Larger states to get bigger share of transfers

Madhya Pradesh, Uttar Pradesh, Maharashtra, Rajasthan and Karnataka are the major beneficiaries of the recommendations of the Thirteenth Finance Commission with their share in transfers seeing the maximum increase compared to the 2005-10 period.

In contrast, Himachal Pradesh, Uttarakhand, Jammu and Kashmir, Tripura and Jharkhand are the bigger losers in terms of the share of total transfer for the five-year period starting April 2010.

This is despite Jammu and Kashmir, Himachal Pradesh and the north-eastern states, barring Assam, getting higher grants. Of the Rs 51,800 crore projected to go as non-plan revenue grants over the next five years, Jammu and Kashmir (Rs 15,000 crore) will pocket the most, followed by Nagaland (Rs 8,146 crore) and Himachal Pradesh (Rs 7,889 crore). There is also a Rs 1,500-crore incentive for Assam, Sikkim and Uttarakhand, which will get two-thirds of the fund.

In terms of the grants-in-aid for state-specific needs, Bihar has walked away with Rs 1,845 crore, or 6.6 per cent of the Rs 28,000 crore allocated to the states for 2010-15. It is followed by Orissa (Rs 1,745 crore) and West Bengal (Rs 1,703 crore).

The state-specific grants can be used for purposes as diverse as provision of drinking water facilities, preservation of historical monuments, construction of prisons and police training.

While the tax devolution formula has assigned 35 per cent weight to area and population, factoring in the higher administrative cost, there is an incentive for those who have fared better on improving their fiscal position. In addition, 47.5 per cent weight had been assigned to fiscal capacity distance.(Click for table)

Based on the projections for the next five years, the total transfer to the states in the form of devolution and grants-in-aid will more than double to over Rs 17 lakh crore with the most rapid increase expected in the case of Arunachal Pradesh (see table).

Within this, the share of devolution is estimated at around 85 per cent, compared to 81.1 per cent recommended by the previous finance commission.

In terms of the share of total taxes, the hilly states led by Himachal Pradesh will see the maximum gain, followed by Manipur, Tripura and Nagaland. Jharkhand and Gujarat are among the states that will see a lower level of increase, though what they get between 2010 and 2015 will be double the level seen during the preceding five years.

Compared with the Twelfth Finance Commission, there is an increase in the ratio of devolution to GSDP as projected by the Thirteenth Finance Commission. “Thus, every state, taken individually, gains in terms of devolution relative to its GSDP,” the report said.

Going by this measure, Gujarat will see the smallest increase of 4 basis points, followed by Haryana (17 basis points) and Kerala (19 basis points).

Sikkim is the biggest beneficiary as its share in transfers as a proportion of its GSDP would rise by 597 basis points to 18.05 per cent. Bihar (587 basis point increase) and Manipur (568 basis points) are the second and the third biggest beneficiaries.