Surge pricing in railways is Suresh Prabhu's deliberate self-goal

Union railways minister Suresh Prabhu’s latest move of “surge pricing fare system” is a gambit to reduce finance minister Arun Jaitley’s pain, who looks all set to soon adopt country’s messy public transport behemoth. If everything goes by the plan, the 93-year old Rail Budget would cease to exist from the next financial year i.e. FY […]Read More »

Why Vajpayee stands taller than Rao, Manmohan and Modi put together

In India, privatising a public sector company is perhaps a bigger challenge than contesting an electoral battle or even conducting a nuclear test. Don’t see it as an incongruous claim. This may well be a credible reality if one looks at the 25-year-long history of India’s economic liberalisation. In two-and-a-half decades of economic reforms, despite […]Read More »

Modi's war on black money is a let-down, amnesty schemes cheat honest taxpayers

If one pays his or her taxes honestly and does not expect any favours from the government, he or she has every right to show angst over this never-ending business of amnesties to tax swindlers. Prime Minister Narendra Modi repudiated history when he, during his last Mann Ki Baat, reminded people of the September 30 […]Read More »

Special Category for Andhra will remain elusive

In February 2016, Prime Minister Narendra Modi had assured the Andhra Pradesh Chief Minister Chandrababu Naidu that he would consider conferring the special category status to his state. Apart from this privilege, Naidu has been demanding a special package for the residuary state of Andhra Pradesh after it was carved out from the erstwhile composite […]Read More »

India needs a water-sensitive food trade policy

If one lists the nations most suited to produce wheat, sugarcane, cotton and soybean, China and Egypt will definitely stand atop on historical, geographical and climatic counts. World’s largest river Nile flows in Egypt which every year collects fertile soil from different countries in Africa and deposits it in its delta. On the other side […]Read More »

Modi sarkar and telcos have both hung up on the consumers

Do you get full signal on your mobile? Is your data speed fast enough? Have mobile companies started compensating you for call drops? If your answers are a resounding “no” (naturally, they would!) then, more than the government, we ourselves are responsible. We Indians, afflicted with a strange kind of amnesia, tend to forget the […]Read More »

Modi's foreign trips can wait. Indian trade needs emergency landing

Howsoever spectacular Prime Minister Narendra Modi’s diplomatic campaign might have been, the fact remains the void in the trade diplomacy has grown faster than ever. If the government’s own Economic Survey is to be believed, India’s foreign trade has gained momentum over the last decade with a flurry of free and preferential trade agreements signed […]Read More »

Modi sarkar should bet on services for dream growth

If one observes the samurais of growth driving the GDP rate above seven per cent, one wouldn’t find them in the swanky corporate offices of Mumbai and Delhi, but in the markets close to one’s home. These growth warriors make our lives easier by running eateries, repairing shops and providing dozens of similar services and […]Read More »

Don’t make India a circus of cartels and monopolies

Facebook’s Free Basics trial was so legendary that one Ganesh could double the yield from his fields with the knowledge FB-patented internet facilitated. While, advertisements are notorious for making lofty claims, this one goes beyond limit. Considering the state of agriculture in India, this can’t even be an exception let alone a norm. As it […]Read More »

Let’s fix the system instead of opting out

Allahabad High Court passed an interesting order last month, directing the Chief Secretary of Uttar Pradesh to ensure that from the academic year beginning 2016, children of all officials serving with the government, including judiciary, local bodies and representatives of people, must send their children to study only in government primary schools, failing which the […]Read More »

That is retrograde, Mr Jaitley

An important step in clearing our institutional financial system of the cobwebs it has gathered over the years has now been reversed, with Mr. Arun Jaitley announcing deferment of his plan to set up an independent public debt management authority, which he had promised in the budget presented earlier this year. Till now, Reserve Bank […]Read More »

Coalgate Revisited

  The auction of 33 of the 204 coal mines, whose allocations were cancelled by the Sup¬re¬me Court, has just been completed. The auction has brought the government a ‘windfall gain’ of Rs 2.07 lakh crore for 19 operational blocks and 13 about-to-open blocks which were put under the hammer, against Rs 1.86 lakh crore […]Read More »

Will Federalism at Work Let Populism Thrive ?

