The assertion that Finance Commission 14 (FC14) has allotted substantially more resources to Bihar compared to the allocation by Finance Commission 13(FC13) is not tenable at all. It is true that allocation by FC14 out of divisible pool is 136 percent more than what was allocated by FC13; but figures for allocation by FC13 and FC14 are not at all comparable. The Commission itself has noted that since there is little scope to increase the share of aggregate transfers from the union government, all that the Commission has done is to suggest only a compositional shift in the total transfers. As regards vertical distribution, under FC13, size of divisible pool of resources was 32 percent of the net revenue receipts of the union government, but there were other transfers too through grants-in-aid. Under FC14, divisible pool of resources is undoubtedly larger (42 percent), but all other transfers are less, as noted by Commission itself. Thus component-wise comparison of different transfer figures are bound to be misleading. We ought to compare only total transfers.
The impact of changes in vertical transfer patterns is similar on all the states. But, whether FC14 was fair to Bihar is indeed indicated by the horizontal distribution pattern. A decrease in the share of divisible pool of taxes for Bihar from 10.92 to 9.67 is not only a decrease, but a substantial decrease, more than 1 percentage point. And the reasons for decrease are indeed surprising. Bihar received less because income distance (to capture Bihar’s historical disadvantage) was given less weightage; secondly, area was given higher weightage (again penalising a densely populated state like Bihar); and thirdly, assigning some weight to forest area (which is obviously very low in the Gangetic Plains). Finally, Bihar has been penalised for the financial prudency which was maintained by severely constraining spending on health, education and maintenance of infrastructure. The states with revenue deficit have been rewarded. The allocation pattern is not only unfair, but simply defies the equalisation principle.
However, FC14 emphasised major central transfer through the route of Finance Commission, which is quite laudable. So the share of tax increased by 10 percentage points and total central pool available for all states is Rs. 40 lakh crore. Out of this kitty, Bihar will be getting Rs. 3.75 lakh crore in the next five years (2015 to 2020). Earlier in the FC13, even though the financial kitty was small (Rs. 14 lakh crore), Bihar got Rs. 1.5 lakh crore. This is a substantial decrease of 1.3 percentage point. Notionally this would entail loss of Rs. 61800 crore for the state. It may also be mentioned that the total tax devolution to states as recommended by FC14 shows an increase by 2.71 times over FC13. However, the same for Bihar shows an increase of only 2.42 times, much less than 2.71 times, causing a huge loss of Rs. 45803 crore in five years period (2015-20) in absolute term. Over and above, with the dismantling of the Planning Commission, without working out a tangible alternative, Bihar will be subjected to further disadvantage. With the pruning of Centrally Sponsored Schemes (CSS) and not allocating funds under BRGF and Integrated Action Plan for left wing extremism affected districts, Bihar will be bled white financially. Not only the CSSs have been pruned, the states’ share in the remaining CSSs has been increased substantially putting Bihar into increased financial burden. There has not been any clarity, what will be the fate of the financial dividend, Bihar was getting on the basis of Bihar Reorganisation Bill of 2000. In the last days of the UPA-II, its quantum was increased.
On the question of Special Category Status, one has to only remember the case of Telengana, which was granted the status only recently. One cannot but wonder in what way Telengana is more disadvantaged than Bihar. In the present scenario of ‘market-centric’ development strategy, the possibility of private sector investment in the state is very limited without tax incentives, which are generally allowed only to those states which are accorded the Special Category Status. A Special Category State also gets preferential treatment in federal assistance and tax breaks. Similarly, the conclusion of Raghuram Rajan Committee that Odisha is more disadvantaged than Bihar also defies logic. One has to read an extremely reasoned note of dissent to the Report by me revealing its obvious methodological limitation.
*Member Secretary, Asian Development Research Institute (ADRI), Patna
The assertion that Finance Commission 14 (FC14) has allotted substantially more resources to Bihar compared to the allocation by Finance Commission 13(FC13) is not tenable at all. It is true that allocation by FC14 out of divisible pool is 136 percent more than what was allocated by FC13; but figures for allocation by FC13 and FC14 are not at all comparable. The Commission itself has noted that since there is little scope to increase the share of aggregate transfers from the union government, all that the Commission has done is to suggest only a compositional shift in the total transfers. As regards vertical distribution, under FC13, size of divisible pool of resources was 32 percent of the net revenue receipts of the union government, but there were other transfers too through grants-in-aid. Under FC14, divisible pool of resources is undoubtedly larger (42 percent), but all other transfers are less, as noted by Commission itself. Thus component-wise comparison of different transfer figures are bound to be misleading. We ought to compare only total transfers.