policy for balanced regional development first plan (51-55) – period of pure ad hocism - no...

Policy for Balanced Regional Development

First Plan (51-55) – period of pure ad hocism- No particular plan for regional development- Some attention to regions that suffered from natural calamities. Second and third plan (56-61 and 61-66) – period of increasing awareness of regional imbalances

Second plan- Second plan expresses awareness of the problem but states that these can be dealt only in the long

run. - Also the problem of regional disparities was treated as the same as the problem of disparities in

industrialization.- The location of public sector industrial units in backward regions was partially in response to this. - Licenses issued to private entrepreneurs were also keeping this in mind.- Freight equalization policy for steel- selling steel at same price at all railheads. - Establishment of industrial estates- at least one in all states – based on criteria for backward region.

Policy for Balanced Regional DevelopmentThird Plan- Plan document had a full-fledged chapter on regional development.- It admits that in the short run there is a trade off between growth and regional imbalances.- Size and pattern of plan outlays to reduce inter state disparities.- Rural works programme in rural areas, development plans for building social and economic

overheads in the backward areas.- Planning commission draws a set of development indicators to be used by the states to identify

intrastate disparity.

Plan Holidays – from 1968 onwards deliberate policies to improve level of living of people in regions identified as backward.-A concerted regional policy was discussed at the National Development Council (NDC) in 1968.-The arbitrary form Centre –state financial transfers to stop .-Gadgil formula comes to being – (90% weight to indicators of needs of the state and 10% to the state tax effort) -Two working committees

- Pande committee to identify industrially backward regions- WANCHOO committee- To identify various development rebates , subsidies and incentives for industrialists to start firms in the backward regions.


Fourth Plan period (69-74 )- - Admits that in the short run there is trade off between growth and regional disparity but points that

even in the short run there is need to keep the industrial disparity from accentuating further. - Agriculture, for the first time identified as a source of regional balancing policy measure.

- Drought Prone Area Programme in 70-71 to promote development of minor and major irrigation, afforestation, soil conservation etc,

-SFDA scheme0 small farmers development scheme-MFAL – marginal farmers and agricultural labourers scheme (to provide subsidiary occupation

for employment)-TDAP –Tribal development-HADP –Hill Area Development Programme- - At the same time industrial dispersal was also given great importance.

- As earlier public sector units continued to be located in backward regions and licenses to large private institutions were issued only in the backward regions.

- Concessional finance from financial institutions to 230 districts and 8 union territories identified as backward for starting small and medium industries.

- Transport subsidy – central govt. offered 50% of the transport cost of raw material to the new industrial units to be established in backward states.

- Investment subsidy- central govt to provide 10 % of the fixed capital for new start ups in the backward regions.


FifthPlan (74-78)- Change in attitude towards regional development problem- For the first time they acknowledge there need not be a trade off between growth and regional

development.- The fall of government and the emergency led t the following of the policies of the fourth plan

without much changes,- And the coming of the janata govt led to a drastic revision of the plano SFDA and MFAL were merged togethero DPAP continued o Desert Development Programme also launchedo TDAP was extended and an Integrated Tribal Development Programme was introduced. - Micro level planning to treat the village as a unit came up.- District Industrial Centre to build , under which all facilties for setting up smll and village

industries to be provided form one place. - IRDP scheme comes into being bringing together many other poverty and employment programme

Policy for Balanced Regional DevelopmentSixth Plan (80-85)- National Committee for the Development of Backward Areas (NCDBA) was constituted with the goalso Identifying the backward areaso Review the working of the existing schemes for stimulating industrial development in backward areaso To recommend methods to mitigate regional disparity

The NCDBA commented that- Central investment subsidy and the scheme of concessional finance had benefited a small

number of districts mostly near the industrially developed states-Industrial estates programme had not helped to relocate the industries away from metropolitan

areas-Licensing policy being a negative instrument could not attract investment to the backward

regions. The NCDBA recommended the following

-sub plans for the development of backward areas-specially allocated funds for the local planning and implementation for backward areas-financial discipline – wherein the states should be forced to spend the allotted amounts to the

backward regions within the given period, rather than spending on forward regions within the statesThe NCDBA also found that

-Industries tend to cluster at certain locations.-Entrepreneurs were interested in the subsidies and incentives provided by the government. -Hence they recommended growth centers in various backward regions for the country with an industrial development authority in the region, which provide basic infrastructure facilities.


