Beyond Rhetoric: The Legal and Socio-economic Discourse for SCS in Bihar

I. Introduction

Special Category Status, or SCS, is a status that the Indian central government accords to those states which are significantly backward in terms of development. The special category status is accorded for the purpose of granting some extra financial assistance and easing policies to bridge the development gap with other states.

Here is the conceptual breakdown:

• Target deprived states: SCS targets states with factors such as difficult terrain, low population density, major tribal population, economically backward, less developed infrastructure.

• More financial assistance: Under SCS, earlier states received about 30% of the central funds that Finance Commission allocated. It was then that they could spend on infrastructure and social welfare programmes.

• Policy relaxations: SCS states need tax relaxations on duties like excise duty and corporate tax to attract more investments and increase economic activity.

SCS is being designed as a development facilitator for the under-privileged states by providing all the resources and flexibility they will require to catch up with other states in the country. Thereafter the demand for SCS for Bihar in relation with post 2024 parliament elections is once again emerging and being talked about. Even during previous times too, in 2023 it has been reported that a resolution demanding the grant of SCS was approved by the Cabinet of Bihar for the State of Bihar. Despite all these continued demands of special status of the state by Bihar, it has been declared straight from the central government that they haven't planned the SCS for Bihar, at the midst of the budget session in the parliament.

II. Decoding Special Category Status

A. Historical Background:

India's Special Category Status (SCS) for states goes back to 19691. In 1969 the Fifth Finance Commission, led by Mahavir Tyagi, recommended the SCS mechanism. This aimed to address the development needs of states facing geographical disadvantage, economical or historical drawbacks.

The commission devised a formula called Gadgil Formula considering factors like:

• Hilly terrain

• Low population density or significant tribal population

• Being strategically located on borders

• Economic and infrastructural backwardness

• Unsustainable state finances

Jammu and Kashmir, Assam, and Nagaland were the first states to receive SCS in 1969. Over the years, other states qualifying under these conditions were conferred the SCS status when the states came into being. Which comprise Himachal Pradesh in 1970-71, Manipur, Meghalaya & Tripura in 1971-72, Sikkim in 1975-76, Arunachal Pradesh, Mizoram in 1986-87, Uttarakhand in 2001-02, and Telangana from the State of Andhra Pradesh in 2014-15. Need be told that SCS is not part of Indian Constitution but operationalized following the recommendation by commission.

B. Provision Criteria:

Although SCS is no new constitutional category since 2015, it forms an important subject matter towards understanding regional development in India. A few states, till date, continue enjoying special benefits based on earlier historical designations. During the earlier days, even National Development Council played its crucial role in recommending which states were to be selected for SCS considering various factors such as:

States with hilly or difficult terrain, remoteness, or challenging geographical features.

Low density population areas and having sizeable tribal population, need special development

States located at a strategic location along the boundary of any other country, threat national security

State which is lagging in economic development with poorly developed infrastructure, social imbalance prevails

Meager financial resources in a state hinder the state’s ability to invest in growth.

Finance Commissions, while deciding on the incentives, have played an indirect vital role. The commissions assess financial needs of different states, along with their population, income levels, and infrastructure developments.Based on their assessment, Finance Commissions recommended the devolution of central government funds to states. Currently, the central government no longer grants SCS as a new constitutional category since 2015. However, some states continue to enjoy special benefits due to provisions under various articles (371 to 371H and 371J) of the Indian Constitution. States in the above-mentioned articles, like Jammu & Kashmir (pre-2019), Himachal Pradesh, and Northeast Indian states, receive certain advantages such as Central Government Assistance, Relaxed Rules for Schemes and Tax Concessions.

