Finance Commission and Special Category Status

Why in News?

The bifurcation of Andhra Pradesh had left a troubled legacy, The former govt. had promised special category status to the successor State of Andhra Pradesh, however the current govt. has pleaded inability and has instead agreed to give a generous package.



Special Category Status

The status was accorded to some States by the National Development Council on the recommendation of the erstwhile Planning Commission on the basis of five important criteria, namely,-

i)hilly and difficult terrain;

ii)low population density and/or sizeable share of tribal population;

iii) strategic location along borders with neighbouring countries; iv)economic and infrastructural backwardness; and

v)non-viable nature of State finances.

The Finance Commissions has no role in either specifying the criteria or making recommendations for admission to special category status.

Finance Commission

Art 280 of India provides for a Finance Commission as a quasi-judicial body. It is constituted by the President every 5 yrs.

Composition and Tenure

It comprises of the Chairman and 4 other members to be appointed by the President .They hold office for such period as specified by the President in his order. They are eligible for reappointment.


The Constitution authorises the Parliament to determine the qualification of the members.

i)The Chairman should be a person having experience in Public affairs.

The Four other members should be selected from amongst the following-

ii)A HC Judge or one qualified to be one.

iii)A person who has specialised knowledge of finance and accounts of the govt.

iv)A person who has wide experience in financial matters and in administration.

v)A person who has special knowledge of economics.


The FC is required to make recommendations to the President on the following matters-

i)Distribution of net proceeds of Taxes to be shared between the centre and the state, and the allocation between the states of the respective shares.

ii)The principle that should govern the grants-in-aid to the states by the centre.

iii)The measures needed to augment the consolidated fund of the state.

14th Finance Commission

Following the constitution of the NITI Aayog and the recommendations of the Fourteenth Finance Commission (FFC), Central plan assistance to SCS States has been subsumed in an increased devolution of the divisible pool to all States (from 32% in the 13th FC recommendations to 42%) and do not any longer appear in plan expenditure.

The FFC also recommended  the following criteria for financial devolution-

population as of 1971 17.5%
demographic change reflecting population shifts between 1971 and 2011 10 %
Area 15%
fiscal capacity measured by the income distance method 50%
Forest Cover 7.5%

Besides, assistance to Centrally Sponsored Schemes for the SCS States was given with 90% Central share and 10% State share.



Source-The Hindu.