Seventh (85-90)-laid emphasis on role of agriculture for reducing regional imbalances. -Increase productivity in rice, coarse cereals, pulses and oilseeds in the eastern region and in dry land and rain fed regions through out the country.-Area development programme like the drought prone area programme, desert development programme, hill and tribal area development programme was expected to raise the agricultural productivity in the backward region.-Human resource development through universalisation of education, meeting the minimum needs of water supply, rural roads, rural electrification etc.

Eighth Plan (92-97)

-Acknowledged existence of problem of imbalanced development of states. However no strong measures were taken for the same


Ninth Plan (97-02)-Warned of widening regional disparities due to the greater freedom in choice of location available with industry after economic liberalization. Besides states are vying for more regional share of investment by competing to give greater concessions and incentives for investment. -The ninth plan states that It will be necessary to deliberately bias public investment in favor of the less well-off states.-Poverty is identified to be localized and the process of growth may exclude many in receiving the gains.- looks back on the seventh plan and instead of relying completely on industrial location for correcting regional imbalances the ninth plan takes the view that agriculture and rural development can have a positive role in reducing regional imbalances.

-Accordingly the proposals are o Increase in productivity of agriculture in backward areaso Increase in the degree of integration of the rural areas and the rest of the country through improved transportation and communication and marketing services.


Tenth Plan (02-07)Recognizes the issue of widening regional disparities but is relegated in importance to other issues -The Tenth Plan differs from the earlier Plans in one major respect and that is that it specifies targets for the growth rate for each State in consultation with the state governments.

-The achievement of rate of a growth of 8 per cent during the Tenth Five Year Plan will critically hinge on the achievement of higher rates of growth in the GSDP vis-à-vis the growth rates achieved during the Eighth and the Ninth Plans. It may, however, be mentioned that even if all the States perform as targeted, the inter-State income disparities are unlikely to decline.

-The Tenth Plan aims at reversing the pace of increase in inequality, and creating the necessary pre-conditions to help the worse-off States to catch up. The reduction in regional disparities could perhaps follow in the subsequent plans. Raising the growth rates is also important from the point of view of reducing the poverty levels prevailing in the country.


AgricultureIndustry Services GSDPGrowthA&N 1 10.41 7.97 6.6Andhra 3.05 8.01 8.39 6.8Arunachal 4 8.9 10.5 8Assam 3.82 5 9 6.2Bihar 3.75 6 8 6.2Chandigarh -2 10.41 10.96 10.6Chhattisgarh 3 7.5 7 6.1Delhi -12.21 6.9 12.01 10.6Goa -0.9 6.25 12.36 9.2Gujarat 4.03 12.23 10.44 10.2Haryana 4.07 9.56 10.33 7.9Himachal 4.55 12.49 8.26 8.9J&K 4.2 5.21 8 6.3Jharkhand 3 7.44 8 6.9Karnataka 4.99 11.34 12.51 10.1Kerala 3.05 5.89 8.17 6.5Madhya 4 7.75 9 7Maharashtra 3.56 8.22 8.09 7.4Manipur 3.59 8.33 7.39 6.5Meghalay 4 6.87 7.05 6.3Mizoram 2 4.16 6.84 5.3Nagaland 4 7.29 5.78 5.6Orissa 4.07 4.88 8.73 6.2Pondicherry 1.1 13.01 9.19 10.7Punjab 4.07 8.06 8 6.4Rajastan 4.5 10.06 9.63 8.3Sikkim 5 5.21 10.36 7.9Tamil 3.54 7.37 9.77 8Tripura 3.9 9.37 8.43 7.3Uttaranchal 3.5 7 8.7 6.8U.P 4.67 11.05 7.92 7.6W.B. 5.09 9.15 10.76 8.8India 4 8.9 9.4 8

State wise Growth Target for the Tenth Five Year Plan


Critique- the question off trade of between growth and regional balance- industrial disparity and regional disparity are one and the same.- Most of these programme were not sustainable without government funds


Industrial Location Policy •(i)Location of Public Sector Enterprises•(ii) Industrial Licensing •(iii) Growth Centres Approach.•(iv) MRTP Industries Location•(v)Small Scale Industries Location•(vi)Location Policy for Metropolitan cities.


