Special Category States

Special Category States

This article deals with ‘Special Category States.’ This is part of our series on ‘Polity’ which is important pillar of GS-2 syllabus . For more articles , you can click here


  • Constitution didn’t has concept of Special Category State. Concept of a special category state was first introduced in 1969 by the 5th Finance Commission
  • Rationale  for special status was that certain states, because of inherent features, have a low resource base and cannot mobilize resources for development. 
  • The decision to grant special category status was earlier with National Development Council.
  • Initially  Special Category Status was given to 8 North East States. Now 3 more added and they are 11 .

To whom it is accorded

  • Hilly and difficult terrain
  • Low population density or sizable share of tribal population
  • Strategic location along the borders with neighbouring countries.
  • Economic and infrastructural backwardness
  • Non-viable nature of finances (based on this Andhra Pradesh is demanding Special Category Status)

Benefits to Special Category States (SCS) – Based on Gadgil Mukherjee Formula

  • The nature of benefits to Special Category States create further demand by many states to crave for this status. The major benefits of  Special Category States
    • Finance Commission : Extra Weightage in Tax Sharing and Grants given to Special Category States . But 14th Finance Commission has stopped this
    • Centrally Sponsored Schemes : In case of Core Schemes, Division of 90:10 whereas in other cases 60:40.
    • Unspent money is carried forward and doesn’t lapse .
    • Government gives various perks so that industry is setup in these states like Tax Breaks . In GST , special consideration can be given in rates
    • Planned Assistance : Extra funds were given to these states for implementation of Union Five Year Plan . In this, 90% was given as Grant and 10% as loans (compared to normal states with 70% grants and 30% loans)
    • Central Assistance to State’s own Five Year Plan  in accordance to Gadgil Mukherjee Formula

Issues with the working of Special Category Status

  • Firstly, the way Special Category Status are assigned to a state has been a matter of debate. States lobby central government to classify them in special category. 
  • Aid Curse : From the earlier experience, there is no guarantee that even after awarding Special category status, economic progress will take place.  For economic development, it is important to follow sound economic policies. 
  • After 14th finance commission’s recommendations have been accepted, Special Category State status has lost relevance altogether.

Special Category Status: recent approach of government

  • Finance Commission has stopped extra weightage given to Special Category States in Horizontal Division of devolved funds
  • Planning Commission and Five Year Plans have been removed all together

Way ahead :  Raghuram Rajan Committee’s (2013) proposal for Multi-Dimensional Index (MDI)  (based on 10 factors like Health, Education, Poverty rate etc) dividing states into three categories

  • Relatively Developed
  • Less Developed
  • Least Developed

And based on this, different benefits should be given to states

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