Why Centre Has Denied Bihar Special Status, What Are The Rules? Why Nitish Kumar Wanted The Tag

In a blow to the Nitish Kumar government, the Centre denied special category status to Bihar on Monday despite the NDA ally strongly reiterating the demand after the Lok Sabha Election results were announced last month.

In a written reply in the Lok Sabha on the first day of the Monsoon session, Minister of State for Finance Pankaj Chaudhary said special category status was granted in the past by the National Development Council (NDC) to some states which were characterised by a number of features necessitating special consideration.

Earlier on Sunday, Rashtriya Janata Dal (RJD) leader Manoj Kumar Jha said Bihar seeks both special category status and a special package. He also said the demand for special status in Bihar has been there since the division of Bihar and Jharkhand.

“This demand of Bihar (special state status) is called unrealistic by many people… This demand has been there since the division of Bihar and Jharkhand… Apart from political parties, we want a change in the policies of the central government which considers Bihar as a centre of labour supply… We want both, special state status and special package," Jha told ANI.

Why the Demand Was Rejected

MoS Chaudhary said the special category status was granted in the past by the NDC based on certain features necessitating special consideration such as hilly and difficult terrain, low population density or sizeable share of tribal population, strategic location along borders with neighbouring countries, economic and infrastructural backwardness and non-viable nature of state finances.

The decision was taken based on these factors, the minister said.

“Earlier, the request of Bihar for Special Category Status was considered by an Inter-Ministerial Group (IMG) which submitted its Report on 30th March 2012. The IMG came to the finding that based on existing NDC criteria, the case for Special Category Status for Bihar is not made out," the minister said.

The government has in the past also argued that the 14th Finance Commission report has ruled out the possibility of any more states being granted the status, which includes tax relief and higher central funding for the beneficiary states.

What is Special Category Status?

The Special Category Status issue was first addressed in the National Development Council (NDC) meeting in 1969. During this meeting, the DR Gadgil Committee introduced a formula to allocate Central Assistance for state plans in India. Prior to this, there was no specific formula for fund distribution to States, and grants were given on a scheme basis. The Gadgil Formula, approved by the NDC, prioritised special category States such as Assam, Jammu & Kashmir, and Nagaland, ensuring their needs were addressed first from the pool of Central assistance.

Recognising historical disadvantages faced by certain regions, the 5th Finance Commission introduced the concept of Special Category Status in 1969. This status provided preferential treatment to certain disadvantaged States, including Central assistance and tax breaks. The National Development Council had allocated Central Plan Assistance to these States based on this status.

Until the 2014-2015 fiscal year, the 11 states with Special Category Status benefited from various advantages and incentives. However, following the dissolution of the Planning Commission and the formation of the NITI Aayog in 2014, the recommendations of the 14th Finance Commission were implemented, leading to the discontinuation of Gadgil Formula-based grants. Instead, the devolution from the divisible pool to all states was increased from 32% to 42%.

The 14th Finance Commission, effective from 2015, eliminated the distinction between General Category and Special Category States in the horizontal distribution of shareable taxes. The share of net shareable taxes for States was increased from 32% to 42% for the period 2015-2020.

The 15th Finance Commission maintained this rate at 41% for the periods 2020-2021 and 2021-2026, with a 1% adjustment due to the creation of the Union Territory of Jammu & Kashmir. This adjustment aimed to address the resource gap of each state through tax devolution, with Post-Devolution Revenue Deficit Grants provided where tax devolution alone could not cover the assessed gap.

Currently, no additional states are being granted Special Category Status, as the Constitution of India does not provide for such categorisation.

Why Bihar Has Demanded Special Status

Nitish Kumar had been demanding the special status for Bihar after the mineral-rich Jharkhand was carved out of it back in 2000. He had raised the issue first in 2006 but successive central governments turned deaf ear. He accepted Niti Aayog’s assessment of Bihar, but offered his own reasons for the state’s backwardness — the disproportionately high population.

With a per-capita GDP of around Rs 54,000, Bihar has consistently been one of the poorest states. CM Nitish Kumar said the state is home to 94 lakh poor families and the granting of SCS will help the government get about Rs 2.5 lakh crore required to fund welfare measures over the next five years.

Bihar has been ranked as the poorest state in India, according to the Centre’s ‘Multi-dimensional Poverty Index’ (MPI) report. It is estimated to have nearly 52% of its population, without having proper access to requisite health, education and living standards.

While the state meets most of the criteria for the Special Category Status, it does not fulfil the criteria of hilly terrain and geographically difficult areas.

Recognising historical disadvantages faced by certain regions, the 5th Finance Commission introduced the concept of Special Category Status in 1969. This status provided preferential treatment to certain disadvantaged States, including Central assistance and tax breaks. The National Development Council had allocated Central Plan Assistance to these States based on this status.

Until the 2014-2015 fiscal year, the 11 states with Special Category Status benefited from various advantages and incentives. However, following the dissolution of the Planning Commission and the formation of the NITI Aayog in 2014, the recommendations of the 14th Finance Commission were implemented, leading to the discontinuation of Gadgil Formula-based grants. Instead, the devolution from the divisible pool to all states was increased from 32% to 42%.

The 14th Finance Commission, effective from 2015, eliminated the distinction between General Category and Special Category States in the horizontal distribution of shareable taxes. The share of net shareable taxes for States was increased from 32% to 42% for the period 2015-2020.

The 15th Finance Commission maintained this rate at 41% for the periods 2020-2021 and 2021-2026, with a 1% adjustment due to the creation of the Union Territory of Jammu & Kashmir. This adjustment aimed to address the resource gap of each state through tax devolution, with Post-Devolution Revenue Deficit Grants provided where tax devolution alone could not cover the assessed gap.

Currently, no additional states are being granted Special Category Status, as the Constitution of India does not provide for such categorisation.

Why Bihar Has Demanded Special Status

Nitish Kumar had been demanding the special status for Bihar after the mineral-rich Jharkhand was carved out of it back in 2000. He had raised the issue first in 2006 but successive central governments turned deaf ear. He accepted Niti Aayog’s assessment of Bihar, but offered his own reasons for the state’s backwardness — the disproportionately high population.

With a per-capita GDP of around Rs 54,000, Bihar has consistently been one of the poorest states. CM Nitish Kumar said the state is home to 94 lakh poor families and the granting of SCS will help the government get about Rs 2.5 lakh crore required to fund welfare measures over the next five years.

Bihar has been ranked as the poorest state in India, according to the Centre’s ‘Multi-dimensional Poverty Index’ (MPI) report. It is estimated to have nearly 52% of its population, without having proper access to requisite health, education and living standards.

While the state meets most of the criteria for the Special Category Status, it does not fulfil the criteria of hilly terrain and geographically difficult areas.