Nitish Kumar tasked to accord ’special category status’ to Bihar: What does it mean and why the state wants it

The chorus over special category status for Bihar has grown ever since the announcement of Lok Sabha Elections Results 2024. Rashtriya Janata Dal (RJD) leader Manoj said on Saturday that now is the correct time to put forward the long-pending demand for the "special category status" to Bihar.

Meanwhile, former Bihar Deputy Chief minister and RJD leader Tejashwi Yadav said it's a good opportunity for Bihar Chief Minister and JD(U) leader Nitish Kumar. "...if he is the kingmaker, he should make sure that Bihar gets a special status...," Yadav said.

The CPI(ML) Liberation, which won two Lok Sabha seats in Bihar, also said the Centre should consider the INDIA bloc demand for giving special category status to Bihar.

Not only the INDIA bloc members—RJD and the CPI(ML) Liberation—but also its rival and Bihar Chief Minister Nitish Kumar recently raised the same demand before his NDA partners. Kumar's JD(U) is the BJP's key ally that helped the Prime Minister Narendra Modi-led coalition to form government at the Centre.

While addressing an NDA Parliamentary Party meeting on Friday, Kumar said, "All the pending works of Bihar will be done." According to the Times of India, the mention of "Bihar ka kaam" was seen as a reference to the demand for special category status in the state.

These Bihar leaders contend that Bihar's special status "will help the state grow at a faster rate." CPI(ML) Liberation general secretary Dipankar Bhattacharya was quoted by PTI as saying, "This will also generate more employment and invite investment in the state." In 2022, Nitish Kumar said, “If Bihar had gotten this status, there would've been more development here.”

What is this special status category that Bihar leaders want?

The special status category was introduced in 1969, on the recommendation of the Fifth Finance Commission, to benefit certain backward states with hilly terrains, strategic international borders, and economic and infrastructural backwardness.

Former Union minister Giridhari Yadav told Parliament in 2023 that the Special Category Status for plan assistance was granted in the past by the National Development Council (NDC) to some states characterised by several features necessitating special consideration.

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Criteria for special status category

These features necessitating special consideration included:

(i) Hilly and difficult terrain

(ii) Low population density and/or sizeable share of tribal population

(iii) Strategic location along borders with neighbouring countries

(iv) Economic and infrastructural backwardness

(v) Non-viable nature of state finances

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What are the benefits special category states get?

The government maintained that main idea behind according special status to a state is to facilitate the growth and development of improvement in birth rate, population control, female literacy status, tax effort and fiscal mechanism and improving per capita income.

Bihar minister Vijay Kumar Choudhary said that under the special status category, the Centre provides 90 percent of funds in schemes that it sponsors. Other states that do not fall into this category receive 60 to 70 percent of funds from the Centre, while the rest must be managed from their finances.

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"These states also receive subsidies on excise and customs duties, income tax, and corporate tax," he told news agency PTI.

Meanwhile, the government explained earlier that the category into which a state falls – special or non-special category – is used to decide the loan-grant ratio applicable for the Normal Central Assistance (NCA) provided to the states.

"Special Category Status results in the Normal Central Assistance and Assistance for Externally Aided Projects (EAP) being calculated as 90% grant and 10% loan," former minister V. Narayanasamy said in a reply to the Rajya Sabha in 2010.

Meanwhile, the Non-Special Category Status results in the Normal Central Assistance being calculated as 30% grant and 70% loan.

The Special Category States are also provided Special Plan Assistance for projects of special importance to the state. "Special Central Assistance untied to projects has also been provided to Special Category States because of their difficult financial situation," the former minister said.

Why is Bihar demanding Special Category Status?

According to the Hindu, Bihar’s per capita net state domestic product for 2022-23 was recorded at ₹31,280, which was among the lowest in the country. According to the National Family Health Survey 5, the state was also India’s poorest state, with 33.76 percent of its population being multidimensionally poor.

In 2023, S Siddharth, the then Additional Chief Secretary of Bihar, said that for giving lands to the landless and houses to homeless families, there is a requirement to spend ₹2.5 lakh crore. "To get such a large amount, it is essential that the state gets the status of a special state so that this happens faster...," he told news agency ANI.

Why was Bihar denied the special status category?

The Centre had previously said it would not entertain demands for "special category status" from any state, given the 14th Finance Commission's recommendation to abolish it. Under the 14th Finance Commission recommendations, the Union Government increased the share of net shareable taxes to the states to 42 percent from the earlier 32 percent for the period 2015-20.

Yadav said in his reply to Parliament that Bihar's request for Special Category Status was considered by an Inter-Ministerial Group (IMG), which had earlier submitted its report on March 20, 2012. "The IMG came to a finding that based on existing NDC criteria, the case for Special Category Status for Bihar is not made out," he said in 2023.

In 2018, the government said, "Following the recommendations of 14th Finance Commission, the Special Category States cease to exist and thus, no special category status has been granted to any State." 

It added, "The objective has been to fill the resource gap of each state to the extent possible through tax devolution. Also, post-devolution revenue deficit grant is provided to States where devolution alone could not cover the assessed gap."

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Late BJP leader Sushil Modi had said in 2023, "When P Chidambaram was Union Home Minister and later Finance Minister, he constituted a special committee under the chairmanship of Raghuram Rajan, to check if special status could be given to Bihar or not."

"But report of that committee said no states can be given the status of special state...14th Finance Commission finished this thought completely...,"Modi had said.

How many states are accorded special status category?

It was first granted to three states – Assam, Nagaland and Jammu & Kashmir. These states were then included for providing central assistance in the form of 90 percent grant and 10 percent loan.

As of 2018, this special status was accorded to 11 states, namely, Arunachal Pradesh, Assam, Himachal Pradesh, Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura and Uttarakhand.

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Besides, Odisha, Chhattisgarh, Rajasthan, and Bihar have been requesting Special Category Status.