The just released recommendations of the Fourteenth Finance Commission’s will have far- reaching consequences for the states of the Indian Union, with 42 percent of the central divisible pool of resources now going to them, as compared to the existing 32 percent provided by the Thirteenth Finance Commission. In terms of resources now available to […]Read More »

Special Category Status for Bihar ?

MOdi nitish

Before the 2014 Lok Sabha elections, the then Bihar Chief Minister Nitish Kumar – in an apparent political bid to counter BJP and its then Prime Ministerial candidate, Narendra Modi, raised the pitch for special category status for Bihar. Though a lot of changes have taken place politically both in New Delhi and Patna since then still on the run up to the Assembly elections the issue is again likely to come back into political discourse. But to begin with it was definitely a political pitch, Nitish was certainly not so naïve as to believe that this status would transform Bihar and solve all its economic backwardness within three years.

There are eleven “Special Category States” in India, including all the eight states of north east, besides Himachal Pradesh, Jammu & Kashmir and Uttarakhand. Starting with only three states in 1969 – Assam, Nagaland and Jammu & Kashmir –the status was accorded to the other states at different points of time, the last being to Uttarakhand in 2001, to address the problems of their backwardness, lack of infrastructure and shortage of capital and resources.

The special category has no constitutional backing, like the erstwhile Planning Commission, this was also an extra-Constitutional device to address the problems and development and backwardness. Criteria to determine the eligibility for a state to become a special category state as decided by the Planning Commission are: hilly and difficult terrain, low population density, sizeable share of tribal population, strategic location along borders, economic and infrastructural backwardness, and non-viable nature of state finances. All these criteria are meant to address the handicaps these states suffer from – handicaps that arose from reasons of geography.

Bihar does not satisfy all these criteria, and Bihar’s backwardness is not because of its geographical disadvantages, but because of sustained governance failure in the past. It is precisely this failure that Nitish is now trying to reverse. But if governance failure entitles a state to claim the special category status, then many other states in India would be qualified to belong to this category as well. Once the special category status is awarded which carries only rewards but no obligation, the state becomes entitled to higher Central funding.

But what benefits would Bihar actually get if it is made into a special category state? Benefits of the special category status accrue mainly in the form of higher Central plan assistance. Plan assistance to states is given in various forms, as normal plan assistance and additional or special Plan assistance for various purposes. Special category benefits come in the form of higher normal assistance which is given according to the so-called Gadgil Mukherjee formula, under which 30% of total Central assistance for State plans is distributed to the special category states, after setting aside funds for externally aided schemes, Special Area Programmes and North Eastern Council. The rest is distributed to the non-special category state according to a composite criteria involving population, per capita income etc.

During the 11th Plan, under the Gadgil-Mukherjee formula, the Bihar’s share in total NPA was 11%, the highest among all non-special category states save UP whose share was 19.5%. Among the special category states, share of individual states varied between 3.8% for Sikkim to 19.5% for Assam. Besides the higher assistance to special category states, tax breaks for excise duty as well as income tax exemptions are also available for setting up of industries within their territories.

Even though the number of Special category States has increased from only 3 to 11, the kitty of 30% of the Central Plan funds has remained unchanged. As a result, the share of individual states within the category had declined. During the first 3 years of the 11th plan, 11 special category states received Rs 64787 crore as normal plan assistance, or about Rs 2000 crore for each state on an average per year.

