Nitish cries special category status again, says Finance Commission should look at Bihar's 'differentiated needs'

Patna: Bihar Chief Minister Nitish Kumar on Tuesday reiterated his party's demand of awarding special category status to the state. He said that it will enhance the availability of resources by lowering the state's contribution in centrally sponsored schemes, improve access to external resources, act as a catalyst for private investment based on tax breaks and concessions and also act as a spur to employment generation and improve life quality.

Finance Commission should look into the differentiated needs of Bihar and backward states with a special perspective.https://t.co/fr2BnzTOsN

— Nitish Kumar (@NitishKumar) May 29, 2018

Following is the full text of his note:

The Fifteenth Finance Commission (XV FC) of India has been constituted in November 2017 and in December 2017, it has set the ball rolling by seeking views and specific suggestions on the general approach of the Commission in relation to its Terms of Reference (ToR). Though we have sent our preliminary suggestions on some substantive issues pertinent to Bihar in February 2018, I would like to raise some important issues.

The development of Bihar has been impeded historically due to lopsided policies, social and economic reasons. As a matter of fact, the Planning Commission and successive Finance Commissions have not been able to address the issue of inequality of growth among the States through fund transfers, leading to increase in regional disparities and Bihar has been a major sufferer. There has been a concerted effort by state government to turn the tide of underdevelopment and initiate the state towards a promising future of growth, prosperity and harmony in the last 12-13 years. In spite of unhelpful conditions and an inherent bias, Bihar has witnessed a double-digit growth in these years. The state government has firmly laid the foundation of growth with justice.

However, in spite of rapid growth, the per capita income in Bihar along with per capita expenditure in the field of education, health, social and other economic services still lies much at the bottom. After the bifurcation of the State, no major industries were left in Bihar and this adversely affected both public and private investments. Furthermore, no special treatment was given to Bihar by the Central government for covering the widening regional disparity after the bifurcation. Thus, development of the state was negatively impacted, resulting in a lower per capita income, to a level which is presently 68% lower than the national per capita income. Therefore, XV FC approach, first and foremost, should be to abridging this wide gap in per capita income within a realistic timeframe.

I have continuously raised the issue that the recommendations of the XIV FC, which envisaged an increase in transfers to the states from 32% to 42% were merely a compositional shift. The increase in tax transfers was negated to a large extent by the reduction in allocations by the Centre for the central plan schemes and the centrally sponsored schemes to the States and Union Territories. Furthermore, the state-wise distribution pattern also led to a decrease in Bihar's share from 10.917 percent (XIII FC) and to 9.665% (XIV FC). In fact, in the recommendations of the last four Finance Commissions, our share in the divisible pool of taxes has steadily gone down - from 11.589 percent (XI FC) to 11.028 percent (XII FC) to 10.917 percent (XIII FC) and then to 9.665% (XIV FC). The XIV FC accorded importance to the total area and area under forest cover, while high population density, unavailability of natural resources and problems peculiar to land-locked states like Bihar were over-looked. Instead of lauding the effort of the state government to promote afforestation in the state, the same were ignored.

The Hariyali mission under the Agriculture Road Map has led to an increase in green cover of the State from 9.79 percent to almost 15 percent. Now we have a target to take it to 17 percent by 2022, which is the maximum that can be achieved for a densely populated state like Bihar. Thus, it would in the larger national and state interest to recommend state specific incentive for encouraging efforts towards increasing green cover. Further, the loss of the physical and social infrastructure as a result of annual visitation of floods from rivers originating in Nepal and other states accrues additional financial liabilities on Bihar.

A substantive expenditure is made annually on relief, rehabilitation and reconstruction on account of these floods caused due to factors beyond state's control. Construction of dams, barrages and other structures in the upper riparian states of Ganga Basin, has reduced the flow of the river. Deforestation and mining activities in the hills have also adversely affected the free flow, with a larger quantity of silt reaching the plains. Thereby increasing the intensity and extent of floods in Bihar. Even in case of Sone river, the neighbouring states of MP and UP have never adhered to Bansagar Agreement of 1973 on water sharing. But every time there is rain in the Sone basin, excessive water is released 'untimely' from the Bansagar and Rihand dams causing floods and damage in Bihar.

These externalities must be factored in while deciding the criteria for state-wise distribution. As regards population criterion, the XIV FC accorded a higher weight to population, distributed between 1971 population (17.5 percent) and 2011 population (10.0 percent). It is our firm view that latest population data is of utmost importance to capture the demographic change and it helps to assess the needs of the people quantitatively. Ultimately, basic entitlements are to be ensured to every citizen or else only "islands" of development would be created. Therefore XV FC's term of reference to consider the population of 2011 for horizontal and vertical distribution is a welcome step and was long overdue.

Some of the states are opposing this but their disagreement is not logical as the ToR recognizes the efforts of states in population control by specifically including that XV FC will consider "efforts and progress made in moving towards replacement rate of population growth". This will balance both the 'needs' represented by latest population and 'progress made by states towards population control'. Grants-in-aid for some state-specific needs, as recommended by the XIII Finance Commission, should also be considered by XV FC. This will encourage backward states to develop and catch up with the developed states. The XIV Finance Commission by way of its recommendations had suggested that "to the extent that formula-based transfers do not meet the needs of specific states, they need to be supplemented by grants-in-aid on an assured basis and in a fair manner." This was not implemented. Thus XV FC must look at the special and specific disadvantages of backward states like Bihar. The regressive permanent settlement regime in pre-independence era restricted the social and infrastructural growth of the State and the policy of freight equalization in post-independence period negated the abundant availability of raw-material and eroded the cost advantages of the erstwhile Bihar.

As a result, southern and western States of India along the coast industrialised but Bihar languished. This became more profound when Bihar was bifurcated with all the major industries and mines going to Jharkhand. Despite rapid strides of development in recent years, Bihar is still extremely backward on physical and social infrastructure parameters. The Bihar State Reorganisation Act, 2000 provides for constitution of a special cell under the Deputy Chairman Planning Commission to look into the special financial needs of Bihar arising out of the reorganization of the State. As per this provision, some assistance has been provided to address the needs of Bihar. Now that the Planning Commission has been replaced with NITI Aayog, this legal requirement, both in letter and spirit, should be fulfilled by NITI Aayog. Analysis of data on inter-regional and interstate variations on levels of development suggests that some States are far below the national average on multiple parameters of development like per capita income, education, health, electricity, institutional finance and other indices of Human Development. Any rational economic strategy should foster both investment and devolution patterns which would enable these states to reach the national average within a stipulated time frame.

Our demand for Special Category Status for Bihar emanates from this very premise. We have repeatedly raised the demand to the Central Government to accord Special Category status to Bihar, as it will enhance the availability of resources by lowering the State contribution in centrally sponsored schemes, improve access to external resources, act as a catalyst for private investment based on tax breaks and concessions and act as a spur to employment generation and improve life quality. Bihar is a land-locked state and categories of “Land Locked and Least Developed States” are internationally eligible for special and differentiated treatment. In this context, the XV FC must locate the resource gaps and support backward states like Bihar in their efforts to catch up with the developed states.