Tripura’s finances ‘sound’ but per capita income below national average: Arvind Panagariya

“My own observation of Tripura is that it is a well-managed state,” Panagariya said, adding that the state had been transitioning from agriculture to industry and services.

“One of the very interesting features in Tripura is that it is now less dependent on agriculture. Nationally, 45 per cent of the workforce is dependent on the agriculture sector. The figure is 30-31 per cent here. The extent of urbanisation and transition from agriculture to industry and services is a factor considered in terms of development. Tripura is farther along than many parts of India in this,” the renowned economist said.

While stating that it would be premature to comment on the formula to be adopted for Tripura in the Finance Commission’s recommendations, the chairman acknowledged the state’s lower per capita income compared to the national average, while adding that the overall situation was “very positive and optimistic”.

“Compared to the rest of the Northeast, it is farther along the paths of progress,” he said.

As flagged by the Opposition in the Assembly last year, the state has a debt burden of Rs 21,000 crore, of which Rs 13,000 crore was inherited in 2018 from the Left Front government.

Tripura’s tax devolution proposals

Panagariya said Tripura sought to revise the 15th Finance Commission’s formula for horizontal devolution of taxes by changing various parameters. For example, the state has proposed reducing the current 15 per cent share based on population to 10 per cent, decreasing the 15 per cent share based on geographical area to 5 per cent, and increasing the current 10 per cent share based on forest and ecology to 20 per cent. Additionally, the state has suggested revising the 12.5 per cent share for the total fertility rate to 5 per cent.

He also said that Tripura proposed two new parameters for tax devolution—to use the index of infrastructure with a 5 per cent share and a 5 per cent share of taxes for the international border.

“These two parameters were not used by any past Finance Commission. These were recommendations of Tripura for horizontal devolution,” he said.

He said that all previous commissions had tried to underscore some line of equity to ensure that every state is able to provide a similar level of economic and social services like education and health.

The 16th Finance Commission team visited 16 states before Tripura as it formulates its recommendations for fiscal devolution for the next five financial years.

Tripura, along with other states, currently receives 41 per cent of the central divisible pool of taxes based on the 15th Finance Commission recommendations for the 2021-26 period. However, this 41 per cent share represents a decline from the 14th Finance Commission’s recommendation of 42 per cent—a reduction introduced because of the newly formed Union Territories of Jammu, Kashmir and Ladakh.

Panagariya said that Tripura proposed two new parameters for horizontal devolution of the divisible pool of funds: using an index of infrastructure with a 5 per cent share and a 5 per cent share of taxes for international borders.

Panagariya also noted that all previous Finance Commissions have aimed to underscore some line of equity to ensure that every state can provide a similar level of economic and social services, such as education and health. “Tripura’s per capita income falls below the national average. It has proposed to raise it to 45-50 per cent. Traditionally, income distance has been given significant weight by previous Finance Commissions. This equalisation was a major weight factor for past Commissions,” he said, though he did not detail what formula the 16th Finance panel would adopt.

Disaster relief requirements

During the visit to Tripura, the commission visited a gram panchayat close to Agartala. Panagriya said the panel had “fruitful discussions” with local communities, which recommended calculating funds considering disaster relief requirements. The state suffered devastating floods last year, which resulted in 38 fatalities and displaced over 1.7 lakh people from their homes.

When asked if any special quota for Northeast states would be included in the 16th Finance Commission recommendations, Panagariya said the cost of services was higher in the region owing to hilly terrain, similar to a few other states like Himachal Pradesh and Uttarakhand.

“We always do pay some attention to that. In a way, two criteria that have worked favourably for the states are forests. Generally, Northeast states are dense in forests, and that has been given weight in the past. That is a criterion that provides some advantage. Also, area-wise, these states are small. Tripura comprises about 0.5-0.7 per cent of the country’s geographical area. So, for all such states, we directly assign 2 per cent area. Naturally, the per capita devolution is quite high in Northeast states compared to states in the plains. Additionally, for centrally sponsored schemes, the Centre takes special circumstances into account and has been allowing a sharing pattern of 90:10 for Northeast states compared to a 60:40 sharing ratio for other states,” he said.