Although 11 states have special category status, Union government refuses the same status to Bihar despite repeated demand, JDU MP's son joins RJD

On March 20, 2025, Bihar government made a fresh demand for special category status before the 16th Finance Commission, members of which were on a tour of the state. Arvind Pangariya, the chairman of the commission disclosed: "The demand for a special category status is part of the memorandum of the Bihar government... (but) this is not something that the Finance Commission has jurisdiction over". He made the disclosure while interacting with the media after receiving the state government's memorandum. He observed: "At the moment, no state has special category status. It used to be under the Planning Commission. States were divided into special and general categories. But that specification went away with the Planning Commission". This outright refusal by Pangariya who is also the chancellor of Nalanda University is aware of Bihar's social and economic structure, is let down for the Bihar government.  

 

Prior to this on  July 31, 2023, Janata Dal United (JDU) MP, Girdhari Yadav asked an Unstarred question in the Lok Sabha addressed to Union Minister of Finance as to (a) whether Bihar is one of the most backward States of the country with the lowest per capita income and that the Government of Bihar has been demanding to accord special status to the State for more than fifteen years from the Government but till now the status of special State has not been accorded to it; (b) if so, whether the Government proposes to accord special status to Bihar and bringing it into the main stream of the country; (c) if so, the details thereof and the time by which the special status is likely to be given; and (d) if not, the reasons therefor?

Union Ministry of Finance replied, 'Special Category Status for plan assistance was granted in the past by the National Development Council (NDC) to some States characterized by several features necessitating
special consideration. These features included (i) hilly and difficult terrain, (ii) low population density and/or sizeable share of tribal population, (iii) strategic location along borders with neighboring countries, (iv) economic and infrastructural backwardness and (v) non-viable nature of state finances. The decision was taken based on an integrated consideration of all the factors listed above and the peculiar situation of the State. Earlier, the request of Bihar for Special Category Status was considered by an Inter-Ministerial Group (IMG) which submitted its Report on 30th March, 2012. The IMG came to a finding that based on existing NDC criteria the case for Special Category Status for Bihar is not made out.' 

The Ministry added: 'Further, as per the Fourteenth Finance Commission recommendations, the Union Government increased the share of net shareable taxes to the States from 32% earlier to 42%for the period 2015-20. The Fifteenth Finance Commission has also retained the same at 41%  (1% adjusted on account of the creation of UT of J&K) for the period (2020-21 & 2021-26). The objective has been to fill the resource gap of each State to the extent possible through tax devolution. Also, post-devolution revenue deficit grant is provided to States where devolution alone could not cover the assessed gap.' 

Notably, two years after the question in the Lok Sabha, Chanakya Prakash Ranjan (30) son of the JDU) MP from Banka has joined the Rashtriya Janata Dal (RJD). According to the 13-page long affidavit dated October 18, 2025 filed with the Election Commission of India, Chanakya is an M.A. in public administration from the London School of Economics and Political Science joined the RJD at the party’s headquarters in Patna in the presence of Leader of the Opposition Tejashwi Yadav. Sources indicate that he may be fielded as the RJD’s candidate from the Belhar Assembly seat.

Bihar Assembly has passed an unanimous resolution seeking the grant of the Special Category Status (SCS), based on the ‘Bihar Caste-based Survey, 2022’, findings which revealed that nearly one-third of Bihar’s population lives in poverty. Andhra Pradesh, since its bifurcation in 2014, has asked for SCS on the basis of shrunken fiscal space and revenue loss due to its capital city Hyderabad going to Telangana. Odisha has also demanded the SCS tag, on the basis of its climate change related vulnerabilities. Yet another significant determinant is its large tribal population (nearly 22%). Since the 14th Finance Commission recommended that no new state should be accorded the SCS, the central government has repeatedly denied their demands.

