Special Category Vs Special Package

Special Category Vs Special Package

Question: Which is better for states-seeking special category status or a special package? Elaborate with examples.

Economic benefits under the Special Category status are minimal and have diluted over the years

States would be better off seeking special package

Case for Special Category

- Numerous states have sought Special Category status in recent times

- However, FFC has increased tax devolution to states by 42% of the divisible pool of central taxes eliminating the need for special categorising

- Under the D. R Gadgil formula for distribution of central plan assistance that was implemented during the 4th 5 Year Plan, Assam, J&K and Nagaland’s needs are to be met first.

- HP, NE states and other NE states and Sikkim were also included in the category

What is Special Category?

Special Category has been decided in the past by the Union government to states having the following characteristics based on NDC recommendations:

- Hilly terrain

- Low Population Density and sizeable share of tribal population

- Strategic location along borders with neighbouring nations

- Economic and infrastructure backwardness

- Non viable nature of State Finances

- As per the revised Gadgil Mukherjee formula, 30% of the normal central assistance was earmarked for Special Category states and remaining 70% is allocated to General Category States

- Special Category States were entitled for providing assistance in grant loan ratio of 90:10 as against 30:70 ratio for other States

- Special plan assistance for projects (90% ) and untied special central assistance (100% grant) were provided only to Special Category states

- Other benefits to Special Category states include assistance for externally aided projects in grant loan ratio of 90;10 while such assistance is given to other states on a back to back basis

- Under AIBP, Special Category states include assistance for 90% of the project cost as against 25% for others

Case Against Special Category

- CSS contributes less for Special Category States especially NE

- Though Special Category States are provided with central incentives for industry promotion, there is no overt linkage between incentives and special status

- Incentives given to special category states like HP and J&K have more to do with backwardness and less with status

- Several changes introduced in the Union Budget 2015-2016 have diluted the benefits of Special Category states

- Centre has dispensed with normal plan assistance, special central assistance and special plan assistance from 2015-2016

- Few externally aided projects are there for Special Category States

- Union Budget has reduced allocations under AIBP from INR 8992 crore in 2014-2015 to INR 1000 crore, for example

- Benefits of matching contributions for Special Category states for CSS is not likely to be substantial with reduced assistance to State Plans by 40% to INR 1,96,743 crore in 2015-2016

- Benefits for special category status states is minimal now; special packages are more beneficial.

Facts and Stats

- Special Status was recently demanded by Bihar

- A 2013 committee under Dr. Rajan suggested that States given classification as Special Category States and those seeking inclusion would find their needs met by basic allocation more adequately for each state and categorisation of some as least developed

- Committee also recommended the political problem of granting special status to new States as this would result in more demands from other states and lead to further benefit dilution