Politics of Nitish Kumar asking to declare Bihar a Special State…

I think it was NR Narayanamurthy of Infosys who famously remarked: India is the only country where people take privelege in calling themselves backwards. Unfortunately, this is true not just for people but also other more macro related areas.

This blog is a huge fan of whatever Nitish Kumar has managed to do for Bihar. It has been a huge change of perception since he arrived and there are no words to justify the praise.However, his agenda of using the political card to get Bihar a Special/Backward State status is what is unnerving really. Why would he goto the extent of saying that he will support any alliance who gives Bihar a special status. Instead of trying to move Bihar away from the special/backward category, he wants Bihar to get that status. Why?

Well, the reason is similar to identities here. If states are deemed as backward/special, the state would get more funds/grants from Centre. Special States get more funds/grants from Centre. Indira Rajaraman very nicely sums up the reasons why Bihar should not get this status. Not getting into the economic analysis her last line sums it up the best:

 Bihar should view it as a matter of pride not to be in need of special fiscal accommodation.

This is how it should be.

However, UPA smelled blood. Losing its coalition partners it decided to take the bait. FM constituted a new committee to study State backwardness and even declared upfront that under the new guidelines, Bihar would indeed get the backward status.

Union Finance Minister P. Chidambaram on Saturday said Bihar would qualify for the grant of special status under new criteria for backwardness. Mr. Chidambaram was on a day’s visit here to take stock of the Nalanda University Project and attend a State-level bankers committee meeting.

Mr. Chidambaram said a committee, under the chairmanship of Chief Economic Adviser Raghuram Rajan would be formed in a few days.

The panel will evolve new criteria for backwardness and submit a report to the Centre within a month.“The committee [will] work on the criteria and submit a report, after which we will have new criteria to determine backwardness. Once we have agreed on the criteria and implemented them, States will qualify under them. From whatever information I have, Bihar will certainly qualify. What I said in Parliament [about reviewing the criteria] will be implemented,” Mr. Chidambaram said.

This is so sick. Why form a committee at all?

FE rightly says this is all a political gimmick and a backward move:

Bihar chief minister Nitish Kumar is a valuable potential ally in the next elections, so it is natural for the government to try and find ways to woo him. So, apart from a R1,000 crore grant for all backward states in the budget and a matching amount for Naxal-affected districts, the Cabinet even cleared a R12,000 crore grant for the state from the Backward Region Grant Fund (BRGF) over the next five years. If that isn’t enough, the government has now set up a six-member expert committee under chief economic advisor Raghuram Rajan to finalise a new set of criterion for defining backwardness of states for granting of special category status.

There are economic issues as well:

Apart from political opportunism, there are several problems with what the Rajan panel has been tasked with. For one, if Bihar gets included as a special category state, all other states in this category will get less funds unless the size of the pie given to special category states is increased. If that happens, there will be a clamour from more states to be included and non-special states will feel aggrieved. There is also the issue of how there is little to suggest backwardness or poverty is not used as a criterion even today. Finance Commission allocations that account for over half of all central transfers explicitly take backwardness into account. A fourth of the weight is accounted for by population, a tenth for the area of the state and 47.5% for what is called “fiscal capacity distance”—so states with a low capacity to tax get benefited. Bihar scores heavily on all these counts, which is why it got 8.8% of all central transfers in FY13—that is higher than its 6.8% share in India’s population and many times more than the state’s 2.6% share in the country’s GDP or its 2.4% share in the taxes that states across the country raise on their own.

 Even if you get past all this, the question is whether increased central funds will help Bihar grow on a sustained basis—in any particular year, increased investment will obviously mean higher growth, but is this sustainable? Bihar’s higher GDP growth in the years Nitish Kumar has been the chief minister has really come from construction—of roads, for instance, from central funds. While this has resulted in the share of construction in state GDP rising from 6.7% in FY05 to 13.5% in FY12, the share of industry has fallen to a mere 4.9% in FY12.

For sustainable development, attracting industry is what the state needs to work on. Increased central subsidies on agriculture, similarly, can help given the state’s relative abundance of water—this will also help develop agriculture-related industries in the state. In the rush to seek votes, however, politicians in neither Bihar nor at the Centre are likely to worry about such inconvenient facts.

Interesting and pity to see such eminent people head the panel. I really do not know why such people need to sign up for such panels which is just about politics. Can they bite the bullet and instead say Bihar should not get Special Status?

Instead of playing the political card, Nitish Kumar should have put the facts on the table and raised the debate on the issue. That would have been so much better..

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