The 5th Finance Commission recommended the SCS classification in 1969. The special status was first accorded to Jammu and Kashmir, Assam and Nagaland in 1969. Before the dismantling of Planning Commission, SCS for plan assistance was granted by the National Development Council. In the Planning Commission era, SCS states used to receive approximately 30% of central assistance, determined by the Gadgil-Mukherjee formula. After the dismantling of Planning Commission, following the recommendations of the 14th and 15th Finance Commissions, this financial assistance to SCS states has been subsumed in an increased devolution of the divisible tax pool funds for all states. The magnitude of tax transfers has increased from 32% to 42% in 14th Finance Commission and to 41% in 15th Finance Commission.

In 2013, Raghuram Rajan committee had presented an alternative classification of states based on a multi-dimensional index. The 14th Finance Commission had taken the decision to abolish SCS status, offering an exception only to the northeastern region and three hill states. It advised the Centre to increase the state’s share of tax transfers from 32% to 42%, which has been in place since 2015. This would help to close the resource gap in each state. Therefore, the 16th Finance Commis-sion can think about increased tax transfers as an alternative to declaring more states as SCS. However, the bargaining dynamics of the coalition government and the political economy of fiscal federalism will have the final say on this.
 
The SCS is a classification given to states that receive special financial assistance and other benefits from the central government due to their unique developmental needs and challenges. SCS is determined based on the following factors: Whether the state has hilly terrain; Low population density or sizeable share of tribal population; strategic location along borders with neighbouring countries; the state is backward in economic and infrastructure; and, non-viable nature of state finances. These determinants are based on the Gadgil formula of fiscal transfers.
 
For States which are accorded the ‘Special Category Status’, under the 90:10 formula devised for devolution of funds for Centrally Sponsored Schemes for such states, the Central government provides 90% of the funds and only 10% has to be provided by the State. Also, the unutilised or unspent money of CSS to these SCS states can be carried forward to the next year. These states also enjoy concessions in taxes and duties. In contrast, for other states, the ratio of fund contribution is 60:40, with the individual states required to contribute 40% of the funds.

At present, 10 States, Assam, Nagaland, Himachal Pradesh, Manipur, Meghalaya, Sikkim, Arunachal Pradesh, Mizoram, Tripura and Uttarakhand have the SCS category. Jammu and Kashmir, now a Union Territory after revocation of Article 370 also has a special category.

Bihar government had submitted a 32-page memorandum to Union Ministry of Finance detailing the state's demands. The key demands included:

•     Rs13,000 crore for flood management in North Bihar.
•     Upgrading Darbhanga airport and constructing new airports in Rajgir and Bhagalpur.
•     Funding for Raxaul airport to boost regional connectivity.
•     Construction of 10 new Kendriya Vidyalayas (central government-run schools).
•     A 1% Gross State Domestic Product (GSDP) relaxation to allow additional borrowing.
•     Approval for a small modular nuclear reactor.
•     Development of high-speed corridors for improved transportation infrastructure.

Ahead of the Assembly elections, the Union Budget Bihar was put at the centre of key budgetary allocations.  

Five big announcements for Bihar in the Union Budget 2025:
1. Establishment of Makhana Board

The Union government has announced the formation of a Makhana Board to enhance the production, processing, value addition, and marketing of makhana (fox nuts). It will also work to ensure they receive the benefits of all relevant government schemes. Farmers and stakeholders involved in makhana cultivation will be organised under Farmer Producer Organisations (FPOs) to streamline operations and boost profitability. The initiative aims to benefit makhana processing companies and expand market opportunities. The Bihar government has been actively promoting makhana as a staple in Indian diets and with the establishment of this board, modern machinery will be introduced to improve both production and processing efficiency.

2. Greenfield Airport in Bihta

In a major infrastructure push, the construction of a greenfield airport in Bihta was announced. There is a  plan to expand Patna Airport to accommodate rising passenger traffic and an additional brownfield airport at Bihta. A greenfield airport refers to an entirely new airport built on undeveloped land, without any prior infrastructure. Such projects are typically undertaken to ease congestion at existing airports and enhance regional connectivity. Given Patna Airport's increasing footfall and operational constraints, the new airports are expected to significantly improve air travel facilities.

