Package-II for Special Category States: A Critical Look

The Special Category Status (SCS) is a classification given by the Indian government to assist the development of states that face geographical and socio-economic disadvantages. These states are given special privileges in terms of central assistance, tax breaks, and other economic and infrastructural support.

In 2014, the 14th Finance Commission recommended discontinuing the SCS and replacing it with a formula-based approach for devolution of central funds. However, in 2018, the government announced a special package for the eleven remaining SCS states, known as Package-II.

This blog will take a critical look at Package-II, analyzing its provisions, implications, and potential impact on the recipient states.

What is Package-II

Package-II is a Rs 83,000 crore package spread over five years (2018-23) for the eleven SCS states:

Arunachal Pradesh

Assam

Himachal Pradesh

Jammu & Kashmir

Manipur

Meghalaya

Mizoram

Nagaland

Sikkim

Tripura

Uttarakhand

What are three key areas of Package-II:

Infrastructure development:

This includes roads, bridges, railways, airports, power, and telecommunications.

Social development:

This includes education, health, skill development, and tribal welfare.

Economic development:

This includes incentives for industries, agriculture, and tourism.

What are the Provisions of Package-II

The package includes a mix of grants, loans, and central assistance. Some of the key provisions are:

Central grant of Rs 45,000 crore:

This will be used for infrastructure development, social development, and economic development projects.

Interest subvention on loans:

The central government will subsidize the interest rate on loans taken by the SCS states for infrastructure projects.

Tax concessions:

The SCS states will continue to enjoy tax benefits under the Income Tax Act and the Goods and Services Tax (GST) Act.

Central assistance for state plans:

The central government will continue to provide assistance for state plans, with a weightage of 90% for SCS states.

Implications of Package-II

Package-II is a welcome step towards addressing the challenges faced by the SCS states. However, there are some concerns:

Inadequacy of funds:

The total package of Rs 83,000 crore may not be enough to meet the massive infrastructure and development needs of the SCS states.

Focus on infrastructure:

While infrastructure development is important, there is a need for more focus on social development and economic development.

Conditionalities:

Some of the funds are tied to conditions, which may limit the flexibility of the SCS states in using them.

Inequitable distribution:

The package does not address the varying needs of different SCS states.

Potential Impact of Package-II

Package-II has the potential to significantly impact the SCS states. It could lead to:

Improved infrastructure:

Better roads, bridges, railways, airports, power, and telecommunications will boost connectivity and economic activity.

Enhanced social development:

Improved education, health, skill development, and tribal welfare will lead to better human capital.

Increased economic development:

Incentives for industries, agriculture, and tourism will attract investments and create jobs.

However, the success of Package-II will depend on its effective implementation. The central government and the SCS states need to work together to ensure that the funds are used efficiently and transparently.

Conclusion

Package-II is a positive step, but it is not a magic bullet. The SCS states need to continue to push for more resources and greater autonomy. Civil society organizations and the private sector also have a role to play in supporting the development of these states.