With campaigning for the assembly elections in Bihar gathering pace and heat, demands for its special category status is again in focus. In this context, various articles have appeared in the media quoting statistics from varied sources to make or unmake a point, often in isolation. Prime Minister has recently announced a mega package for the state which mostly appears to be a repackaging of several existing ongoing schemes. There are also differing interpretations of the implications of Fourteenth Finance Commission (FFC) recommendations on the state’s finances, depending on which side of the political spectrum one is in. In this confusion, real governance issues are often getting obfuscated.
Some have asserted that the 14th Finance Commission has abolished the special category classification altogether. In reality, Finance Commissions do not deal with special category status which used to be awarded on the recommendation of Planning Commission based on a set of criteria arbitrarily devised by it; Bihar in any case does not fulfil these criteria. Further, special category states are special only in respect of the special pattern of plan assistance they receive from the Centre, which were allocated by the Planning Commission; Finance Commissions only recommend non-plan grants under article 275. FFC transfers were of course based on a set of uniform criteria that did not distinguish between special and general category states, but neither did 13th Finance Commission’s for that matter, except for a few specific grants like disaster relief. Finance Commissions recommend formula-based devolution which apply to all states uniformly – there being no distinction for special category states.
One issue being debated is whether the FFC recommendations have indeed placed higher resources at the disposal of the state. Total devolution of central resources to a state comes through its share of divisible pool of taxes and duties and central grants – both for plan and non-plan purposes. Total devolution to Bihar during 2010-15 was Rs 228,072 crore; Rs 172,944 crore by 13th Finance Commission recommendations and the rest being plan grants. In contrast, FFC recommended total devolution of Rs 382,529 crore for Bihar during its award period 2015-20, excluding grants for local bodies amounting to Rs 21,057 crore. Even after factoring inflation, this apparently represents a hefty increase in devolution of central resources to Bihar, but the increase in total devolution is a myth. While the states’ shares of divisible pool have indeed gone up, their shares of grants, plan plus non-plan, have come down drastically, reflecting hardly any increase in the total resources transferred.
We cannot compare the figures for the entire FFC award period as we do not know as yet the plan grants that will be transferred to Bihar in the coming years, assuming there will be a continuation of the planning machinery beyond the 12th Plan. We can only compare the two years for which figures are available. In the revised estimates of 2014-15, total devolution to Bihar was Rs 66,985 crore (share of taxes of Rs 38,082 crore and grants of Rs 28,903 crore), while for the budget estimates of 2015-16, which is the first year of FFC award, the total devolution is Rs 68,919 crore (taxes of Rs 50,748 crore and grants of Rs 18,171 crore). Thus the effect of FFC recommendation was only an increase of 2.9%. However, there is one important difference, states will now have better control over these funds than before as most of the funds are now untied to the unproductive centrally sponsored plan schemes.
In fact, the higher tax devolution recommended by FFC has been offset by merciless slashing of plan grants to the states in the Union budget for 2015-16. The block grants given under Normal Central Assistance has been reduced to nil from Rs 26,814 crore allotted in the revised estimates of 2014-15; same has been the fate Special Plan Assistance, Backward Regions Grant Fund and many other plan schemes under which Bihar used to receive substantial funds.
In an Economic & Political Weekly article published earlier, I had argued that Bihar’s problem does not arise from lack of resources, but from the lack of institutional capacity. In fact, lack of resources is not so much a problem for Bihar as it is made out to be; the state is not even able to spend what it has. As the Appropriation Accounts prepared the Comptroller & Auditor General of India shows, during 2013-14, it could not spend Rs 31,480 crore, or nearly 28 percent of the total budgetary allocations. Special category status, even if awarded, will only get a tiny fraction of this amount to Bihar. Bihar’s problem is not scarcity of resources, but the lack of capacity, undeveloped infrastructure, difficulties in market access, lack of entrepreneurial skills and bad law and order situation – all of which the lawless administration of Nitish Kumar’s alliance partner miserably failed to address. These impediments are certainly not addressable in the short term either.
