Special Status to States

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Andhra Pradesh Chief Minister, YS Jagan Mohan Reddy has raised the issue of Andhra Pradesh Reorganization Act and has sought special status for the state from the Centre on 19th January’, 2021.

About

The notion of Special Status and Special Category Status are two different things.

The concept of a special category state was first introduced in 1969 when the 5th Finance Commission sought to provide certain deprived states with preferential treatment in the form of central assistance and tax breaks. This was also known as Gadgil formula. At the start only Assam, Nagaland and Jammu & Kashmir were granted special status but later eight more states have been included (Arunachal Pradesh, Himachal Pradesh, Manipur, Meghalaya, Mizoram, Sikkim, Tripura and Uttarakhand).

The philosophy for special status is that certain states, because of inherent features, have a low resource base and cannot mobilize resources for development. Some of the characteristics required for special status are: (i) hilly and difficult terrain; (ii) low population density or sizeable share of tribal population; (iii) strategic location along borders with neighboring countries; (iv) economic and infrastructural backwardness; and (v) non-viable nature of state finances.

But with the implementation of 14th finance commission this formula was discontinued and now it is believed that no more states can be given the status of special category state.

The constitution provides special status through an Act that has to be passed by two-third majority in both the houses of Parliament whereas the special category status is granted by the National Development Council, which is an administrative body of the government.

Benefits that States are bestowed with Special Category States

• 90 per cent of state expenditure is borne by central government on all centrally-sponsored schemes and rest 10 per cent is given as loan at zero rate of interest to the state.
• States get preference in getting central funds.
• Concession on excise duty is provided to the states to attract industries to the state.
• 30 percent of the Centre's entire gross budget also goes to special category states.
• These states can also avail the benefit of debt-swapping and debt relief schemes.
• States with special category status are exempted from customs duty, corporate tax, income tax and other taxes to attract investment.
• Special category states have the provision that if they have not spent the money in a financial year; it does not lapse and gets carry forward for the next financial year.

Jammu and Kashmir had the status of both special state (Art.370) and special category state but with the revoking of article 35A and it getting the status of a union territory with a legislature it has lost the status of special category.

Special status allows only legislative and political rights whereas special category states have financial, economic and administrative rights.

Andhra Pradesh, Bihar, Goa, Odisha and Rajasthan have been demanding the status of special category. Andhra Pradesh has asserted that special status will attract new industries and create employment in the state.