Location Policy of Public Sector Enterprises-the claims of relatively backward areas without giving up essential technical and economic criteria. -location of many public sector units in Madhya Pradesh, Bihar and Orissa during the Second plan period.-During the Fifth Plan period (1974-79) to make contribution in consumer industries like cement, paper, drugs, textiles and pharmaceuticals.-But during the sixth plan period-central sector projects not stimulating small and ancillary units and did not succeed in backward states like M.P, Orissa, and Bihar. -blocking basic infrastructure like power and water in these backward states-The mounting losses, inefficient management of public sector units –-During the Eighth plan period the sectors that were exclusively demarcated for public sector investments were reduced.--sick Public sector units were subjected to Sick Industrial companies Act 1985 (SICA) and sick units were referred to institutions like Board for Industrial and Financial Reconstruction1987 (BIFR) for revival or rehabilitaion. –- 1996-97, the disinvestment commission was set up for equity disinvestment of PSE's.- The public sector units as an agent to level regional imbalances does not exist any longer.

Policy for Balanced Regional DevelopmentLicensing Policy as a tool for Industrial Location-The Industrial (Development and Regulation) Act 1951, for regulating location of private industrial units.

-All undertakings that satisfied the criteria of 'factory' came under the Act.

-Regional dispersal was taken into account when considering application for licence for industries which were not so raw material oriented.

-Application was accepted or rejected on the basis of regional dispersal that was contemplated on that particular industry.

-In 1960, Government exempted all undertakings that employed less than 100 workers and whose fixed assets did not cross Rs10 lakh in value. In 1962, the criteria of number of workers was deleted. In 1964, the exemption limit was further raised to Rs25 lakh. In 1966 a few industries were delicensed as private investment was sluggish. By 1969 , 41 industries was delicensed.


-The industrial policy 1977, decided that licenses would not be issued for new establishments within the peripheries of metropolitan cities.

-From 1980, the starting of the VIth plan period the scope and reach of licensing declined.

-A large number of industries comprising 25 groups were exempted from licence during the VIth plan period.

-The New Industrial Policy of 1991 drastically changed the licensing policy. Industrial licensing was abolished for all projects except for industries related to security and strategy concerns, social reasons, environmental reasons. Licensing was required only if the firm was to be established in the vicinity of a metropolitan city. Also large firms were restricted from entering in production of items reserved for small scale and ancillary units.

The IDRA no longer is being used as a tool for industrial dispersal. From being a positive agent with powers to direct where to establish industries it has become a negative tool with powers just to direct where not to establish firms. It has no control over size of the undertakings which are established anywhere in the country.

Policy for Balanced Regional DevelopmentLocation of Small Industries

-The Fourth Plan to promote decentralization and dispersal of industries and to promote agro-based industries through a combination of incentives and disincentives.

-During the Fifth Plan period new programmes for enterpreneurship development, promotion of industries in rural and backward areas, ancillary development, and modernization.

-During the VIth Plan the 'tiny' sector within the small industries were demarcated. Special attention was to be given to this sector if they were situated within towns of population less than 50000.

-In the VIIth plan promotion of SSI's at growth centers was envisaged. It was done by location of "nucleus plants' at growth centers which would encourage ancilliarisation at this region. -The investment limit in plant and machinery of Tiny industries ,SSIs, ancillary units and EOUs increased. government announced many programmes like preference in land allocation, power connection to SSI's in 1991. Tiny sector was given special emphasis with institutional finance and relaxation in labour laws. -SSI's were exempt from all locational conditions subject to the provisions of the central and state environmental laws and land use laws. -Since the liberalisation policy many items reserved for SSI's are allowed to be imported under Ordinary General Licence (OGL) which means the SSI have to face competition from MNC's and large units from abroad whereas it is not produced in the country.

Policy for Balanced Regional DevelopmentBackward Areas Development-To negate this anomaly of Widening regional income disparities the IIIrd plan proposed setting up of 'Industrial development Areas' in backward regions.

-In selected areas basic facilities like power, water and communication were to be provided . During the Fourth plan period a scheme for concessional finance and subsidies were introduced in the backward areas.

