog ruling out the possibility citing the 14th Finance Commission report that had made it clear that it would not make any distinction between special and general category States

Discuss: Given that economic benefits under the Special Category status are minimal and have been diluted over the years, States would be better off seeking a special package. Analyse

[Discuss] Hollow promise of ‘special status’

Demand for Special Category Status is being used to pursue political goals instead of furthering the development goals. Discuss. 

Hindu Op-ed


More Open Questions – 

  1. Whether the 10 states like JK, HP, UK and Seven Sister states special or special category?
  2. Whether it is decided by Gadgil formula or Gadgil-Mukherjee formula?
  3. What exactly are the advantages of special status?
  4. Nitish Kumar is vying for special category status, right? 5. What will be the perks now as the central allocation reduces amount for special (or Special category) states?

 

The discussion will be summarised and updated the next day.

Nothing special about Special Category States any longer


 

Bihar Chief Minister Nitish Kumar has been demanding Special Category Status (SCS) for his state for at least three years now.

But with the recommendations of the Fourteenth Finance Commission having been accepted, the SCS has been reduced, at best, to a political rallying point — not just for Bihar, but also for Odisha and Jharkhand.

 

Why? The NITI Aayog, which has replaced the Planning Commission, has no power to allocate funds.

In Budget 2015-16, states received a significantly higher share of central taxes — 42 per cent, or 10 percentage points more than before.

Special Status vs. Special Category Status – What’s the difference?

  1. Special Status is guaranteed by the Constitution of India through an Act passed by the two-third majority in both houses of the Parliament (example – J&K)
  2. Special Category Status is granted by the National Development Council, an administrative body of the government.

 

While Special Status empowers legislative and political rights, Special Category Status deals only with economic, administrative and financial aspects.

Centre ruled out Special Category Status (SCS) for Bihar

Why?

  1. Reason given is that the 14th Fin Commission had not made any difference between general states and SCS for the horizontal distribution among them.
  2. However, special assistance on lines of what was provided to Andhra Pradesh post bifurcation has already been allotted to Bihar and West Bengal in this year’s budget.

Ordinance route not possible for granting special category to AP

Special category status is usually based on the recommendations of the National Development Council (NDC).

What are the parameters?

  1. Low resource base, hilly & difficult terrain
  2. Low population density or sizeable share of tribal population
  3. Backwardness, border states/ sharing the international border
  4. Economic & infrastructural backwardness
  5. Non-viable nature of state finances

‘Special Category Status’ is the new catch phrase

  1. Till a few days ago, words such as ‘Samaikyandhra’ and ‘integrationist’ were the buzzwords in Andhra Pradesh politics.
  2. But, now ‘Special Category Status’ appears to be the catch phrase.

Is this the new carrot that is being dangled by the Congress for the people of both the regions? Former Rajya Sabha Member Yelamanchili Sivaji feels so.

Questions (attempt in the comments section)

1

It is argued that the Special Category Status given to certain states has become an instrument that has outlived its relevance and utility. Do you agree with this assessment? Critically analyse.

2

“Given that economic benefits under the ‘Special Category’ status are minimal and have been diluted over the years, States would be better off seeking a special package.” Analyse.







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