‘Special category’ status is a classification given by Centre to assist in development of those states that face geographical & socio-economic disadvantages like hilly terrains, strategic international borders, economic & infrastructural backwardness and non-viable state finances.
The classification came into existence in 1969 as per the suggestion given by the Fifth Finance Commission, set up to devise a formula for sharing the funds of Central govt. among all states.
Significant concession in excise & customs duties, income tax and corporate tax.
30 percent of planned expenditure (central budget) goes to ‘special category’ states.
Special Category states are benefited because of Normal Central Assistance which was skewed in favour of these states. These states get more funds in terms of NCA and most part of these funds was in the form of grants rather than loans.
Special Central Assistance given to SCS is also an additional amount which can be used by the concerned state for economic development.
Centre bears 90% of the state expenditure (given as grant) on all centrally-sponsored schemes and external aid while rest 10% is given as loan to state. For general category, the respective grant to loan ratio is 30:70 where as external aid is passed on in the same ratio as received at the centre.
Unspent money does not lapse and gets carry forward.
Hence, special-category status catalyses the inflow of private investments and generates employment and additional revenue to state. Since centre bears 90% of state expenditure on all centrally-sponsored schemes, state can take more welfare-based schemes from the new savings.