-In 1978, the Planning Commission set up NCDBA to study industrial dispersal. NCDBA submitted its "Report on Industrial Dispersal' in 1980. A total of 229 districts were identified as backward. The policies for encouraging industrial growth was through many incentives like (a) capital Investment Subsidy (b) Transport Subsidy (c) Income Tax Concessions, (d) Concessional finance from financial institution (e) state government incentives.

-During the seventh plan period It was felt that industries will not be attracted to backward area by mere subsidies, incentives and concessions.

-Policy should be oriented towards attracting industries to small district towns which has not been industrialized so far.

-Towards realisation of this objective the 'growth centres approach' was introduced in the VIIIth plan simultaneously with the Backward Areas Development Programme.

-In 1990, seventy two industries were delicensed for MRTP/FERA companies if they were set up in notified backward areas.

-For Non-MRTP and non-FERA companies the investment limit was increased to Rs.50- crores in backward areas against Rs.15crores in the other regions.

-In 1993 a Five year tax holiday was introduced for new industries in industrially backward states. This facility was available irrespective of the size of the firm.


The Growth Center Approach -The 'growth center' approach was introduced in 1988.

-Its objective was to develop the infrastructure of centers that could act as magnets for attracting industries to these areas. -These centers were to be endowed with basic facilities like power, water, telecommunication and banking. Seventy growth centers were adopted during the Eighth plan period. The growth canters were adopted on the basis of population, Area and industrial backwardness.

-A review of this program in the Ninth plan draft states that " the schemes has not been able to make much headway during the VIIIth plan period and not a single center out of the 66 approved had become functioned upto 31.3.1998"-Resources have become thinly spread over a large number of centres.

-In the Ixth plan it was decided that work on new growth centers should not be taken up.

-However the North-East states were given an exception. A special package involving integrated infrastructure development centers, transport subsides, strengthening of institution concerning enterpreneurship, and human resource development etc were announced during the period.


Location of MRTP industries-The monopolies and Restrictive Trade Practices Act (MRTP) was passed in 1969

-These undertakings were eligible to participate in industries that were not reserved for small sector public sector, and were of basic, critical and strategic importance for the growth of the economy.

-During the 7th plan period the exemption limit was raised to Rs. 100 crore. Also 83 industries were exempted from MRTP Act for entry of dominant industries.

-The MRTP/FERA companies were also delicensed in backward area for 72 industry groups. The MRTP Act was later amended to remove the threshold limits of assets of MRTP companies. Emphasis was laid on actual practices of large undertakings rather than having a pre-entry scrutiny.

-The large industrial houses has thus become on par with small and medium size industries. They were not subjected to any locational restrictions except that of licence requirements in metropolitan cities.


Location Policy for Metropolitan Cities

Though, in 1956 Industrial Policy Resolution (IPR) the problem of unplanned urbanization' was taken note of, it was only in 1977 during the Vth plan concrete action was taken.

It was decided that industrial licenses would not be issued to new industrial units for location within a certain limits of large metropolitan cities having a population of more than a million and urban areas with a population of more than 5 lakhs as per the 1970 census.

During the VIth plan the decay of small and medium towns in terms of population was noticed while the metropolises were expanding. De- industralising metropolitan cities was one among the strategies to decongest large cities.

To develop the small and medium towns, the Integrated Development of Small and Medium Towns (IDSMT) was introduced to provide infrastructure and other facilities.

Since the delicensing era, starting from 1985 companies that did not come under the purview of MRTP and FERA acts were subject to only two conditions.i) they should not be located within the standard urban area of a million cityii) they should not be located within the municipal limits of a city with more than 5 lakhs


Further in 1989, both MRTP/ FERA companies and non-MRTP/ Non-FERA companies were subjected to a uniform location policy.

All undertakings irrespective of size were not given the facility of producing goods in the delicensed items if they were established within 50 kms of standard urban area of cities with 25 lakh population, 30 kms for cities with 15 to 25 lakh, and 15 kms for cities with 7.5 to 15 lakh population. However, if the industry was non-polluting in nature and was in an industrial area established by the state government then it was not subject to the above policy.

