Rajan Committee Conundrum: Saibal Dissents Nitish Cheers

Whether Dr Saibal Gupta was wrong in dissenting or Nitish is deliberately misleading the people of Bihar?

Prateek K Anand

Patna :(BiharTimes) Rajan committee report (http://www.finmin.nic.in/reports/Report_CompDevState.pdf )is accompanied by a dissent note from Dr Saibal Gupta for its foreclosing special state status in regards to Bihar as feared earlier. “Mr. Nitish Kumar you may please note this”. If any, state which can be next in queue is Odisha and not Bihar as per the criteria fixed by this report. Anyway, this report presumes status quo in regards to special state status and proceeds accordingly. So, what Bihar gained from Raghuram Rajan Committee report on under development index? Well! It is quite difficult to say so at this stage. While under development index has been very well thought out, as indeed has been the mandate of the committee, its impact can’t be so easily quantified at this stage. Reason for the same has been the constraint imposed under terms of reference itself. Anyway, terms of reference could not have been broader due to mechanism by which this committee has been set up in first place.

Overall impact of this committee on fund flow to Bihar can be anything from positive to neutral to negative. This will all depend on what ‘Development Fund’ is subjected to this allocation formula. This question has been left unanswered. Perhaps it would be decided upon by a forum like NDC in future. Since this report talks about doing away with discretion in fund allocation to state, it could mean the following thing for Bihar:

Bihar losses out on special package of Rs. 12000 crores as state specific allocation under BRGF. It also loses out on district component of BGRF which is likely to be another Rs 6000 crores over the plan period. Going by committee recommendation state would get only Rs. 9000 crore (Rs 45000 cr district component + Rs 30000 cr state component) in place of Rs 18000 crs earlier. However, if this fund is to be restricted to only least developed states even then share of Bihar would be Rs 12.600 crs only. Thus, if this is to fund subjected to distribution as per new index, Bihar will lose out substantially.
However, Bihar may get benefit if entire fund meant for centrally sponsored schemes and state plan assistance is devolved using this formula. Current central contribution to state plan is Rs 8,500 Crores. As per report, Bihar is getting only 7.42% under these headings. Same may go up to 12.02%. However, it is not clear if 7.42% factors in state component of BGRF or not. Even then Bihar may gain substantial benefit if this happens. Even if we assume total amount to be Rs 8500 crores, it would go up by minimum Rs1500 crores (assuming 7.42% does not factor in special assistance to Bihar) to about Rs 5000 crores. It may still be on lower side as it does not talk about including Normal Central Assistance (@4.95% for Bihar) to state plan which is governed by Gadgil-Mukherjee Formula.
Bihar may substantially benefit if 14th Finance Commission also adopts this formula for devolution, ie @ 12.04% instead of @10.06%. State can get good benefit; If Gadgil Mukherjee Formula is also changed from @4.95% to @12.06%. However, report does not talk about changing the prevailing formula.
It recommends status quo on special state status with fund allocation as per changed formula.
Does not recommend tinkering with special assistance being provided on some different criteria. Can be interpreted to be in regards to specific purpose schemes like ‘Integrated Action Plan’ and so on.
It suggests that additional assistance package can be given to category of ‘least developed states’ collectively, but not selectively to one or a few states.
Bihar may lose out if funds under central flagship scheme were to also get allocated as per this formula. However, since flagship central schemes are governed by different criteria, they will not get affected by this formula.

Thus net gain/loss for Bihar would arise from point 1 and point 2 above. It may be in range of Rs 6000 crore plus or minus for the state. In actual, however, I expect it will be more or less neutral for Bihar in the way it is implemented. Still, I expect one benefit though that Special Assistance to Bihar in all likelihood would get institutionalized. To summarize, it would be premature to comment on what this report would actually mean for Bihar, or for that matter any other state, without analyzing it in its totality and waiting for its operationalization. Yet, at the face of it, looks like UPA government led by Chidambaram has once again pulled a trick on Nitish Kumar.