Special Category Status to Uttarakhand :

India is the “union of the states”. Currently India has 29 states and 7 Union Territories. All these states and Union Territories get share in the taxes of central government at the interval of the 5 years on the basis of recommendations of the Finance Commission, set up by the President of India. Apart from the recommendations of the Finance Commission, the central government is entitled to give more financial assistance to any state under the article 275 of the Indian constitution.

It is worthy to mention here that out of 29 Indian states, 11 states already have the status of Special Category States and 5 more states are demanding the same.

What is Special Category Status :

The concept of a special category state was first introduced in 1969 when the 5th Finance Commission sought to provide certain disadvantaged states with preferential treatment in the form of central assistance and tax breaks. Initially three states Assam, Nagaland and Jammu & Kashmir were granted special status but since then eight more have been included (Arunachal Pradesh, Himachal Pradesh, Manipur, Meghalaya, Mizoram, Sikkim, Tripura and Uttarakhand). The rationale for special status is that certain states, because of inherent features, have a low resource base and cannot mobilize resources for development.

Special category status is given to the state who fulfills following conditions :

1. Hilly terrain
2. Low population density and / or sizeable share of tribal population.
3. Strategic location along borders with neighbouring countries.
4. Economic and infrastructure backwardness.
5. Non-viable nature of State finances.

Uttarakhand meet the criteria laid out by Planning commission. It has mountainous and hilly terrain and low population density. Himachal Pradesh shares the border with China. Special category states get benefits in funds and resource allocation. The Planning Commission allocates funds to states through Normal Central Assistance (NCA), Additional Central Assistance (ACA) and Special Central Assistance(SCA). Normal Central Assistance favours special category states and they get 30% of the total assistance while the other states share the remaining 70%. Special category states get funds in 90:10 ratio (90 % as grants and 10 % as loans), while the ratio between grants and loans is 30:70 (30 % grants and 70% loans)for other states. There is no fixed formula for SCA and it depends on the basis of the state’s plan size and previous plan expenditures. Besides this, special category states enjoy concessions in excise and customs duties, income tax rates and corporate tax rates as determined by the government. The Planning Commission also allocates funds for ACA for the purpose of assistance for externally aided projects and other specific project.

Advantages of getting special category status :

• Preferential treatment in federal assistance and tax break.
• Significant excise duty concessions. Thus, these states attract large number of industrial units to establish manufacturing facilities within their territory leading to their economy flourishing.
• The special category states do not have a hard budget constraint as the central transfer is high.
• These states avail themselves of the benefit of debt swapping and debt relief schemes (through the enactment of Fiscal Responsibility and Budget Management Act) which facilitate reduction of average annual rate of interest.
• Significant 30% of the Centre’s gross budget goes to the Special category state.
• In centrally sponsored schemes and external aid special category states get it in the ratio of 90% grants and 10% loans. For the rest of the states as per the recommendations of the 12th Finance Commission, in case of centrally sponsored schemes only 70% central funding is there in the form of grant. The rest of the states receive external aid in the exact ratio (of grants and loans) in which it is received by the Center.