The seven samurai

To punish diligence and reward fecklessness is to ask for trouble. The 11th Finance Commission has chosen in its wisdom to penalise states that have been performing well. No surprise then that trouble has ridden intothe capital this Monday morning in the shape of seven irate chief ministers proposing to do battle on behalf of fairness, objectivity and statutory rights. On the face of it, the commission8217;s recommendations for the transfer of resources from the Centre to the states are peculiar. For example, the share of the divisible pool of five so-called high income states is going to fall from about 13 per cent to 9.5 per cent because their governments successfully follow policies to raise state domestic product. Over the next five years Andhra Pradesh is going to get Rs 3500 crore less than it was entitled to under the formula of the 10th Finance Commission and Maharashtra faces the prospect of getting Rs 225 crore less this year than last year. Maharashtra, Andhra Pradesh, Tamil Nadu, Karnataka, Gujarat, Kerala and Haryana all feel aggrieved and have decided together to set things right.

They make a formidable team these fast-growing states. Sensibly, before doing anything as drastic as going to court, the seven samurai have chosen to ask the prime minister and the finance minister for reconsideration of the commission8217;s recommendations. This puts the Centre in an awkward spot since it has already accepted the recommendations. Atal Bihari Vajpayee and Yeshwant Sinha might try stalling tactics. That would be a mistake. There is a serious problem here which dithering will only compound. None of the states, forward or backward, are flush with funds. At the same time, they have major development agendas to pursue and cannot afford a long period of uncertainty over resources. Politically, the composition of the seven samurai is such that the whole spectrum from left to right, friend and adversary, north and south, is represented. There is no scope, therefore, for specious political argument about the complaints. Finally, the longer the Centre delays remedying an iniquitous situation the morepositions are likely to become entrenched leading to regional tensions between states feeling injured and those making windfall gains like Bihar and Uttar Pradesh. Such tensions must be avoided.

How could the Finance Commission go so wrong? Rather than applying its own mind as it ought, it has gone along with the central government on a key proposal: the divisible pool has shrunk by Rs 2000 crore as a consequence of taking it as 29.5 per cent of the Centre8217;s net instead of gross tax revenues. Then, some supposedly objective criteria like population size turn out to be biased in favour of states whose social, health and economic policies are a continuing disgrace. Money alone will not solve the accumulated problems of backward states. The lack of political will and wisdom, and functioning institutions are, along with a shortage of funds, major determinants of backwardness. Given their multiple self-feeding crises, they need a major rescue plan. Robbing Peter to pay Paul is not the way to help any state.