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States
watchful, imperial Delhi on notice
The
Eleventh Finance Commission (EFC) was not expected to do a good job.
Its composition, to begin with, was far from ideal. Its chairman
Prof. A.M.Khusro, is an economist only by definition. The top slot
should have gone to a political brain. With lot of administrative
experience. See how TFC performed under K.C.Pant.
But the government played politics. Even in the constitution of a
finance commission. An important panel. A vital link in centre-state
relations. It sowed the wind and is reaping a whirlwind.
It is a virtual revolt by the affected states. Disciplinary
considerations kept a few state governments away from the 21 August
meeting here. Indirectly, however, all knew where their sympathies
lay. On the whole, Delhi is on notice. It was time to mend its old
imperial ways. The states are vigilant. And assertive.
Coming out of it all in bad shape is EFC. Blasted, it agreed for a
supplementary report. Taking due note of the sate governments'
criticism. It is almost like a judge offering to rewrite his
original verdict. Just to placate the aggrieved parties.
Though in a belligerent mood, the state governments never put forth
any new demand. They only restated their stand well represented
before the commission. They also went to the extent of modifying
their well-known positions. To save the face of the centre as well
as the ill-fated commission. The language, at the press briefing and
the memorandum, was moderate.
In the final analysis, the real culprit is the central government.
It can't be said that it is of or by tax-evaders. But it is clearly
a durbar of tax-evaders. It was taking it easy on revenue
collections. Allowing a lot of money to go under-ground. When the
accounts won't match, the burden is thrown on the poor. Making life
difficult for the state governments.
Mr.Chandrababu Naidu estimated that the states could lose a total of
five billion dollars in the next five years. As a result of the
indiscretion of the EFC. And it is a safe bet that the FIIs with
only a nominal presence in Mauritius, will take away almost as much
during the period. With the blessings from the finance ministry.
Last year they took away $750 million simply playing the stock
market. Nil investments. Only speculative trading. With enormous
resources, they can sway the market. At will. Acting as bulls and
bears in turn. When it was first questioned, finance minister
Yashwant Sinha was wild with rage. And defended them fiercely. As if
his own property rights were under attack.
Let us not blame Sinha alone. All the three finance ministers,
beginning with Dr.Manmohan Singh, sailed in the same boat. New Delhi
equated heavy tax concessions with economic reforms. All the while
paying lip service to better tax collections and wider base. As a
result, between 1991-92 and 1998-99, the tax revenue as a percentage
of GDP declined by 1.5 per cent. In the last one year it translates
into close to $5 billion. Equal to what the state fear they are
losing in the wake of the EFC recommendations.
The EFC report has provided some comic relief. For while hanging the
well-heeled states from meat-shop hooks, it wants them (and the
centre) to increase their capital outlay. From four per cent now to
6 per cent of the GDP. Also in five years. So the report, on the
whole is not that dry and insipid.
EFC has also tried to show it is over smart. Or, was it doing so at
the behest of central government, wanting to hoodwink the states?
For the first time, it brought into picture the concept of gross
revenue to be shared with the states. Earlier, only tax revenue was
divisible. At the rate of 37.5 per cent of the total.
EFC has retained the 37.5 per cent for the gross revenue too.
Underlying its faith in numerology? For there is no constitutional
sanction to distribute any income other than tax proceeds. The state
governments have been clamouring for the divisible pool to be raised
to 50 per cent. Even as it is, the tax component comes close to 50
per cent proposed. The commission could have been at least honest.
If it declared that half the tax revenue would be distributed among
states.
Amid the din and dust raised over the EFC's report, Laloo Yadav
indeed painfully made a point. He is in agreement with the
redistributive formula tabled by EFC. According to him, earlier
finance commissions ignored the just demands of backward states.
That way, circumstantial evidence is strong that the new formula was
the brain child of the union finance ministry. Quietly it thought of
shifting the burden (of supporting weak states) to the well-doing
states. Avoiding the need for checkmating its profligate ways.
Meaningful at its stage to trace the backwardness of the backward
states. Before partition (and independence) West Bengal was the most
prosperous state in the country. Bombay (now Maharashtra) was way
behind. West Bengal had a concentration of key industries. And it
would have provided development impetus to the entire region.
Including Bihar which is rich in natural resources.
But Delhi, then ruled by Congress, saw it in a different way. The
Congress leadership was still smarting under Netaji's
non-conformism. It took vengeance on Netaji by destroying the
state's industrial base. Freight equalisation (for steel and coal)
took away its locational advantages. As a result, new industries
shunned West Bengal and other locations in the region.
West Bengal also was left on its own when the refugees flooded in.
Punjab being close to Delhi received better attention. Also the
migrating population from Pakistan were more skilled. Unlike those
from East Bengal. All said and done, the refugee influx into West
Bengal, upended its economy. More recently, its banking industry was
thrown off gear.
Thanks to a joint operation by New Delhi and RBI.
At any rate, EFC proved it knew neither politics nor economics. Its
immaturity has divided the nation. As never before. Backward and
forward states co-existed with each other. Spawning no clash of
interests. Now coming in the wake of J&K demand for autonomy, it
has gifted more ammunition to all those wanting Delhi to shed more
powers.
An untold story
What role did Prof.A.M.Khusro play in the report which still goes by
his name. Not many, who were there, could forget the incident which
took place several years ago.
The Khusro panel report was released at a small function. The media
was heavily present. Prof.Khusro was present on the dais. He sat
through the session. Without uttering a word. And grinning.
The briefing was done by a competent hand. Possibly the person who
took the lead in drafting the report. It was an elaborate exercise.
Detailing all relevant points. And high-lighting the necessary.
When it was all over, Prof.Khusro came out. With others. He was
looking evidently surprised. Quietly he asked the speaker (who did
the briefing) whether the points he explained were there in
"our" report! |