The industrial policy of 1991 abolished the industrial licensing totally except for a small list of industries. No licence was required for industries except for locating in million cities. In million cities, the differentiated scheme was simplified into a single distance specification of 25 kms from the city periphery if they were not in a designated industrial area within the city and were polluting industries.

The location policy reveals that while large industrial houses that came under the MRTP and FERA acts were subject to legislation regarding location through licensing prior to 1988 and were not allowed near the cities, by the policy shift in 1989, these large firms could be located at a distance of 50 kms of from the city limits. Further, when the distance specification was reduced to 25 kms, and with no licence requirements these firms could be established even nearer to the metropolises. This provides them the opportunities to establish large firms at the peripheries of the city, at the same time have their corporate offices and houses within the city.

Policy for Balanced Regional Development-The new growth centres approach is to develop infrastructure facilities in the small towns.

-The beneficiaries of the facilities provided cannot be segmented into large or small unit.

-Also the metropolitan cities location policy allows any size of undertakings to be established at the periphery of the metropolitan cities.

-This allows large industrial units to be located at the peripheries of the city that provide access to markets of the city. While the smaller firms may be driven out of market due to competition.

-It depends on the strength of growth center to act as counter magnets to attract enterprises to these towns.

-It is but doubtful that large firms MNCs etc would turn down the possibility of having their production units in the periphery of cities as the administration of the unit could be done from within the city itself.

-Also, they could avail the facilities of growth centres that the lie close to the city.

-This New Industrial Policy, may not be able to arrest the growing concentration of industries. In fact it may only lead to further widening of the regional disparities.

-The policy shifts has become advantageous for the entrepreneur to have his production units at the peripheries of the city.

- While having his corporate office and residence within the city. While the condition of the worker in the city as well as the periphery is deteriorating .

-While in the city the decline of the manufacturing sector is pushing workers into informal sector in the peripheries he is forced to survive in poor living conditions.

-In the wake of liberalisation of the economy and the government trying to woo in foreign investors this phenomena is only bound to accentuate.


Centre State Financial Transfers

- Imbalance in the fiscal capacity and constitutional responsibilities of the states. - Constitution makers sought to overcome this problem by creating the institution of the finance commission to be constituted every five years to determine the share of the states in the revenue from the shareable taxes under the article 270 and grant-in-aid to the states in need of them under article 275.- Till now 12 finance commissions have come.- Finance commission sought to solve vertical and horizontal imbalances in the economy.- Equalization, especially regional balance has been one of the professed goals of the finance commissions since the 6th FC.

Policy for Balanced Regional DevelopmentIndex of Fiscal Self Reliance at the State Level

Average 1993-94 to 95-96

Average 2000-01 to 02-03

Average 1993-94 to 95-96

Average 2000-01 to 02-03

Genaral Category StatesAndhra Pradesh 59.22 59.46 1.04 1.18 1.14Assam 30.24 32.66 0.53 0.65 1.23Bihar 34.21 24.78 0.60 0.49 0.82Chattisgarh 56.68 58.24 0.99 1.16 1.17Goa 77.92 73.97 1.37 1.47 1.08Gujarat 79.57 58.81 1.40 1.17 0.84Haryana 75.48 77.62 1.32 1.55 1.17Jharkhand 34.21 54.36 0.60 1.08 1.81Karnataka 73.62 61.52 1.29 1.23 0.95Kerala 63.69 54.24 1.12 1.08 0.97Madhya Pradesh 56.68 48.83 0.99 0.97 0.98Maharashtra 80.09 67.50 1.40 1.34 0.96Orissa 37.56 34.32 0.66 0.68 1.04Punjab 69.59 57.71 1.22 1.15 0.94Rajasthan 52.03 45.81 0.91 0.91 1.00Tamil Nadu 68.56 64.60 1.20 1.29 1.07Uttar Pradesh 42.55 41.48 0.75 0.83 1.11West Bengal 50.77 32.20 0.89 0.64 0.72Special Category statesArunachal Pradesh 20.27 9.51 0.36 0.19 0.53Himachal Pradesh 25.68 21.94 0.45 0.44 0.97Jammu $ Kashmir 16.93 21.10 0.30 0.42 1.42Meghalaya 19.74 19.35 0.35 0.39 1.11Mizoram 6.55 5.60 0.11 0.11 0.97Nagaland 9.44 6.85 0.17 0.14 0.82Sikkim 16.30 18.24 0.29 0.36 1.27Tripura 10.22 13.76 0.18 0.27 1.53Uttranchal 42.55 37.19 0.75 0.74 0.99All States 57.02 50.20 1.00 1.00 1.00

