The Centre is now taking the case for Special Status to Seemandhra in Andhra Pradesh, which will come out form the residuary State after the newly formed State of Telangana is shaped out.
Seemandhra’s politically induction into the line of already existing eleven Special Category States has, as expected, resulted into a upsurge of demands for likely privileges from a horde of other states like Odisha, Jharkhand, Chhattisgarh, Rajasthan and Uttar Pradesh!
Undoubtedly it is causing a major concern for the Union Policymakers and the Planning Commission at the Centre.
As a matter of fact, it has aroused big reactions across the party lines in Bihar, a state demanding Special Status for long and the recent crescendo of Nitish Kumar’s high pitched move.
Demanding Special Status for Bihar, Chief Minister Nitish Kumar’s Janata Dal (United) has called for a Bihar Bandh on March 2. On the other hand, the BJP has announced a Rail Roko on February 28, on the issue.
The Lok Sabha has already seen last Friday, how the friends-turned-foes BJP and Janata Dal (United) almost jointly raised the issue for earnestness of providing Bihar the status of a Special State.
While JD(U) and BJP separately launching agitations to dissent the Centre’s denial of Special Category Status to Bihar, BJP has already said that if Chief Minister Nitish Kumar supported its ‘Rail Roko’ stir on February 28, it would also join his party’s March 2 State-wide Bandh.
But, even in their protests, the internal politics has cropped up! The State BJP has alleged that Kumar’s decision to shift the Bandh from previously declared March 1 to March 2, most possibly aimed at affecting Narendra Modi’s rally at Muzaffarpur on March 3.
JD (U) had earlier called the Bandh on March 1, but later changed it by a day to March 2, quoting reason of some major examinations in the State on March 1. But in the other way, the Statewise Bandh will disrupt road and rail traffic, limiting attendance to Modi’s crucial rally!
Bihar CM Nitish Kumar has organised mega rallies in Patna and Delhi, demanding Special Status for Bihar. He has organised statewise ‘Sankalp Yatras’. His Yatras in Muzaffarpur, Darbhanga, Gaya, Gopalganj and Mohania drew highly impressive crowd.
While the Congress led UPA is dilly dallying with its political alliance, keeping RJD also in the loop.
This made Nitish Kumar highly aggressive on the issue. Undoubtedly, it is now going to be the main Poll issue in Bihar, during 2014 general elections.
The Bihar State Congress President Ashok Chaudhary had even said that Nitish Kumar is now becoming “unpopular” day by day and virtually has no other issue than the Special Status demand for the coming general elections!
Unlike the eleven special category States that lie in the naturally challenged remote Hill regions, economically non-viable status, or on the sensitive Border areas— include eight northeastern states plus J&K, Himachal Pradesh and Uttarakhand — the States which are now demanding the tag are economically much bigger and having much potential to contribute to the national exchequer.
Special Category Status for Indian States was introduced in the year 1969. The Gadgil formula proposed a more liberal devolution of funds initially for three States: Assam, Nagaland and Jammu & Kashmir. This was created on the criteria of hilly ground, spare population and crucial international borders.
Gradually, this was extended to eleven States.
Special Category Status improves the resource ability of the State by changing the mix of Centre-state contribution for Centrally-sponsored schemes.
But here is a problem. According to CSO data of 2011, per-capita income was higher in Special Category States like Himachal Pradesh (Rs 47,106), Sikkim (Rs 47,655), Tripura (Rs 37,216) and Mizoram (Rs 36,732).
On the contrary, the general category States Bihar has it Rs 13,632, within a national average of Rs 35,993!
But the Central Government was always firm on its stand that Bihar did not meet the existing criteria for Special Category State.
Planning Commission Deputy Chairman Montek Singh Ahluwalia had already said,”Bihar does not meet the existing criteria according to which a state is deemed eligible for special category state. We do recognise that Bihar and some parts do have a special problem and as part of BGRF (Backward Regions Grant Fund) we have the Bihar package”.
Even at the present scenario, the Union Finance Commission’s criteria for the Tax Revenue Devolution to a State which is indexed, inter alia, to its population, land area and backwardness have already benefited the States such as Bihar.
Economic observers have to say that these benefits, in totality are much higher than the demanded Special Category Status and its effect. It’s going to affect negatively if the excise duty waiver for industries in the Special Category States is excluded.
In spite of remaining adamant on its Special State Status, the observers feel that, a wholesome financial package and most likely a five-year Special-Package (known as the Special Plan Assistance or Special Central Aid) are what would help Bihar more.
The economists are on the view that such a huge demand created by Bihar and gradually other “backward States” have the potential of threat to India’s existing fiscal federalism.
It has already made things difficult for the Central Government, which had to appoint the Raghuram Rajan Committee, and reportedly thinking a rearrangement it of the existing norms for Centre’s resource allocation to the States, applying multidimensional index to identify the backwardness, as proposed by the above said Commission.