III. Bihar's Case for SCS

Socio-Economic Indicators: Socio-Economic Indicators: Bihar depends mainly on its socio-economic indicators for Special Category Status. Poverty burden is enormous for Bihar. The highest Multi-dimensional poverty rate in the country is found in Bihar, with 26.59 per cent of the population falling into the poor category - much higher than the average for the country at 11.28 per cent.2 More than this, Bihar's per-capita GDP stands at around Rs. 60,000 (2022-23) as per CSO. That is a long way off from the national average of Rs 1,69,496.3 Literacy rate in Bihar also lags behind the national average at 61.8%. That means lesser skill in the workforce, which hurts economic growth.4

Geographical Disadvantages: Though Bihar suffers from severe socio-economic problems that make it eligible for SCS under previous criteria, geography may not be a huge disadvantage today in the present context. Traditionally, SCS criteria looked for states with handicapping geographical features like mountains or remotes ones. But now, under the finance commission's focus on formula-based allocations, attention to geographical disadvantages is reduced. Bihar is a land-locked state, located within the Gangetic plains, though not a state where there are tall mountains to talk of but has geography limitations due to flood sometimes.

The state is often flooded by rivers like Ganges, Gandak, and Kosi, which causes damage to the infrastructure and disrupts the economic activity.5 As such, North Bihar is flood-prone for 73.63% of its geographical area. Of the 38 districts, 28 face floods, and 15 are the worst affected leading to huge loss of properties, lives, farmland, and infrastructure. At least 350,000 acres of paddy, 18,000 acres of maize and 240,000 acres of other crops were destroyed by the 2008 Kosi floods, killing close to 500,000 farmers.6

Historical and Developmental Backlog: The demand for Special Category Status for Bihar is founded upon historical underdevelopment. Bihar had rich resources during the period of British rule, and only a few investments in infrastructural or industrial developments were made. This gave way to an economic imbalance, which is prevailing until date. Social and economic dislocation caused by partition in 1947 immensely blocked growth in Bihar. Periods of political instability in the past had negative effects on long-term developmental plans and proper resource distribution.7

These are some of the reasons why Bihar needs these opportunities. While SCS is undoubtedly a contentious solution, its historical legacy and current predicament would be a compelling case for special support whether in the form of SCS or through some other means.

IV. Socio-Legal Implications of Granting SCS to Bihar

Potential Benefits:

The Special Category Status given to Bihar would have serious socio-legal implications. It will bridge the developmental gap that exists between Bihar and more developed states within India. Bihar would benefit from financial assistance provided by the central government and may invest more in infrastructure development, health and education sectors, and social welfare programs that contribute to uplifting the living standard of people in the region.8 Further resources will be employed towards building fresh roads, rails, and airports, that is useful to developing more ways through which the firms in the region may efficiently do business. At least the essential services should now become comparatively easier for these firms to acquire.

The Special Category Status would attract more private investment in Bihar, thereby generating employment opportunities and increasing economic growth. It would thus reduce poverty and unemployment in the state- major sociolegal issues to be addressed.9 Further, Special Category Status would grant Bihar tax breaks and incentives, making it attractive for setting up operations in the state. This will further boost up the economy and uplift general people's well-being living in Bihar.10

One of the poorest states in India, Bihar has long been demanding SCS.11 This would also compensate for the long overdue infrastructural development, which has been considerably lagging in this region. Special Category Status would put Bihar on a list eligible for more central assistance by the Government of India, that would help it complete its infrastructural projects, roads and bridges, railway and power plants. Special Status, would grant the Bihar government more elbow room for policies to attract investment and industry development. For instance, the state could modify its land acquisition law and provide subsidies as well as other incentives to business.

Bihar would be able to take advantage of the central government's experience and resources due to the special category status. The state government could form partnerships with the central agencies for the development and implementation of infrastructure projects.

SCS can boost social welfare programs:

If granted, SCS would provide Bihar with additional financial assistance from the central government. This assistance could be used to significantly boost the state's welfare programs. The additional funds could be used to expand the state's social safety programs, providing essential services to the poor and vulnerable. This could include providing food security, healthcare, education, and housing assistance. Bihar has one of the weakest healthcare systems in India12. The increased central assistance could be used to improve healthcare infrastructure, provide free or subsidized healthcare services, and train more healthcare workers.

Bihar's literacy rate with 61.8% ranks below the national average13. The additional funds could be used to improve the quality of education, build new schools and colleges, and provide scholarships to students from disadvantaged backgrounds. Bihar is a predominantly rural state14. The increased central assistance could be used to fund rural development programs, such as providing access to clean water, sanitation, electricity, and transportation. The additional funds could be used to implement programs that address the specific needs of women and children in Bihar. This could include providing childcare services, vocational training, and legal aid.

Legal Framework and Challenges

SC has no direct legal provision in the Indian Constitution; it, however, was derived from the actual approach adopted by NDC in 1969. The Gadgil Formula introduced here provides for a priority of central assistance for the States which have particular development problems. Initially, Jammu & Kashmir, Assam, and Nagaland availed of the applicability of the scheme. The criteria on SCS have, over the years, been placed under review by different committees, such as Sarkaria Commission in 2000 and Raghuram Rajan Committee in 2013. These committees focused on the following criteria;

• Hilly terrain and geographical isolation

• Economic backwardness

• Low population density and tribal population

• Strategic location along international borders

There is no single legal document that indicates criteria or conferral of SCS. The central government decides which states can be accorded special treatment on the recommendations of the committee and consultations.

Challenges

Bihar, amongst others, Andhra Pradesh and Odisha, has been leading a demand for Special Category Status as that would get special funds from central government. The economic constraints in the state are thought to be one of the main drivers behind the demand. Experts argue that Bihar needs resources to pump welfare schemes and infrastructural projects. 2.5 lakh crore rupees infused would significantly go towards salving Bihar's problems for its 94 lakh impoverished families.

However, it remains doubtful whether Bihar actually requires special category status. For example, more central funding may turn out to be ineffective policies and even at times disadvantage even well-developed states. Having overcome its past miseries, Bihar has shown significant economic growth over the last few years. It has grown its GDP at a rate higher than the national average. Therefore, a different section of analysts feels that Bihar does not require the infusions of central finances but the legal system to ensure enduring economic growth.

The more discussions occur on Special Category Status for Bihar, it is true that the state has had a good trend in its economic chart lately. An emphasis on developing legal governance of Bihar may hold a durable solution to its long-term development. Any interim relief measure might have to be balanced against long-term sustenance for the benefit of economic growth and prosperity.

Equity and Debate:

Arguments for Granting SCS to Bihar:

1. Economic Underdevelopment: It is a matter of fact that Bihar's persistent economic underdevelopment is concentrated upon by those in the promotion of the grant of Special Category Status. Bihar has always ranked among the least developed states in India, by way of low per capita income, high poverty levels, and poor infrastructural development, and suffered the most from economic deprivation.15 Advocates claim that SCS would act as a catalyst to accelerate economic growth and development, replete with much needed financial assistance and preferential treatments in schemes of the central government. These targeted areas may fill the development gap created between Bihar and much better states. More funds will be deployed to better infrastructure, enhanced educational and health services, and creation of investment opportunities in the private sector for strengthening higher incomes, reduced poverty, and enhanced living standards for the people of Bihar.

2. Regional Inequality: Proponents of SCS for Bihar argue that stark socio-economic inequality exists between Bihar and other Indian states. These inequalities, they give the argument, need intervention to bridge a development gap and to bring about regional balance. Grant of SCS would reduce Bihar's relative disadvantage by enhancing financial assistance as well as special treatment in schemes planned by the central government. This would mean more infrastructures, more social amenities, and more investment energizing economic development while simultaneously reducing disparities within the region. Thus, SCS can be deemed as an avenue of promoting more balanced development by putting Bihar on a fairer position regarding India's general prosperity. Regional imbalances are overcome by SCS, hence building a more balanced national economy.

3. Infrastructure Development: An excellent reason to provide Special Category Status to Bihar is that it is infrastructure-deficient. Bihar has inadequate transportation infrastructure, whether it is in terms of roads, railways, power, or sufficient water resources. Of course, that damps economic activity, discourages investments, and reduces the potential for general development in the state. Proponents of the SCS believe that this status will increase the financial resources considerably, and hence there would be a great investment in infrastructure development. Improvement in infrastructure will not only benefit Bihar but, more importantly, spur broader economic growth of the country through increased trade, connectivity, and industrial development. Hence, having good infrastructural units in Bihar is considered a strategic investment with prospective local as well as national-level benefits.16

4. Human Development Index: Supporters of conferring Special Category Status upon Bihar point to the low level of Human Development Index. Bihar HDI ranked, in all relevant years, below the national average reflecting major differences in all key development indicators like literacy life expectancy and in relation to health care facilities. The lower HDI reflects a relative lower standard of living in the people of Bihar. Proponents argue that SCS can really help to redress these disparities by providing more resources in improving education, health delivery, and other vital social services. The additional funding could be used to construct schools, hospitals, and other vital infrastructure to be implemented as programs that can help raise the much-needed literacy rates, reduce infant mortality rates, and simply improve general health outcomes. SCS can play a very key role in enhancing the quality of people's lives in Bihar and in getting Bihar to catch up with the rest of the country by investing in human development.17

Arguments Against Granting SCS to Bihar:

1. Distributional Problem of Scarcity: Other states have great apprehensions on account of the consequences that may eventually follow if Bihar were to receive SCS, because they fear that the whole country would suffer from gross inequality in resource availability. They argue that if the central funds are strongly drawn towards Bihar, it may upset an otherwise well-balanced resource dispersal. This situation might lead to other states, especially those with their own developmental problems, getting less than fair financial provisions. The imbalance thus perceived could hence go ahead to fuel inter-state rivalry and increase regional inequality in economic development.

2. Political Influence: Political influence is another argument against the granting of SCS to Bihar. There is heavy resentment among the leadership, feeling that the SCS would make the Centre any more potent in running and supervising resources and, therefore the implementation process of activities within the state. This would further reduce the states' autonomy and open the way for political interference in the developmental project implementation. Opponents maintain that such interference might lead towards political considerations rather than the true needs of the state, which, in turn, will adversely affect effective and just development. They advocate a better balance between central support and state autonomy, so as to ensure efficient and transparent utilization of resources.

3. Corruption and Mismanagement: Several anti-SCS proponents to Bihar claim that SCS is linked to corruption and mismanagement. They argue that more money attached to SCS may actually increase the already high rate of corruption in the state further resulting in the wrong allocation of funds attached to SCS and malfeasance of funds attached to SCS. Critics of SCS worry that larger amounts of resources attached to SCS lack accountability measures, which may provide room for opportunities of embezzlement and corrupt practices, which might divert funds meant for development. This could ultimately defeat the purpose of SCS, which is to hasten development and redress regional imbalances. They emphasize strong oversight and transparency in governance so that the funds are optimally utilized and reach the target beneficiaries. This could be what stands to jeopardize the much-needed development that SCS is meant to facilitate.

4. Accountability: One of the strong arguments that have been advanced against the Special Category Status program for Bihar is on the grounds of accountability. It is felt that there is not much of a robust mechanism that will ensure transparency in the effective utilisation of additional resources coming in. There is, therefore, a fear that the increased funding, which one hopes will be used in development activities, may be diverted or siphoned off without any accountability. This absence of clear accountability framework has made it tough to evaluate the effectiveness of SCS, whether the funds are really reaching to cater to the state's development. The lack of transparency about resource allocation instills suspicions about the scheme's efficiency and if it can eventually end Bihar's economic failure. It is, therefore, of paramount importance to design a transparent and accountable mechanism so that SCS funding can translate into tangible development outcomes rather than just disappearing into some bureaucratic black hole.

Concerns of Other States Regarding Resource Allocation:

1. Resource Allocation Injustice: The other states have been vocal in their apprehension on the issue as the rest of them believe that allowing SCS for Bihar alone would lead to an impression of resource mishandling. According to them, allowing the status to Bihar alone would be equivalent to providing or granting too many resources and funds for it from the Central Government, thereby at the cost of others. Such concerns for imbalance reflect the probability of differential treatment as states with more or even worse developmental challenges may not be accorded the same central assistance. This could merely accentuate regional imbalances and build resentment among the bypassed states in the allocation of central resources.

2. Perception of Special Privilege: It has created resentment among other states since the resources are allocated. There is an apparent perception that this is awarded due to political consideration rather than any concrete criterion. The belief behind such a contention would be that SCS, with its benefits like more financial assistance and preferential treatment under central schemes, be awarded based on an expressed need and disadvantage, rather than on any political expediency. Granting SCS to Bihar without evincing how it is economically backward as compared to other states may lead to demands from other areas who have some political interest in such ventures, and this could work against the principle of equity in resource use as well as increase inter-state tensions. This may add another dimension to the already complex task of resource allotment in a developing and diverse country like India.

3. Economic Distortion: There are also apprehensions about giving Special Category Status to Bihar and the impact on economic distortions. Providing preferential treatment in resource allocations and policy enforcement would create an uneven field of play, which will be adverse for the states that do not benefit from SCS. In that way, there would be an inefficient use of resources as at least some fraction of their resources will be wanting. More than that, SCS may discourage fiscal discipline in the recipient states and allow them to become beggaries of the central government. These distortions would hurt the comparative advantage of other states and may also perpetuate regional imbalances against national development in terms of economy. A balanced approach would be necessary so that regional imbalances do not create unwarranted economic distortions.

4. Fiscal Stability: Special Category Status to Bihar poses and raises questions on the distribution of resources resulting in other states; thus, financial burdens associated with SCS on centre would definitely reduce resources to be allocated to the other states, thereby leading to inequitable distribution, raising legitimate questions on probable inequalities in the allotment of development funds and further threats to the fiscal stability of the whole nation. Other states would demand that the developmental needs of the state itself were of equal importance and that the resources allocated for Bihar would bog down their process. Balancing regional development with fair allocation of resources is a greater challenge in this process. A transparent and objective resource allocation machinery would be an answer to these apprehensions and make the process equidistant to all the states.

V. Conclusion

The SCS debate for Bihar centers on the state's socio-economic underdevelopment and the grants it may receive if SCS is granted to Bihar. The arguments for the grant of SCS to Bihar as claimed speak of faster growth, infrastructure development, and improved indicators of human development, whereas most reservations put forth by other states are more on issues of resource distribution inequities and even political interference. Granting SCS to Bihar will have lots of implications in state's developments. This is an imperative may bridge its infrastructural, economic, and social development challenges. Denial of SCS, however may haunt Bihar's development wherein the state will continue to undergo underdevelopment problems which it now has. While continuing to debate the matter of SCS, it is apt to walk the middle path between the needs of the developments of Bihar and the sharing of resources in an equitable manner for all states. The future prospects would be to incorporate the alternative strategies and programs to give balanced regional development while simultaneously addressing the specific challenges posed by states such as Bihar.

VI. References:

Gyanendra Keshri, ‘Why special category status demand by state is backed in the limelight’, Deccan Herald, 8thJune 2024, available at https://www.deccanherald.com/india/why-special-category-status-demand-by-states-back-in-the-limelight-3057443 (last visited on 8th July 2024)

NITI Aayog, “India: National Multidimensional Poverty Index” (2023)

PRS Legislative Research, “Budget Analysis 2022-23” (2023)

Roshni, ‘Literacy rate in India, Bihar lowest at 61.8%, Kerala highest at 94%’, India Today (14th Mar, 2023).

Sudhirendar Sharma, Umesh Kumar Ray, “Bihar Floods: Lack Of Measures, Poor Planning Structures Pose Challenges To Mitigating Damages”, Outlook (2023).

Bihar State Disaster Management Authority, available at: http://bsdma.org/Know-Your-Risk.aspx?id=3 (Last visited on July 20, 2023).

Alakh N. Sharma, “Agrarian relations and socio-economic change in Bihar” (Institute of Human Development, New Delhi, 2005).

Supra note 1

Ibid note 9

Govind Bhattacharjee, “Special Category Status: Will it Actually Benefit Bihar?” 48 Economic and Political Weekly (2013).

Supra note 3

NITI Aayog, ‘Niti Aayog Releases 4th Edition of State Health Index’, (Dec, 2021)

Government of India, “India 2020: A Reference Annual” (Ministry of Information and Broadcasting, 2020).

Bihar State Disaster Management Authority, ”Bihar Hazard Profile” available at:http://www.bsdma.org/Welcome_note.aspx (last visited on August 1, 2024).

Ministry of Finance, “Dr. Raghuram Rajan Committee Report” (2013)

Piyush Tripathi, “Bihar worst performer in SDG India Index”, Times of India, June 4, 2024, available at: Click here (last visited: August 10, 2024).

Dr. Md Abdul Salam, Human Development Indicators: A Case Study of Bihar (2005) (Department