3. Support for Food Processing 

Under the Union government's 'Purvodaya' initiative to develop Eastern India, a National Institute of Food Technology, Entrepreneurship and Management will be established in Bihar. This institute will act as a major boost for food processing activities across the region.

4. Western Koshi Canal Project in Mithilanchal 

The Western Koshi Canal Extension, Renovation, and Modernisation (ERM) Project will receive financial support, benefiting thousands of farmers across the Mithilanchal region. This project will help improve irrigation facilities for over 50,000 hectares of agricultural land, ensuring better water management and increased productivity. Given Bihar's dependence on agriculture, this investment is expected to strengthen the rural economy and improve farmers' livelihoods.

5. Expansion of IIT Patna and Other Infrastructure 

The total number of students in 23 IITs across India has doubled from 65,000 to 135,000 in the past decade. To support this expansion, additional infrastructure will be developed in the five IITs established after 2014, facilitating education for 6,500 more students. For IIT Patna, the Budget also promised an expansion of hostel and other infrastructure facilities, addressing the growing demand for high-quality education and research in Bihar.

In the previous Budget (2024-25), Bihar had been allocated Rs59,000 crore for road connectivity, power, and flood management. Bihar government had reiterated the demand for either SCS or a special financial package, emphasising the need for greater central assistance to accelerate Bihar's development. 

Notably, Telgu Desam Party (TDP) has also demanded special category status for Andhra Pradesh but the union government has remained unresponsive.  

Union government 's continued refusal to accord special status to Bihar and Andhra Pradesh despite repeated demand demonstrates that JDU and TDP do not have any influence on the coalition government  at the centre.

Union Finance minister declines special category status to Bihar in Budget 2025-26

Disregarding Chief Minister Nitish Kumar's demand for grant of Bihar special category status, ahead of Bihar assembly election in November 2025, Nirmala Sitharaman, the Union Finance Minister donned Madubani Sari to refer to Bihar on three occasions in her 57-page long budget speech. All the States including Bihar have again been taken for a ride because the Union government has increased its share in import duties by raising the Agriculture Infrastructure and Development Cess (AIDC) but reduced the Basic Customs Duty (BCD), which is shared with states.

In her eighth speech budget speech, she announced the establishment of a Makhana Board in Bihar. The initiative aims to enhance production, processing, and value addition of Makhana in the state. She said, "A Makhana Board will be established in the state to improve production, processing, value addition, and marketing of makhana. The people engaged in these activities will be organized into FPOs. The Board will provide handholding and training support to makhana farmers and will also work to ensure they receive the benefits of all relevant Government schemes." FPOs refers to Farmer Producer Organizations. FPO is a generic name, which means farmer- producers’ organization incorporated/registered either under Part IXA of Companies Act or under Co-operative Societies Act of the concerned States. A Producer Organisation (PO) is a legal entity formed by primary producers, viz. farmers, milk producers, fishermen, weavers, rural artisans, craftsmen. A PO can be a producer company, a cooperative society or any other legal form which provides for sharing of profits/benefits among the members. FPO is one type of PO where the members are farmers. The ownership of the PO is with its members. It is an organization of the producers, by the producers and for the producers.

The minimum number of membership depends on the legal form of the PO. For example, 10 or more primary producers can incorporate a Producer Company under Section 581(C) of Indian Companies Act 1956 (same provisions are retained in the 2013 Act). Section 465(1) of the Companies Act, 2013 mentions that "the provisions of Part IX A of the Companies Act, 1956 (1 of 1956) shall be applicable mutatis mutandis to a Producer Company in a manner as if the Companies Act, 1956 has not been repealed until a special Act is enacted for Producer Companies." There is no restriction on the maximum number of membership. The Income derived by a Producer Company through agricultural activities as defined in Income Tax Act, 1961 as amended from time to time, is treated as agricultural income and is exempted from taxation.