The Rajan Committee
In May last year, the Central Government had constituted a Committee headed by Mr. Raghuram Rajan, the present RBI Governor, to suggest various ways to identify indicators of the relatively backwardness of Indian States for equitable allocation of Central funds.
Presently, the Central allocations are governed by the Gadgil-Mukherjee formula that places the greatest weightage on the State’s population, followed by further factors like Per Capita Income and Literacy Rate.
Obviously, Bihar Chief Minister Nitish Kumar’s continuous demand for ‘Special Category Status’ for Bihar recently, has induced the Union Government to review the process of Centre’s allocation of funds.
The Finance Minister P Chidambaram has already stated in the Parliament that the Rajan committee was assigned to identify States that are much below the National average level in terms of different development indicators and to recommend ways to raise them above the periphery.
The Rajan Committee has identified Odisha as the least developed State in India, which is followed by Bihar and Madhya Pradesh. The four other States apart from Bihar and Odisha clamouring for special-category privileges are among those found by the Rajan panel as “least developed”, requiring more central resources.
Experts believe that employing the Rajan index would be much more beneficial to all the six States demanding special-category tag that the Special State status itself.
The report, which the Prime Minister and the Finance Minister have reviewed, has long been made public.
The Rajan Committee has recommended an index of backwardness composed of 10 indicators like State’s monthly per capita consumption, expenditures on education, health, and household amenities. The other such parameters include, rate of poverty, female literacy rate, percentage of the Scheduled Caste/Scheduled Tribe in the State’s population, the urbanisation status, financial inclusiveness and connectivity.
Accordingly, the 10 States which scored above 0.6 mark (out of 1) on the composite index have been classified as “least developed,” the 11 States that scored from 0.4 to 0.6 are “less developed” and the seven States that got less than 0.4 are classified “relatively developed.”
If the recommendations of the Committee to be accepted, obviously Odisha, Bihar, Madhya Pradesh, Rajasthan and Uttar Pradesh will get a bigger share of Union Government funds than their present share of total Union Government allocation to the State Plans and Central Government sponsored schemes. In the way performing States like Tamil Nadu, Maharashtra and Kerala, will lose considerably.
The Case of Bihar
The very term “backward” was introduced in the dictionary of the Planning Commission as early as the Third Five-Year Plan. It has been used in various ways. The Backward Regions Grant Fund (BRGF), which began in 2006-07, addressed backwardness on multiple criteria covering 272 districts.
It’s a fact that Bihar is the very the State that has lent the first letter of the acronym ‘BIMARU’ States, depicting India’s basket cases.
Bihar has 38 backward districts and received the allotted funds. This was separate from the Special Plan to compensate for the economic consequences of the separation of Jharkhand from Bihar in the year 2000.
After the passing of the Bihar Reorganisation Bill in 2000, a Special Cell under the Deputy Chairman of the Planning Commission was formed to compensate for the financial consequences of the bifurcation. Bihar is ever complaining that they have never received proper compensation.
On the other hand, the economic observers are saying that Bihar has traditionally enjoyed a much privileged status when it comes to Tax Revenue Devolution and Transfer of Plan and Non-Plan funds from the Centre.
Only in the last year, the Union Cabinet Committee on Economic Affairs (CCEA) had approved a special plan to provide Rs.12, 000 crore to Bihar as additional funding under the twelfth Five Year plan. It was well speculated as politically induced move!
In the Financial Year 2013, for example, Bihar’s Tax Revenue was half the Amount it got from the Finance Commission-mandated Transfer by the Union Government from its Gross Tax Receipts.
If counted together, the 11 Special Category States of India received less than a fifth of all Central Transfers in that year. On the other hand Bihar’s receiving share was as high as 8.8%, or around half of the combined receipts of all Special Category States!
Incidentally, currently Assam gets the maximum transfer amongst Special Category States-5% of the total transfer.
Bihar, without being a Special State is even getting higher.
At 8.8%, the transfer is higher than the state’s 6.8% share in the country’s population and nearly three and a half times more than Bihar’s 2.6% share in India’s GDP.
And the Future
The Union Government, in the recent Interim Budget has increased the Plan Fund Transfers to States from Rs 1.19 lakh crore (20% of the all Plan spending) to Rs 3.39 lakh crore(60% of the all Plan spending) in the Financial Year 2015.
Of course, there is the condition that the additional funds would be utilised by the States only for the designated Union Government sponsored Schemes.
Undoubtedly it will help the lesser developed States, but it is not clear, how the Special Category status of a State would benefit from it.
Traditionally speaking, the Special Category States in India are those States, whose economic growth potential is debilitated by their natural restrictions and difficulties, leading to their insufficient economic ability to implement various development activities.
But States like Bihar, Odisha, Jharkhand or Madhya Pradesh and such others have ample natural resources including water resources and minerals and there are enough potential for their economic growth and capacity, propelled by good governance and higher investor affiliations.
It is rightly speculated that politically motivated favours to various States could be damage the equity and discourage the momentum of the better performing States. In the long run, who knows, it may also lead to serious strife in inter-State relations.
By Deep Basu