As per the 2013-14 budget, the total Central Assistance to states is Rs 1.3 lakh crore, of which the normal plan assistance is only Rs 27636 crore, and about a third of this money would only go to the special category states. This is, however, miniscule compared to the total plan expenditure of Rs 4.2 lakh crore for central and centrally sponsored plans, of which Rs 1.4 lakh crore would be passed to states in respect of flagship welfare schemes of the centre, not through their budgets, but as direct transfers to the implementing agencies in districts. States have no control over this money; lying outside Government accounts, these funds also bypass all controls and lacks transparency. This is a politically maneuvered aberration in the Indian financial system – supposedly a vote catcher from the rural electorate – and is an assault on the principles of fiscal federalism by diluting and undermining the authority of the States.

Over the years such extra-budget direct transfers have increased phenomenally, while the Gadgil transfers have shrunk. Their share in total plan transfers has gradually fallen from 35% during 9th plan to only 10% during 11th plan, while the share of direct transfers has increased from 20% to 52% over this period. Consequently the plan transfers to special category states have also contracted. The plan funds routed through the state budgets now constitute less than 30% of the total transfers of states. During 2011-12, Rs 8958 crore, or 90% of total Central plan grants to Bihar – nearly one fifth of its total revenue receipts – were given as such direct transfers, over which the State Government had no control.

If Nitish/JD(U) government is pragmatic, rather than clamouring for the special category status, they should ask for a share of this money and ask the Centre to stop these direct transfers in the name of ‘centralised welfare’. By becoming a special category state, Bihar does not stand to gain much otherwise. Tax breaks wouldn’t get many industries to the state, as they have not in the north eastern states for so many years. For that, availability of power and infrastructure are more powerful incentives. By getting the special category status for Bihar – chances for which, now look distinctly bleak – Nitish may score a political point, but Bihar’s economy will remain where it is.



Why banks' bad loan mess has become murkier now

The murky bad loan mess in the Indian banking system has turned murkier. While the efforts to recover public sector banks’ non-performing assets (NPAs), worth Rs 10 lakh crore, are yet to yield tangible results, the government seems alarmingly divided on the genesis of the NPA problem. Are bad loans in banks the result of an […]Read More »

Modi government's last full Budget will be dull!

There is absolutely nothing to be excited about as the Narendra Modi government prepares itself to present its last full Budget. Budget 2018, will in fact, usher in an era of listless budgets in the country. This statement may sound strange given the hoopla surrounding the Budget presentation on February 1. Given the fact that […]Read More »

Modi government has got carried away by its make-believe growth data

  Economic growth isn’t achieved merely by change of governments, or by a series of electoral victories. Although governments keep making tall claims and paint rosy pictures in front of public, they themselves don’t let it get to their head as they know growth results only when a host of factors fire in tandem. However, […]Read More »

4 disastrous effects of demonetisation that Modi ignored

In spite of several inefficiencies, fortunately, India never witnessed a bank-run or monetary crisis parallel to the scale in Europe or America. However, the chaos and long queues that engulfed banks across India now perfectly mirror the plight the Greeks faced last year, albeit for different reasons. Demonetisation is a rudimentary monetary instrument of the […]Read More »

Modi's historic move against black money brings chaos now, gains later

While Prime Minister Narendra Modi’s unprecedented move to temporary demonetise Rs 500 and Rs 1,000 notes is expected to bring in a host of positives, it will also set off major administrative and logistical challenges at the outset, not to mention the plight of common people. The government and Reserve Bank of India (RBI) will […]Read More »

Diwali or not, India can't boycott Chinese goods

Last fortnight, close on the heels of the rise of firecracker nationalism against Chinese goods on social media, Reserve Bank of India (RBI) was busy making adjustments for yuan’s entry into India’s foreign exchange reserves. Not only RBI, most of the global central bankers too had to alter metrics of their forex reserves after yuan’s […]Read More »

Despite $10 billion in tax net, Modi sarkar's amnesty is a colossal failure

Despite the long history of failed tax amnesty schemes, the Narendra Modi government tried its luck with tax pardons, but to no avail. Howsoever pliable the statistics might be, the fact remains that declarations of Rs 65,250 crore under the black money disclosure scheme could attract just a moderate success for the NDA government. However, […]Read More »

