• SCS is a classification given by the Centre to assist development of states that face geographical and socio-economic disadvantages.
  • Constitution does not make a provision for SCS and this classification was later done on the recommendations of the Fifth Finance Commission in 1969.
  • Status was first accorded to Jammu and Kashmir, Assam and Nagaland in 1969.
  • SCS for plan assistance was granted in the past by the National Development Council of the erstwhile Planning Commission.
  • Eleven States including Assam, Nagaland, Himachal Pradesh, Manipur, Meghalaya, Sikkim, Tripura, Arunachal Pradesh, Mizoram, Uttarakhand and Telangana have been accorded the special category state status.
    • Telangana, the newest State of India, was accorded the status as it was carved out of another state Andhra Pradesh.
  • The 14th Finance Commission has done away with the ‘special category status‘ for states, except for the Northeastern and three hill states.
    • It suggested to fill the resource gap of such states through tax devolution by increasing it to 42% from 32%.
Difference between Special Category Status and Special Status
  • The constitution provides special status through an Act that has to be passed by 2/3rds majority in both the houses of Parliament whereas the special category status is granted by the National Development Council, which is an administrative body of the government.
    • For example, Jammu and Kashmir enjoyed a special status as per Article 370 and also special category status. But now that Article 35A has been scrapped and it has become a union territory with legislature, special category status doesn’t apply to J&K anymore.
  • Special status empowers legislative and political rights while special category status deals only with economic, administrative and financial aspects.

Parameters (Based on Gadgil Formula):

  • Hilly Terrain;
  • Low Population Density and/or Sizeable Share of Tribal Population;
  • Strategic Location along Borders with Neighbouring Countries;
  • Economic and Infrastructure Backwardness; and
  • Nonviable Nature of State finances.

Benefits of Special Category Status

  • The Centre pays 90% of the funds required in a centrally-sponsored scheme to special category status states as against 60% or 75% in case of other states, while the remaining funds are provided by the state governments.
  • Unspent money in a financial year does not lapse and is carried forward.
  • Significant concessions are provided to these states in excise and customs duties, income tax and corporate tax.
  • 30% of the Centre’s Gross Budget goes to Special Category states.
  • Preferential treatment in getting central funds.
  • Concession on excise duty to attract industries to the state.
  • These states can avail the benefit of debt-swapping and debt relief schemes.

Concerns regarding Special Category Status

  • It causes Increased burden on Central Finances.
  • Also, giving special status to a state leads to demands from other states too. For instance, demands from Andhra Pradesh, Odisha and Bihar.
  • Affecting Federalism: It affects the centre state financial relations and hinders competitive federalism among the states.


  • As suggested by 14th Finance commission, tax devolution to states has been increased to 42% and the same has been continued by 15th FC (41%) too to fill the resource gap without extending SCS.

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