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BACKWARD STATE

One step backward, two steps forward

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Bihar has been pressing the Centre to declare it a 'backward state' so that it may get extra funds. This is not an unreasonable demand, say Praveen Jha and Atul K Singh.

Bihar wants to be recognised as a 'backward state' so that it gets extra funds from the central government. West Bengal has periodically demanded a special package. So have UP and Odisha. Within states, regions are demanding special packages, like Bundelkhand or tribal areas in Bengal. What has happened to state finances? Why this clamour for central largesse, in what was supposed to be a federal polity?

The framers of the Constitution had put mechanisms and institutions such as the Finance Commission in place to give centrestate fiscal relations a robust constitutional grounding. However, different states developed in different ways, and ended up with different needs. This led to increasing dependence on external financial help.

The changed policy regime since the early 1990s has adversely impacted the delicate centre-state fiscal balance. Additionally, increasingly larger proportion of fund-allocations through centrally sponsored schemes, bypassing the states' treasury route, has dented fiscal federalism. Such developments have put serious strain on centre-state fiscal relations. Not only is the financial capacity of the states being weakened, their fiscal space is restricted by illadvised provisions of the Fiscal Responsibility & Budget Management (FRBM) Act.

In the name of fiscal discipline New Delhi has shed much of its socio-economic responsibilities, forcing the state governments to shoulder them. This burden has put tottering state finances into an even deeper crisis. Thus, there is a very strong case for the central government to step in with preferential allocation of resources - like backward region grants and special category status - so that the states can sustain their developmental work.

On all the five criteria listed by the Planning Commission - poor infrastructure, poor resource base and remoteness from larger markets, geographical isolation, inaccessible terrain, and financial viability - Bihar is as eligible, if not more, as the states already having special category status.

Much of the development deficits of Bihar have their roots in colonial history where Bihar remained confined as a supplier of primary resources. Pre-independence Bihar had poor roads, bridges and rail tracks, and those too built only for serving colonial interests. Bihar got its first bridge over the Ganges, connecting north to south Bihar, in Mokama mostly due to the exigencies of the India-China war in 1962. Given this remarkable continuity of neglect of Bihar, infrastructural poverty of the state is no accident.

The case of poor resource base and remoteness of the state from larger markets is no different. Remoteness is as much a function of connectivity as the presence of internal markets. Why is it that the earliest crop of apples from Himachal Pradesh and Jammu & Kashmir find shelf space in Delhi markets, while quality horticultural products from Bihar do not? As a market is organically linked to production, policies such as freight equalisation perpetuated Bihar's 'remoteness' and economic backwardness. 
The parameter of geographical isolation has been used by the Planning Commission more in the context of states' strategic placement and their exposure to international boundary. Sharing a long border with Nepal, Bihar has a sensitive positioning. It is the northern gate of the 'Red Corridor' of leftwing extremists, which were described by the prime minister as the number one threat to national security. A huge expanse of Bihar is inaccessible for a significant part of the year due to the state's unique menace of flooding. And unlike the inaccessibility suffered by special category states in the hills, this feature has an annual charge on the state's economy causing as it does, huge damage to crops, property and lives.

On the last count of financial viability of state, no other Indian state has more unviable finances than Bihar. While it has the worst debt-GSDP (Gross State Domestic Product) ratio in the country, its per-capita total revenue is lower than even the per-capita development expenditure of most of the states. Usually, implicit transfers like subsidies are many times more than formal transfers in centre-state fiscal transactions. But Bihar has historically suffered a strong denial in these implicit transfers.

Therefore, besides the plea of developmental deficits of the state with specific historical and structural construct, Bihar qualifies on each of the parameters earmarked for grant of special category status. The development process, howsoever robust, cannot sustain a fetter of economic backwardness of a state of Bihar's size - both numerically and geographically. A political system can allow continuance of deprivation of this huge mass of humanity only at the risk of its stability.

A case for proactive state intervention in Bihar, therefore, can hardly be contested. Whether this intervention can be in form of grant of special category status to Bihar should be debated sympathetically in the context of long period of denial and deprivation of the region by the powers that be in Delhi. The grant of special category status is not a magic wand that would solve all the developmental woes of Bihar, but it would significantly contribute towards creation of an enabling environment which would help foster opportunities of production and investment of capital as well as hope. 

Praveen Jha teaches economics at Jawaharlal Nehru University, New Delhi; Atul K Singh is a research student there.

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