Improvement Index (Ratio) 2000-03 over 1993-96

State

Ratio of Own revenue to revenue expenditure (Percent)

Relative to all State (ratio)


• Table 1 – revenue receipts to expenditure

• - Large variations in the capacity of the states to finance revenue expenditure through their own revenue sources

• - Own revenue to revenue-expenditure has declined in the second period, which means that dependency on center's finance is bound to increase

• - Richer states meet upto 2/3rds of their revenue expenditure while poorer states have very poor records. Correlation of self reliance index with per capita income shows 0.86, positive and significance

Policy for Balanced Regional DevelopmentPer Capita Expenditure of States Relative to Average (Three Year Averages)

States 1987-88 to 1989-901990-91 to 1992-93

1993-94 to 1995-96 1996-97 to 1998-99 1999-00 to 2001-02

Andhra Pradesh 99.9 98.3 108.6 109.8 111.9Assam 107.6 100.9 96.4 79.3 85.5Bihar 67.7 62.9 52.7 50.7 50.1Gujarat 139.1 136.9 130.1 143.7 152.7Haryana 148.3 136.3 194.9 181.6 140.9Karnataka 110.9 114 117 115.8 118Kerala 108.4 109.2 121.1 134.2 127.3Madhya Pradesh 88.6 84.1 81.5 83 75.4Maharashtra 138.7 129.8 137.3 134.4 148.6Orissa 90.3 90.8 89.2 89.2 91.6Punjab 172.2 174.3 179.2 168.9 173.2Rajasthan 100.1 104.2 112.5 104.2 96Tamil Nadu 111 130.4 119.4 128.7 120.8Uttar Pradesh 76.2 82.3 74.8 73.1 66.9West Bengal 80.8 75.9 77.2 83.6 99.5Total 15 States 100 100 100 100 100Minimum 67.7 62.9 52.7 50.7 50.1Maximum 172.2 174.3 194.9 181.6 173.2Range 104.5 111.4 142.2 130.9 123.1Coefficient of Variation 26.6 26.7 33.8 32.8 31.2


• • Table 2 • Per capita public expenditure • -wide variations in per capita public expenditure across states. Punjab highest, Bihar

lowest. Clear segregation between poor and rich states. • - increasing CV initially then some decline

• - These issues brings out the urgency of financial transfers to bring in balances.

•


• Channels of Financial Transfers

• 1. Through finance commissions including share in taxes and grants

• 2. Plan grants through planning commission

• 3. Other grants from center to states

• 4. Loans from the Centre

• 5. long term loans from the developmental financial institutions

• 6. Commercial bank loans

•


Structure of Fiscal and Financial Flows to the States (As Percent of total Flows)

Share in central TaxesGrants From the Centre

Loans From the Centre

Gross Devolution and Transfer of Resources From the Centre

Loan Disbursed through Financial Institutions

Bank Loans

1990-91 8.11 7.20 7.96 23.28 7.30 69.43 1001991-92 8.73 7.89 6.77 23.40 8.43 68.17 1001992-93 8.97 7.74 5.71 22.42 10.09 67.49 1001993-94 8.92 8.44 5.74 23.11 10.61 66.28 1001994-95 8.05 6.47 6.23 20.74 10.85 68.41 1001995-96 8.06 5.83 5.44 19.32 10.72 69.95 1001996-97 8.57 5.66 5.81 20.04 10.43 69.53 1001997-98 8.45 5.06 6.43 19.94 11.21 68.85 1001998-99 7.24 4.38 7.41 19.04 10.71 70.25 1001999-00 7.06 4.90 3.45 15.41 10.97 73.61 1002000-01 7.03 5.24 2.63 14.90 10.45 74.65 1002001-02 6.26 5.16 1.29 14.37 7.04 78.59 100

