Letter to BS: Not just state tax, talk about other financial transfers also

Financial resources from one state to another are transferred in many ways. Since 1949, poor mineral producing states have subsidised industrialised coastal states through several modes. One, through freight equalisation scheme introduced in 1949. Two, paying minimal royalty on minerals, that too as percentage of controlled price. For the first 30 years, it worked out to 2 per cent of international market price,  against 20 per cent that was international standard. Three, credit deposit ratio which is 32 per cent in Bihar as against 110 per cent in Tamil Nadu. Banks are transferring resources from poorer states to better off states. Four, matching grant formula ensured that poorer states could not spend their allocation and the grants were thus transferred to better off states. Five, finance commissions have permitted 3 per cent of state GDP as fiscal deficit to states. Poorer states lose out here also as their GDP is low. Six, earlier finance commissions punished poorer states for having revenue deficit.

The 14th Finance Commission has given Rs 2 trillion to states with revenue deficit, all of whom are middle income states. Yet the 14th FC reduced the share of Bihar from 10.91 per cent to 9.67 per cent leading to a loss of Rs 500 billion in five years. Bihar gets just 1 per cent more than its population share of 8.7 per cent. Now, private sector goes only to developed states with good infrastructure. Why talk of tax share only? Talk about other ways of financial transfers also.

Sudhir Kumar Sinha  Ahmedabad
Letters can be mailed, faxed or e-mailed to: 
The Editor, Business Standard
Nehru House, 4 Bahadur Shah Zafar Marg 
New Delhi 110 002 
Fax: (011) 23720201  •  E-mail: letters@bsmail.in
All letters must have a postal address and telephone number

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel