Centre denies Bihar's 'special category' status; no new designation allowed

The Centre, on Monday, rejected the JD(U)’s request for ‘special category’ status for Bihar during the all-party meeting.

No new states are being awarded ‘special category’ status at present, as the Indian Constitution does not accommodate such classification.

On Sunday, Manoj Kumar Jha, a leader of the Rashtriya Janata Dal (RJD), said Bihar is requesting both special state status and a distinct financial package. He noted that the call for special status for Bihar has persisted since the state was split into 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 packages,” Jha told news agency ANI.

The Gadgil formula

The issue of special category status was initially discussed in a National Development Council (NDC) meeting held in 1969. During this session, the DR Gadgil Committee proposed a formula for distributing central assistance to state plans in India. Before this, there was no dedicated formula for fund allocation, and grants were allocated based on individual schemes. The Gadgil Formula, which received NDC approval, gave precedence to special category states such as Assam, Jammu & Kashmir, and Nagaland, ensuring that their requirements were prioritised in the allocation of Central assistance.

In 1969, the 5th Finance Commission recognised the historical challenges faced by certain regions and introduced the special category status. This designation afforded specific disadvantaged states special benefits, such as central assistance and tax relief. The National Development Council allocated Central Plan Assistance to these states based on this status.

Up until the financial year 2014-2015, the 11 states granted special category status enjoyed various benefits and incentives. However, with the dissolution of the Planning Commission and the establishment of the NITI Aayog in 2014, the 14th Finance Commission’s recommendations led to the cessation of Gadgil Formula-based grants. Consequently, the share of the divisible pool allocated to all states was increased from 32 per cent to 42 per cent.

Tax devolution and allocation changes

Starting in 2015, the 14th Finance Commission removed the differentiation between general category and special category states in the distribution of shareable taxes. It raised the portion of net shareable taxes allocated to states from 32 per cent to 42 per cent for the 2015-2020 period.

The 15th Finance Commission continued this allocation at 41 per cent for the periods 2020-2021 and 2021-2026, adjusting by 1 per cent due to the establishment of the Union Territory of Jammu & Kashmir. This adjustment was designed to address resource disparities among states through tax devolution, with Post-Devolution Revenue Deficit Grants provided when tax devolution did not fully cover the identified gaps.