Producer Organisation can be registered under any of the following legal provisions:
a. Cooperative Societies Act/Autonomous or Mutually Aided Cooperative Societies Act of the respective State
b. Multi-State Cooperative Society Act, 2002
c. Producer Company under Section 581(C) of Indian Companies Act, 1956, as amended  in 2013
d. Section 25 Company of Indian Companies Act, 1956, as amended as Section 8 in 2013
e. Societies registered under Society Registration Act, 1860
f. Public Trusts registered under Indian Trusts Act, 1882

The PO can undertake the following activities:
a. Procurement of inputs
b. Disseminating market information
c. Dissemination of technology and innovations
d. Facilitating finance for inputs
e. Aggregation and storage of produce
f. Primary processing like drying, cleaning and grading
g. Brand building, Packaging, Labeling and Standardization
h. Quality control
i. Marketing to institutional buyers
j. Participation in commodity exchanges
k. Export

The minister announced that the capacity of the Indian Institute of Technology (IIT), Patna will be expanded as part of a broader initiative to enhance IITs. This includes developing additional infrastructure across five IITs to accommodate 6,500 more students. 

A National Institute of Food Technology, Entrepreneurship, and Management will be set up in Bihar to promote food processing activities. She said,"The institute will provide a strong fillip to food processing activities in the entire Eastern region. This will result in (1) enhanced income for the farmers through value addition to their produce, and (2) skilling, entrepreneurship and employment opportunities for the youth." Besides the expansion of  the Patna airport, the minister announced a brownfield airport in Bihta, Patna. The minister announced financial support for the Western Koshi Canal ERM Project benefiting a large number of farmers cultivating over 50,000 hectares of land in the Mithilanchal region of Bihar.

Bihar government had submitted a 32-page long memorandum to the minister seeking Rs 13,000 crore in central assistance for flood management in North Bihar, additional borrowing limit, 1% GSDP rebate for Bihar until its per capita income reaches the national average. The State had asked for initiation of Pradhan Mantri Gram Sadak Yojana-5.0 to widen and strengthen rural roads, a 250 km Greenfield Corridor from Birpur to Deoghar to promote religious tourism, connecting Nepal’s Pashupatinath to Vaidyanath Dham in Bihar-Jharkhand, construction of a 270 km high-speed corridor from Ladaniya to Nawada and a 135 km Raxaul-Dighwara corridor to enhance regional connectivity and facilitate goods transport to Nepal, establishment of PM Gatishakti Railway University in Jamalpur, Bihta-Aurangabad and Sultanganj-Deoghar railway lines, creation of 10 new Kendriya Vidyalayas and renovation of Vikramshila University. The Union Budget 2024-25 had announced Rs 59,000 crore for road connectivity, power, and flood management in Bihar. One year after the announcement, there is nothing visible on the ground to demonstrate that these announcements in the Union Budget Speech are meaningful. 

Union Budget is the Annual Financial Statement (AFS), as provided under Article 112 of the Constitution of India. It shows the estimated receipts and expenditure of the Government of India for 2025-26 along with estimates for 2024-25 and also actuals for the year 2023-24. The receipts and disbursements are shown under three parts in which Government Accounts are kept viz., (i) The Consolidated Fund of India, (ii) The Contingency Fund of India and (iii) The Public Account of India. The Annual Financial Statement distinguishes the expenditure on revenue account from the expenditure on other accounts, as is mandated in the Constitution of India. The Revenue and the Capital sections together, make the Union Budget. 

The estimates of receipts and expenditure included in the Annual Financial Statement are net of refunds and recoveries respectively. The significance of the Consolidated Fund, the Contingency Fund and the Public Account as well as the distinguishing features of the Revenue and the Capital portions are as under:

The Consolidated Fund of India (CFI) draws its existence from Article 266 of the Constitution. All revenues received by the Government, loans raised by it, and also receipts from recoveries of loans granted by it, together form the Consolidated Fund of India. All expenditure of the Government is incurred from the Consolidated Fund of India and no amount can be drawn from the Consolidated Fund without due authorization from the Parliament.

