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Special Category States

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Special Category States (SCS) have some common characteristics like hilly and difficult terrain, low population density and /or sizable share of tribal population, strategic location along borders with neighbouring countries, economic and infrastructural backwardness and non-viable nature of state finances etc., which necessitates special considerations while framing policy. States under this category have a low resource base and are not in a position to mobilize resources for their developmental needs even though their per capita income may appear high.

They are special in the sense that they have special socio-economic, geographical problems, high cost of production with less availability of useful resources and hence low economic base for livelihood activities. A number of these states were constituted out of former small Union Territories, or districts of some other states, necessarily involving creation of overheads and administrative infrastructure that was out of proportion to their resource base.

National Development Council (NDC) has accorded 11 states, out of 28 states, the status of "Special Category States" to target the fund flow for better balanced growth. They are seven States of North-Eastern region (Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland and Tripura), Sikkim, Jammu & Kashmir, Himachal Pradesh and Uttarakhand. Other states are referred as General Category States (GCS).

Fiscal Position of these states: The SCS are highly dependent on the central grants from the Union Government for meeting their financial requirements. These states show a revenue surplus position because any expenditure that they make on creating assets out of grants from the centre is not treated as revenue expenditure. This is contrary to the existing accounting standards which treats all expenditure from grants as revenue expenditure.

Manipur, Nagaland, Sikkim and Uttarakhand have a fiscal deficit which is higher than 3 per cent but less than 6 per cent ) of their GSDP and the 13th Finance Commission has indicated that they have to make efforts to reduce the fiscal deficit to 3 per cent by 2013-14. Jammu and Kashmir and Mizoram have higher fiscal deficits and require concerted efforts at reducing their debt stock to achieve targets set by the 13th Finance Commission. The other states Arunachal, Meghalaya, Assam, Tripura and Himachal have a fiscal deficit which is less than 3 per cent of GSDP and therefore need to maintain their position to achieve the targets set out by the 13th Finance Commission.

Although the 12th Finance Commission recommended that all states (including special category states) should be permitted to borrow from the open market at market rates, the special dispensation given to special category states continues for external loans. In the case of the externally aided projects to SCS, the Union Government treats 90 per cent of the amount borrowed as a grant and only the remaining 10 per cent is a loan. (For the general category states, externally aided projects are funded on a back-to-back basis).

Why more Central Assistance for SCS: Human Development Index (HDI) is considered as a better indicator of overall development of a state. Central grants are required to ensure/maintain better education and health standards in these states as they may not be able to generate own resources for this purpose due to their economic vulnerability.

SCS require more central assistance as some of the SCS’s Debt-GSDP ratio is higher than General Category States. High Debt GSDP ratio leads to fiscal vulnerability and poor sustainability of debt related obligations.

Thirteenth Finance commission has recommended a Performance Grant of Rs. 1500 crore to three SCS, namely Assam, Sikkim and Uttarakhand in recognition of the efforts made by these States to reduce their ‘Non-Plan Revenue Deficit’. Non Plan Revenue deficit = Non Plan Revenue receipts – Non Plan Revenue expenditure.

Planning Commission also publishes data regarding SCS central assistance as per Gadgil formula, plan expenditure, fiscal status etc.

The North Eastern States out of SCS have been provided special incentives by the Ministry of Development of North Eastern Region (DONER)

Moreover, Ministry of Commerce and Industry had been formulated a separate policy named as North East Industrial and Investment Promotion Policy (NEIIPP), 2007 (earlier known as The North East Industrial Policy (NEIP), 1997) providing incentives for all industrial units to expand industrialization and development activities in North Eastern states.

The Special Incentives packages for Industrial Development of the States of J&K, Himachal Pradesh and Uttarakhand are also implemented by DIPP, Ministry of Commerce and Industry.



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