After getting an increased allocation of R1,000 crore for all backward states in the latest Budget’s Backward Regions Grant Fund—from R10,524 crore in FY13 to R11,500 crore in FY14—and another R1,000 crore for naxal-affected districts, Bihar chief minister Nitish Kumar is on a roll. In the Budget, the finance minister also said he planned to evolve a new criteria for defining a state as backward and to use this criteria for future planning and devolution of funds. Indeed, according to media reports, the chief minister is planning to come to the capital to make one more pitch for including Bihar in the list of “special category” states that get a more lenient treatment when it comes to grants from the centre. Getting into this special category, though, is easier said than done since Bihar doesn’t quite fit in—the category comprises hilly states and those with difficult international borders and therefore poor infrastructure—and, in any case, the move has to be endorsed by all states at the National Development Council.
The larger issue, however, is that Bihar isn’t getting anywhere near the bad deal that’s made out by its supporters since the Finance Commission transfers—the share of central taxes that states get—which account for over half of all central transfers explicitly take backwardness into account. A fourth of the weight, to decide which state gets how much of the transfer, is determined by population and Bihar scores here. Another 10% is given for the area the state occupies. Bihar may get a poor score on fiscal discipline which has a 17.5% weight, but it scores high on the fiscal capacity distance (47.5% weight)—states that have a low capacity to raise taxes, like Bihar, get a higher share of central taxes due to this. So it’s not immediately clear Bihar will get more funds under a new backwardness criterion. To put this in perspective, Bihar collects just 2.4% of the taxes all states collect but it gets 10.9% of the taxes distributed by the centre to all states—in FY13, Bihar’s own tax revenue were budgeted at R15,700 crore versus the R33,130 crore the Centre budgeted to give Bihar from its tax revenues. Indeed, given that all 11 special category states get around 18% of all Central transfers including of taxes, it’s not clear how Bihar will benefit from being clubbed with them considering it alone gets 8.7% of all central transfers today—that, by the way, is higher than the state’s 6.8% share in the country’s population and many times more than Bihar’s 2.6% share in India’s GDP. Indeed, in the last 5 years, Bihar’s share of central transfers have stayed rock steady and, according to the 13th Finance Commission (FC), the average central devolution to the state is likely to rise from 13.6% of its GSDP in the 12th FC period (2005-10) to 19.4% in the 13th FC era (2010-15).
Indeed, rather than clamouring for being included in special category states, Bihar’s best bet is to just try and get more goodies the Centre can hand out. When Mamata Banerjee was a valuable ally, West Bengal got R40,000 crore worth of promised Railway investments and 60% of the state’s increased FY13 spending was based on various central grants. Apart from the obvious weavers’ and Bundelkhand packages in various Budgets, there has been a sharp jump in allocations for the discretionary Special Plan Assistance and Special Central Assistance (SPA/SCA). While the Central Assistance to State and UT Plans is up from R33,340 crore in FY01 to R1,22,014 crore in FY13, SPA/SCA has risen from R1,960 crore to R20,153 crore—as a proportion, that’s a hike from 5.9% to 16.5%. Being an ally in itself makes a state “special”.