Special Status for Bihar: A Political expediency


Ashutosh Kumar, M.A. (Eco) (JNU), Dy Director, CCI, New Delhi

Nitish Kumar has been demanding special status for Bihar to enable the state to access more economic benefits to fast track development. Amid this long pending demand of special status of Bihar, the committee had been set up by central government , headed by the then chief economic advisor Raghuram Rajan, now the governor of the Reserve Bank of India. The committee has proposed a "multi dimensional index" to measure backwardness of states using the various economic and social indicators. It recommends that states categorised as 'least developed' should be targeted for more allocation. Raghuram Rajan report ranked Bihar as the second-most-backward state after Odisha. According to this index, backward states like Odisha, Bihar, Madhya Pradesh, Rajasthan and Uttar Pradesh should get a larger share of central assistance to state plans and centrally-sponsored schemes. Thus Rajan committee has recommended changing the decade old Gadgil-Mukherjee formula which determines the allocation of all central funds among the states. It recommended scrapping the term special category state which was introduced in 1969 as well.

This indicator is criticised by many developed states. The Planning Commission has also indicated that it is impossible to make any change in fund allocation formula before the 12th Five Year plan is effectively over. The issue of special status once again revived when Seemandhra got a special category status just after its birth as 29th state of the country.

What is special status?

This status has no constitutional backing. And like the Planning Commission, it is also an extra constitutional device to address development and backwardness. The special status comes under the context of Centre-state financial relation. A special category state gets preferential treatment in federal assistance in form of grants and tax breaks. There were only three such states in 1969, when the Gadgil formula for sharing central Plan assistance among states was devised. Now, there are 11-the seven north-eastern states, Sikkim, Uttarakhand, Jammu and Kashmir and Himachal Pradesh. They are given a higher share of the Union government's resource allocation because of harsh terrain, backwardness and other social problems. All of them also happen to along international border. Bihar wants to be the 12th state to get this status.

Benefits of being a special category state:

The special-category states get significant excise duty concessions, persuading industry to relocate/locate manufacturing within their territory. Apart from that, 30% of the Centre's gross budgetary support for Plan expenditure goes to special-category states. Earlier in the case of special-category states, 90% of Plan assistance was given as grants and just 10% as loans. The 12th Finance Commission recommended that the Centre give only grants, and leave it to the states to raise loans as they wanted. Since then the 90% grants and 10% loans formula for special-category states is restricted to centrally-sponsored schemes and external aid only. For general category states the ratio of grants to loans is 30: 70, i.e. only 30 % of expenditure is given as grants and the rest of amount is given as loan.

Why special status in not given to Bihar?

The criteria to determine the eligibility for a state to become a special category state as decided by the Planning Commission are: hilly and difficult terrain, low population density, sizeable share of the population of tribals, strategic location along borders, economic and infrastructural backwardness, and non-viable nature of state financial condition. All these criteria are meant to address handicaps of these states which arose from uneven topography, geography and unviable economic condition. Bihar does not satisfy all these criteria, and Bihar�s backwardness is not due to its geographical disadvantages, but because of sustained governance failure in the past decade. This is the main reason behind Bihar is not getting the special status. But Seemandhra also not qualify the conditions required for getting special status. However it got special status within a week .Bihar longstanding demand for it once again ignored .Compare to Seemandhra, it scores more in backwardness index. It explains political expediency rather than real economic status of the concerned state. It is a complex issue where economics and political calculation both are intermingled. So here the anger of Nitish Kumar is genuine.

Real Problem

Bihar�s problem is not scarcity of resources, but the lack of institutional capacity, infrastructure, a developed market within the state and easy and affordable access to markets outside, entrepreneurial skills, and a proper industrial climate. These impediments cannot be addressed in the short term. The level of development of a state depends on historical, cultural and sociological factors. Extra resources may help raise growth rates, but the ability to use money matters the most. That, in turn, depends on governance. Since taking over as a chief minister, Nitish Kumar has signed MoUs of over Rs 1 lakh crore and not even fraction of this figure has flowed into the state in the shape of concrete investments so far. Even these will take a few years� time to translate into viable projects that would generate employment and income. Another problem is, If Bihar gets special status, many others will also demand this status as well. Then the problem of fund will arise before the centre. By demanding and hopefully getting the special category status for Bihar, Nitish Kumar may score a political point over political rivals nevertheless, Bihar's economy will remain where it is in the foreseeable future, if the structural problems of the economy is not solved.