Article 267 of the Constitution authorizes the existence of a Contingency Fund of India which is an imprest placed at the disposal of the President of India to facilitate meeting of urgent unforeseen expenditure by the Government pending authorization from the Parliament. Parliamentary approval for such unforeseen expenditure is obtained, ex-post-facto, and an equivalent amount is drawn from the Consolidated Fund to recoup the Contingency Fund after such ex-post-facto approval. The corpus of the Contingency Fund as authorized by Parliament presently stands at `30,000 crore.

Money held by Government in trust are kept in the Public Account. The Public Account draws its existence from Article 266 of the Constitution of India. Provident Funds, Small Savings collections, receipts of Government set apart for expenditure on specific objects such as road development, primary education, other Reserve/Special Funds etc., are examples of moneys kept in the Public Account. Public Account funds that do not belong to the Government and have to be finally paid back to the persons and authorities, who deposited them, do not require Parliamentary authorization for withdrawals. The approval of the Parliament is obtained when amounts are withdrawn from the Consolidated Fund and kept in the Public Account for expenditure on specific objects (the actual expenditure on the specific object is again submitted for vote of the Parliament for withdrawal from the Public Account for incurring expenditure on the specific objects). 

The Union Budget can be demarcated into the part pertaining to revenue which is for ease of reference termed as Revenue Budget and the part pertaining to Capital which is for ease of reference termed as Capital Budget.

The Revenue Budget consists of the revenue receipts of the Government (Tax revenues and Non-Tax revenues) and the revenue expenditure. Tax revenues comprise proceeds of taxes and other duties levied by the Union. The estimates of revenue receipts shown in the Annual Financial Statement take into account the effect of various taxation proposals made in the Finance Bill. Non-tax receipts of the Government mainly consist of interest and dividend on investments made by the Government, fees and other receipts for services rendered by the Government. Revenue expenditure is for the normal running of Government Departments and for rendering of various services, making interest payments on debt, meeting subsidies, grants in aid, etc. 

Broadly, the expenditure which does not result in creation of assets for the  Government of India, is treated as revenue expenditure. All grants given to the State Governments/Union Territories and other parties are also treated as revenue expenditure in the books of Union Government even though some of the grants may be used for creation of capital assets by Grantee bodies/entities.

Capital receipts and capital payments together constitute the Capital Budget. The capital receipts are loans raised by the Government (these are termed as market loans), borrowings by the Government through the sale of Treasury Bills, the loans received from foreign Governments and bodies, recoveries of loans from State and Union Territory Governments and other parties and miscellaneous capital Receipts etc. Capital payments consist of capital expenditure on acquisition of assets like land, buildings, machinery, equipment, as also investments in shares, etc., and loans and advances granted by the Central Government to the State and the Union Territory Governments, Government companies, Corporations and other parties. 

The estimates of receipts and disbursements in the Annual Financial Statement and of expenditure in the Demands for Grants are shown according to the accounting classification referred to under Article 150 of the Constitution.

Article 113 of the Constitution mandates that the estimates of expenditure from the Consolidated Fund of India included in the Annual Financial Statement and required to be voted by the Lok Sabha, be submitted in the form of Demands for Grants. The Demands for Grants are presented to the Lok Sabha along with the Annual Financial Statement. Generally, one Demand for Grant is presented in respect of each Ministry or Department.

At the time of presentation of the Annual Financial Statement before the Parliament, a Finance Bill is also presented in fulfilment of the requirement of Article 110 (1)(a) of the Constitution, detailing the imposition, abolition, remission, alteration or regulation of taxes proposed in the Budget. It also contains other provisions relating to Budget that could be classified as Money Bill. A Finance Bill is a Money Bill as defined in Article 110 of the Constitution.