Being special

Backward states will be identified by socio-economic indices,not just location. About time

Backward states will be identified by socio-economic indices,not just location. About time

As indicated in the budget,the Centre is going to revise the criteria by which states are declared to have special needs. This has been interpreted as a signal that it is trying to manage relationships with important regional leaders like Nitish Kumar and Mamata Banerjee,whose political choices will matter greatly as the general election approaches. That said,this move has been long pending. Special category states are given certain financial incentives to encourage the setting up of private industry. Up to 90 per cent of Central aid is given as grants to such states; other states get 30 per cent of aid as grants. Under the current system,backward states are defined primarily in locational terms,as those with harsh terrain,vast hilly areas,and those that have an international boundary read Jamp;K,Himachal Pradesh,Uttarakhand and the Northeast. The Centres decision to shift the focus to social and economic indices,like per capita income and infant mortality rate,stands to reason.

There are complicated and specific reasons for the economic asymmetry among Indian states,apart from the quality of governance. As far as Bihar,Orissa and other mineral-rich states are concerned,the freight equalisation policy undermined their advantage and took away the incentives for investment in these regions. It is true that in the last decade,many of the most backward states,including Bihar,Madhya Pradesh and Uttarakhand,have grown much faster than their more prosperous counterparts,because of can-do political leadership and efficient governance. However,in per capita terms,some of them remain significantly worse off Bihars per capita income,for instance,is a third of the national average and could be said to qualify for special assistance. Though finance commission evaluations are supposed to take poverty into account,Bihar continues to receive less than the average level of Central assistance on a per capita basis.

In India,fiscal federalism is visibly top heavy,with the Centre keeping most of the lucrative revenue-generation instruments,while states have to do much of the spending. States are,therefore,compelled to lean heavily on the Centre for development expenditure. Friction is inevitable,because these allocations are usually discretion-laden,and tend to favour states controlled by the party that rules at the Centre. States,meanwhile,make a public show of being neglected by the Centre in order to extract more money. A more apt set of criteria to identify backwardness and extend assistance would be a clear improvement.