Special Category States

The Special Category states was introduced in 1969. So far extended to 11 states including seven North East states viz. Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland and Tripura and the border states of Himachal Pradesh, Jammu and Kashmir and Sikkim as well as Himalayan state of Uttarakhand.

Special category status enhances the resource capability of the state by altering the mix of Centre-state contribution for centrally-sponsored schemes. It frees state resources, enabling access to external funds, and the associated tax breaks with a sunset clause incentivizes private investments.

Special Category states are not a constitutional prerogative. The category has been devised by the Government to pay attention to the many problems apart from the financial viability of these states. Almost all of them have a hilly and difficult terrain and very low level of infrastructural development. Most of them have significant tribal population. Almost all of them are border States with considerable international borders. Most of them are poor and have very own low revenue resources.

• These states are given favored treatment in respect of plan financing and financial devolutions.
• According to the Gadgil formula for devolution of Central assistance for States plan as approved by the National Development Council, 30 per cent of the total funds is earmarked for Special Category States.
• Further, as against the composition of Central assistance of 30 per cent grant and 70 per cent loan for major States (characterized as non-special category States), special category States receive 90 per cent plan assistance as grant and just 10 per cent as loan.
• Similar favored treatment is received by the special category States in the hands of the Finance Commission in respect of devolution of Central tax revenues. High levels of devolution by the Planning Commission and the Finance Commission compensate for the very fragile own revenue basis of these States.

Backward Region Grants Fund is NOT applicable to only special category states. Backward Regions Grant Fund (BRGF), which began in 2006-07, addresses backwardness on multiple criteria covering 272 districts. This programme is now delinked from central support and states themselves implement it.