Modi must walk the talk on GST

Even if one doesn’t buy everything that Prime Minister Narendra Modi claimed in his Parliament speech on Goods and Services Tax (GST), one should acknowledge that this is one of the most crucial structural indirect tax reforms in the last 25 years of liberalisation. This may not effectively clamp down on inspector raj, or turn […]Read More »

GST Bill an example of half-baked and vague reform

Contrary to the euphoria and costlier-cheaper headlines, the Constitution (122nd Amendment) Bill 2014 doesn’t spell out even the outline of the GST that India is expected to get in the future. The passing of the GST Bill is just the beginning of a tedious political and operational voyage that should ultimately result in the implementation […]Read More »

Raghuram Rajan, darling of Dalal Street, ‘devil’ for Delhi Durbar

  Sometimes words speak louder than actions. If nowhere, then at least in India. RBI chief Raghuram Rajan has fallen victim to his own candid words (read speeches) on issues of political import. However, his legacy doesn’t lie in his articulations as a blunt economist but as a top-class, innovative and professional central banker. And here […]Read More »

5.80 lakh crore in bad loans: Let's pray for India's bleeding banks

The Rs 13 lakh-crore pile of bad loans of India’s public sector banks now amounts to more than the GDP of countries like New Zealand, Kenya, Oman and Uruguay. A new IMF report states Indian banks are in a poor state compared to the notoriously messy banking of China.The financial results of major public sector […]Read More »

Modi government has actually worked hard to deliver on black money

  After facing severe criticism for its lofty electoral promises on bringing black money to India, Modi sarkar appears to have stuck its neck out on dealing with the issue. The Modi-led government, running past the two-year mark in office, has taken some calculated risks to go ahead on curbing black money. To promote transparency, the government […]Read More »

How India's wealthy are milking billions off subsidy

Do you think the politics of subsidy is only confined around lower and middle economic classes? If yes, then you would wonder how subsidies worth rupees one crore go into the pockets of the rich every year, and that too via merely seven products and services. The subsidy bill may notch up if one takes […]Read More »

India’s three-tiered economy needs bottoms-up approach

Has finance minister Arun Jaitley got it right? If one looks at the economy at hand, the answer would possibly be “Yes”. India is now a three-speed economy.  Double-digit growth is confined to a section that comprises sectors such as e-commerce, travel and stock markets and accounts for 30 per cent of the GDP. Another […]Read More »

India’s Trade Gloom

  Not many years have ended with gloomier prospects for Indian trade. The gloom is not just because of the contraction in exports for 12 months in a row. It is also because India’s role and participation in global trade is becoming increasingly insignificant. The insignificance was evident from the approach to the Nairobi Ministerial. […]Read More »

Budget 2016: Modernising rural economy must be Modi's mission

Last fortnight, when Prime Minister Narendra Modi mentioned crop insurance in his Maan ki Baat programme, people well aware of the state of agriculture justifiably grew anxious. This was not because government’s efforts do not inspire or encourage, but because in spite of three crop failures, Indian politicians are still handling farming with a mindset […]Read More »

Can India finally see a Modi Budget in 2016?

When existing steel companies are already reeling under distress owing to falling demand, why is the Union government going to establish new steel companies in the public sector? What is the need for forming new banks (monetary banks) to provide loans to small companies when several financial institutions of the government are already doing this? […]Read More »

How many more taxes do we need to pay?

Public memory is usually short but the memory of taxation is even shorter. Benchmark brent crude might have tested an unprecedented low of $37 per barrel, but domestic petrol and diesel prices are still ruling higher thanks to heavy taxes. If only the debate on goods and services tax (GST) revolved around explaining this dichotomy, […]Read More »

Is weak rupee still a national shame for PM?

Whether India draws an economic advantage from the ongoing global turbulence or not, a substantial political advantage can definitely be churned out at the moment. It is time for our leaders to rid themselves of their unfounded misconception on the exchange value of the domestic currency, that is, the rupee. In India, the BJP and […]Read More »

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