Source: The Hindu

Introduction

Bihar's Chief Minister has once again underscored the state's longstanding demand for special category status (SCS), a designation that promises increased financial support from the central government. The state government's resolution in favor of this status further accentuates the urgency of the matter. The SCS offers special support such as increased central funding and tax benefits to uplift disadvantaged regions. However, discussions surrounding its allocation, particularly regarding Bihar's push for SCS, shed light on the intricate dynamics of legal, economic, and political factors within India's federal structure.

What is SCS Legal Framework and Historical Precedents?

• SCS, conceived in 1969 on the recommendations of the Fifth Finance Commission, represents a mechanism aimed at bolstering states grappling with geographic, social, or economic disadvantages.
• SCS is a classification given by the Centre to assist development of states that face geographical and socio-economic disadvantages.
• Through preferential treatment in terms of central funding and tax concessions, the designation seeks to uplift these regions and bridge the gap with their more developed counterparts.
• The criteria for eligibility encompass factors
  • Hilly Terrain;
  • Low Population Density and/or Sizeable Share of Tribal Population;
  • Strategic Location along Borders with Neighboring Countries;
  • Economic and Infrastructure Backwardness; and
  • Nonviable Nature of State finances.
• Article 275 of the Indian Constitution 1950 empowers the central government to offer supplementary financial assistance to any state, bypassing the recommendations of the Finance Commission.

What are the Constitutional Provisions Related to SCS?

What are the Benefits of SCS?

• In the past, SCS states used to receive approximately 30% of central assistance, determined by the Gadgil-Mukherjee formula.
• The recommendations of the 14^th and 15^th Finance Commissions (FC) and the dissolution of the Planning Commission, this assistance to SCS States has been subsumed in an increased devolution of the divisible pool funds for all States (increased to 41% in the 15^th FC from 32%).
• The Centre pays 90% of the funds required in a Centrally Sponsored Scheme to SCS states as against 60% or 75% in the case of other states, while the state governments provide the remaining funds. .
• Unspent money in a financial year does not lapse and is carried forward.
• Significant concessions are provided to these states in excise and customs duties, income tax and corporate tax.
• 30% of the Centre’s Gross Budget goes to Special Category states.

What are the Critical Concerns Regarding SCS (SCS)?

• The 14^th Finance Commission had opposed the continuation of special state status on the following grounds.
  • The Provision of additional funds, tax concessions, and other benefits to states with (SCS) imposes a significant financial burden on the central government's budget, raising concerns about fiscal sustainability.
  • The Allocation of SCS to certain states while denying it to others can result in an unequal distribution of resources, raising questions of fairness and equity.
  • There are apprehensions that SCS states may become overly reliant on central assistance, diminishing their incentive to generate revenue independently and hindering the development of a self-sustaining economy.
  • The continued enjoyment of SCS by states originally granted temporary status raises concerns about the permanent continuation of this designation without periodic reassessment or impact evaluation.
  • The absence of a clear constitutional or legal basis for SCS leaves it vulnerable to changes, as it is granted through administrative decisions of bodies like the National Development Council or the central government, lacking a robust legal framework.

What Economic Challenges Prompt Bihar's Plea for SCS?

• Bihar's pursuit of SCS arises from its significant economic challenges, highlighted by a per capita income notably lower than the national average and glaring deficiencies in human development indicators.
• The state's fiscal environment has been further complicated by the repercussions of its bifurcation, the migration of industries to Jharkhand, scarcity of water for irrigation, and recurrent natural disasters.
• Recent findings from a caste-based survey underscore the pervasive extent of poverty in Bihar, emphasizing the urgent need for targeted interventions to uplift marginalized communities.
• Despite the compelling economic imperatives driving Bihar's demand for SCS, successive central governments have been hesitant to accede, citing fiscal constraints and concerns regarding the equitable allocation of resources.
• The legal foundation of Bihar's plea for SCS rests upon interpretations of constitutional provisions pertaining to fiscal federalism and principles of distributive justice, adding a nuanced layer to the ongoing debate.

Does Bihar Fulfill Criteria for the Grant of SCS?

• Although Bihar meets most criteria for the grant of SCS, it does not fulfil the requirement of hilly terrain and geographically difficult areas, which is considered the primary reason for difficulty in infrastructural development.
• In 2013, the Raghuram Rajan Committee set up by the Centre, placed Bihar in the “least developed category” and suggested a new methodology based on a ‘multi -dimensional index’ for devolving funds instead of a SCS, which can be revisited to address the State’s socio-economic backwardness.

Conclusion

The debate over Bihar's demand for SCS epitomizes the intricate interplay between legal, economic, and political considerations within India's federal framework. As policymakers grapple with the complexities surrounding this issue, they must heed the lessons of history and the imperatives of the present, devising a holistic approach that fosters inclusive development while upholding the principles of fiscal federalism and distributive justice. Ultimately, Bihar's quest for special status underscores the broader imperative of addressing regional disparities and fostering equitable growth across the nation. By navigating the legal, economic, and political dimensions of this debate with prudence and foresight, policymakers can chart a path towards a more prosperous and equitable future for all.