2002-03RE 6.20 6.00 3.27 15.46 2.88 81.65 1002003-04BE 6.01 5.87 3.12 14.82 2.73 82.45 100

Fiscal Transfers Financial Transfers

Total Resource Flow

Year

Structure of financial flows

- the most important content is the bank loans and it is increasing in importance- all other forms of fiscal and financial transfers are declining in importance-


Statewise Fiscal and Financial Flows,2001-02 (As Percent of total Flows)

State Share in central TaxesGrants From the Centre




Bank Loans

High Income StatesGujarat 3.35 3.36 5.02 11.73 7.79 80.48Haryana 2.81 3.21 2.12 8.13 11.38 80.49Maharashtra 1.27 0.87 0.45 2.59 8.37 89.04Punjab 2.38 2.10 3.26 7.74 4.45 87.80Middle Income StatesAndhra Pradesh 5.36 5.83 6.54 17.72 6.34 75.93Karnataka 4.83 3.22 4.01 12.06 8.15 79.80Kerala 5.96 3.60 2.88 12.45 4.17 83.38Tamil Nadu 3.91 1.88 1.24 7.04 4.56 88.41West Bengal 8.81 5.99 3.41 18.21 4.59 77.20Low Income StatesBihar 40.37 8.16 8.11 56.64 0.50 42.85Madhya Pradesh 14.30 6.26 6.09 26.65 3.31 70.04Orissa 17.17 8.04 8.78 34.00 4.92 61.09Rajasthan 11.78 8.55 3.01 23.33 5.10 71.57Uttar Pradesh 19.72 6.37 5.34 31.43 3.09 65.48Chattisgarh 15.83 6.52 4.59 26.95 3.78 69.27Jharkhand 23.08 9.17 3.63 35.88 1.92 62.20

- but the dependence of the poorer states on the central taxes and grants are much higher compared to the middle income and richer states.-


State Share in central TaxesGrants From the Centre




Bank Loans

Total Transfers

High Income StatesGujarat 294 295 441 1030 683 7063 8776Haryana 213 243 160 616 863 6104 7583Maharashtra 255 174 89 518 1676 17824 20018Punjab 251 221 344 816 470 9258 10544Middle Income StatesAndhra Pradesh 400 435 488 1323 474 5668 7464Karnataka 497 332 412 1241 839 8213 10292Kerala 508 307 246 1060 355 7099 8514Tamil Nadu 460 221 146 828 536 10396 11760West Bengal 539 367 209 1115 281 4726 6122Low Income StatesBihar 744 150 150 1044 9 790 1843Madhya Pradesh 565 247 241 1053 131 2767 3951Orissa 720 337 368 1425 206 2561 4192Rajasthan 510 370 130 1011 221 3100 4331Uttar Pradesh 613 198 166 978 96 2036 3110Chattisgarh 565 233 164 962 135 2473 3570Jharkhand 815 324 128 1267 68 2197 3532Coefficient of correlation with Per Capita GSDP -0.9160 -0.0150 0.0989 -0.5746 0.7431 0.8131 0.8082Source:Calculated from Indian Public Finance Statistics and RBI,Handbook of Indian Statistics


• - Per capita flows show the regional disparities more sharp.

• - Poor states have higher dependence on centr transpfers, while richer states have depenced on bank loans

• - Over all the per capita fincancial flows is much higher in the richer states

• - This is because of the bank loans

• Fiscal Transfers- the role of finance commission and planning commission

• - Though not a constitutional body the planning commission is an important body in financial devolution.

• - Financial expenditure classified into plan and non-plan expenditures


Structure for Fiscal Transfers from Centre to States (as % of Total Transfers)

Share in Central Taxes GrantsTotal Transfers through Finance Commission(2+3)

Grants through Planning Commission

Non-Plan GrantsTotal Other transfers

VII FC 58.74 5.14 63.88 31.77 4.35 36.12 100.00VIII FC 53.47 6.65 60.13 35.81 4.07 39.87 100.00IX FC 52.99 8.48 61.47 35.90 2.63 38.53 100.00X FC 62.07 6.54 68.60 29.53 1.87 31.40 100.002000-01 57.04 12.70 69.76 27.52 2.44 30.24 100.002001-02 56.21 10.89 69.79 28.25 1.96 30.21 100.00XI FC 56.69 13.17 69.87 27.93 2.20 30.13 100.00

