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ECONOMY:
11th FINANCE COMMISSION
Charity
Begins At Home
The
posturing notwithstanding, what the rich states are saying is that they
can no longer pay for the cause of regional equality. On the face of it,
they are not entirely incorrect. Antithetical as it may sound, all rich
states in India are swimming in deficit, with expenditure galloping way
ahead of their income. Maharashtra, Punjab and Andhra Pradesh have piled
up debts of up to 35 per cent of state incomes. Astonishingly, Bihar scores
higher than Punjab, Maharashtra, Andhra Pradesh or Tamil Nadu on an index
of fiscal self-reliance developed by the EFC. The moral: charity begins
at home. So, the rich do not have money to contribute to regional equality.
There is
also an element of equality fatigue. Even after 50 years of attempts at
achieving economic equality, inter-state disparities have only grown-especially
in the 1990s. In 1980-81 Punjab's per capita income (PCI) in real terms
(adjusted for inflation) was Rs 3,020 a year and Bihar's Rs 1,062 a year.
By 1996-97, Punjab's PCI had risen to Rs 4,935 per annum, but Bihar's
had inched up to just Rs 1,245 a year, widening the income gap between
the two states. No wonder, cynics have raised doubts about the efficacy
of transferring resources from rich to poor to end disparity. Particularly
so because most poor states are notorious for squandering public money.
Since per capita income is one of the key determinants of a state's share
in Central taxes (lower income states get more funds), the rise in economic
disparity has enlarged the share of poor states and cut into the proportion
of the rich ones. "State leaderships have begun to see the benefits
of reforms and want to ensure that these benefits accrue to them, instead
of being frittered away on other states," observes Indira Rajaraman,
professor at the Delhi-based National Institute of Public Finance and
Policy (NIPFP).
Then there
are states like Rajasthan and Andhra Pradesh which have been striving
to attain fiscal solvency and reform the state economy. That makes them
fight for every penny that goes from their kitty to other states. Rajasthan's
combined share in taxes and grants has risen by a whisker, from 5.03 per
cent to 5.42 per cent, even as its percentage share in the tax revenues
has fallen a bit. Laments Chief Minister Ashok Gehlot, who after the creation
of three new states will be heading India's largest state: "Our struggle
against underdevelopment needs greater financial support."
Logical
as the case of the rich states may seem, their attack on the EFC is fallacious
on a number of counts. The most specious is the gripe against the fall
in their percentage share of Central taxes. In absolute terms every state-rich
or poor-will get substantially more funds from the EFC award than it received
from the TFC. That's simply because the size of the divisible tax pool
has swelled by 83 per cent-from Rs 2,06,000 crore under the TFC to Rs
3,76,318 crore under the EFC. From the tax pool (grants are not governed
by uniform distribution formula) alone, Andhra Pradesh will get 66 per
cent and Maharashtra 38 per cent more money under the EFC award than they
received under the TFC.
Surely,
in terms of percentage their share have fallen, but that's a natural consequence
of restructuring. Quips EFC Chairman A.M. Khusro: "If every state's
percentage share had to rise, the total wouldn't have added up to 100
per cent." Besides, why must the TFC be the benchmark to judge the
EFC award? The very reason why finance commissions are reconstituted every
five years is because old awards need to be reviewed. This is especially
true for Andhra Pradesh which is leading the dissent against the EFC.
The state got an unduly high share of Central taxes in the TFC simply
because it imposed prohibition on liquor when the TFC was formulating
its award. Since prohibition was to result in a substantial revenue loss,
the TFC compensated the state by granting an extra Rs 658 crore. But Andhra
Pradesh revoked the prohibition within two years and the anticipated loss
in revenue did not take place. By then the TFC award was already underway.
Andhra Pradesh was the fourth largest recipient of funds under the TFC,
under the EFC its position is fifth.
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The
stock markets are humming, and it's feel-good time once again, writes
INDIA TODAY Associate Editor V. Shankar Aiyar in 
