ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Is the Special Category Status Really Dead?

Though the Fourteenth Finance Commission report gives an impression that the special category status given to some states has de facto been abolished, the reality is that the benefi ts enjoyed by these states remain well protected. The biggest flaw of the special category mechanism is that the benefits flow in perpetuity without any accountability or performance monitoring of the states. This has made them overwhelmingly dependent on central funding. It is therefore imperative to bring in more accountability into the mechanism of such liberal transfer of funds and their end use.

The finance accounts of most states for 2015–16, the first year of implementation of the Fourteenth Finance Commission’s (XIV-FC) recommendations, are now available, and it may be time to visit the recommendations once again. The XIV-FC had recommended 42% devolution of the net proceeds of the central divisible pool of resources to the states, as against the existing 32% under recommendations of the Thirteenth Finance Commission (XIII-FC). States now have much more fiscal space to spend on their own priorities, instead of depending on the centre.

For other transfers outside the Finance Commission, that is, those made at the behest of the now-defunct Planning Commission, the Finance Commission had recommended setting up of a new institutional mechanism “consistent with the overarching objective of strengthening cooperative federalism,” by limiting discretion, improving design and giving adequate flexibility to the states. This is yet to be acted upon by the government. The earlier plan transfers have now mostly been subsumed in the higher devolution to states, and total transfers to them have registered only modest increases. Apart from devolution of taxes, the commission also recommended grants-in-aid of revenues of states. These included grants of ₹2.87 lakh crore for the urban and rural local bodies, besides grants of ₹1.95 lakh crore during 2015–20 for meeting the revenue deficits of 11 states, including six north-eastern states, Jammu and Kashmir, Himachal Pradesh, Andhra Pradesh, Kerala, and West Bengal.

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Updated On : 18th May, 2018
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