Opinion The states are well off,but…

IN A recent professional meeting,Planning Commission Deputy Chairman Montek Singh Ahluwalia said very correctly that the states had money and the problems lay elsewhere.

February 12, 2010 06:05 PM IST First published on: Feb 12, 2010 at 06:05 PM IST

IN A recent professional meeting,Planning Commission Deputy Chairman Montek Singh Ahluwalia said very correctly that the states had money and the problems lay elsewhere. A state chief minister said they didn’t have resources. He had a point. How could both be right?

Montek is quite right in saying that the states are flush with cash. The Reserve Bank’s review of state finances brings this out. In fact,that review also brings out that the source of their opulence is the moneys the Deputy Chairman of the Planning Commission makes available to them by way of grants to implement centrally sponsored schemes and centrally aided schemes. These are massive sums of money when you add up the earlier ones like the Sarva Shiksha Abhiyan,the Advanced Irrigation Benefit Programme and the new ones like the NREGA and so on. Now the Food Security moneys will also come. In fact,these are supposed to be spent by integrating them with the State Plans but that we are not doing,or doing it occasionally when in a good mood. Since the integration with the plan is always not there,I suspect the Planning Commision and the central ministries do the next best thing they can do which is to lay down conditions so that there is some semblance of action according to what they want.

Simultaneously,there is no money in what used to early come under free assistance from the Centre.

The Eleventh Plan brings out that formula-based assistance has gone down. Sharing of market borrowings under formula-based assistance was abolished by the Rangarajan Finance Commission. They wanted a loan council to do the role. That was not set up,so that window is not there for all.

IRMA’s State of Panchayati Raj Report brought out that the states and local bodies were not raising enough own resources and not getting formula-based help and this was strangling their initiatives. As the economy developed fast,the Centre’s tax kitty improved and they were generous in schemes. The states did not tax. There is some improvement last year but very little. The Eleventh Plan corroborated this by saying that assistance under the Gadgil Mukherji formula was down. A distinguished member of the Finance Commission corroborated this by saying that rule-based assistance was important and had gone down.

It is to be seen how the Kelkar Finace Commission takes care of this. But not all the states and local bodies are poor. Many raise their own resources and are merrily borrowing because they have collateral. If you live there,you are lucky,for you will get water,roads and fresh air. If not,you will,as I discover in my travels,be living worse than the wretched of the Earth. The Planning Commission will have to tell us what to do while reviewing the Eleventh Plan.

At the meeting where this was being discussed,I said that the issue was not that we were growing but whether we would grow at 7 per cent or 9 per cent. Montek gently chided me for that and he is right. It is good to be in a position where one discusses only a 7 per cent plus growth rate.