Finance Commission Transfers Other TransfersTotal

Transfers(4+7)Year


• Inter Governmental Finance Transfer Criteria of FCs

• Distribution neutral criteria• - to ensure that across the population and across regions the

same amount is disbursed• Redistributive criteria• - weightage to poverty and backwardness• fiscal incentives• - to encourage tax efforts of the states• • -The twelfth FC has reduced the weight for redistributive criteria which

would mean furthering of regional imbalances• •


Criteria and Relative Weights for Determining Inter-Se Shares of States:Tenth,Eleventh and Twelfth Finance Commission

Tenth FC Eleventh FC Twelfth FCDistribution Neutral Criteria 25 17.5 35 1. Population 20 10 25 2. Area 5 7.5 10Redistributive Criteria 65 70 50 3. Income Distance 60 62.5 50 4. Index of Infrastructure 5 7.5 0Fiscal Incentive 10 12.5 15 5. Tax Effort 10 5 7.5 6. Fiscal Discipline 7.5 7.5Total 100 100 100

Relative Weight (Percent)Criterion


Correlation Coefficient Between Rank In Per Capita Income and Rank in Per Capita Transfers Finance Commission Coefficient of CorrelationVI Finance Commission -0.2344VII Finance Commission -0.7809VIII Finance Commission -0.7920IX Finance Commission -0.9387X Finance Commission -0.9033XI Finance Commission -0.9769XII Finance Commission -0.9297Source:Calculated from the Reports of the Finance Commissions


Share of States in Finance Commission Transfers (Percent)

X FC XI FC XII FC XI over X XII over XIHigh Income States 12.78 9.44 10.94 -3.34 1.50Gujarat 3.92 2.76 3.39 -1.16 0.63Haryana 1.23 0.97 1.06 -0.26 0.09Maharashtra 6.05 4.46 4.79 -1.59 0.33Punjab 1.58 1.25 1.70 -0.33 0.45Middle Income States 28.53 27.56 24.99 -0.97 -2.57Andhra Pradesh 7.98 7.13 6.66 -0.85 -0.47Karnataka 4.64 4.53 4.16 -0.11 -0.37Kerala 3.41 2.83 2.59 -0.58 -0.24Tamil Nadu 5.89 4.97 4.85 -0.92 -0.12West Bengal 6.61 8.10 6.73 1.49 -1.37Low Income States 43.24 49.33 51.02 6.09 1.69Bihar 10.88 13.04 13.14 2.16 0.10Madhya Pradesh 7.10 8.05 8.55 0.95 0.50Orissa 4.28 4.77 4.89 0.49 0.12Rajasthan 5.03 5.42 5.17 0.39 -0.25Uttar Pradesh 15.95 18.05 19.27 2.10 1.22

Share in Total Transfers Shift in sharesStates


Per Capita Transfers to General Category States:VI to XII Finance Commissions (Rs.)States VI FC VII FC VIII FC IX FC X FC XI FC XII FCHigh Income StatesGujarat 138 362 416 1120 1940 2906 5061Haryana 120 307 331 981 1552 2564 3812Maharashtra 141 340 417 1099 1629 2457 3739Punjab 125 310 364 1012 1558 2687 5302Middle Income StatesAndhra Pradesh 179 346 514 1386 2558 4664 6608Karnataka 131 343 461 1218 2231 4664 5950Kerala 225 359 495 1306 2480 4386 6166Tamil Nadu 131 358 505 1414 2260 3871 5880West Bengal 186 355 560 1303 2072 5179 6352Low Income StatesBihar 131 382 573 1579 2737 6574 9044Madhya Pradesh 131 368 534 1426 2308 5295 7965Orissa 263 434 635 2032 2892 6568 10039Rajasthan 219 343 452 668 2338 5361 6914Uttar Pradesh 153 363 534 1468 2481 5432 8348All States 'Average 160 281 540 1388 2287 4472R with Per Capita GSDP 1999-2001 -0.24 -0.60 -0.68 -0.51 -0.71 -0.87 -0.85Source:Figures upto X FC from Vithal and Sastry (1995). Authour's calculations for XI FC and XII FC

policy for balanced regional development first plan (51-55) – period of pure ad hocism - no...

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