A populist race

States' demands for handouts from Centre unjustified

One of the unfortunate dynamics of Indian politics is the propensity for its leaders to indulge in a populist race to the bottom. In one such exercise, several states have been energetically lobbying for "special category status" in return for supposed political favours in Parliament. These demands were raised during the United Progressive Alliance's tenure, notably by the chief minister of Bihar. With the Bharatiya Janata Party winning a single-party majority in the Lok Sabha, several states are now demanding this status, or some other form of special handout; Odisha's Naveen Patnaik is adding his mite to the demands. The unspoken quid pro quo is legislative support in the upper house of Parliament, the Rajya Sabha, where the BJP lacks the numbers to pass legislation.

Special category status has huge fiscal implications for the Centre. States so designated get 90 per cent of central assistance to state Plans as grants and 10 per cent as loans (states that do not enjoy this privilege get central assistance in the 70:30 ratio, the latter being the grant). States qualify for this status based on a 1960s formula that picks out those with a low resource base, hilly and difficult terrain, low population density or a sizeable share of tribal population and strategic location. This covers most north-eastern states and Himachal Pradesh. By this reckoning, none of the current supplicants for "special category status" would make the cut.

That is the legalistic argument. There is also something to be said for the actual impact of special category funding. It has done little to transform the states that are recipients of this funding and is akin to life support rather than a mode of sustainable development, which was the original intention. That apart, the amorality of the leaders of these supplicant states does them no favours. Both Odisha and Bihar have shown that attempts at good governance can have a transformative effect even without special funding. In particular, Telangana and Seemandhra have every chance to do the same, given the fact that both have rich resource bases. Yet, new Seemandhra Chief Minister Chandrababu Naidu - supposedly a "reformist" - starts his administration with the promise to waive farm loans worth Rs 54,000 crore. By many estimates this is almost 60 per cent more than the new state's own tax revenue for an entire year. It is difficult to justify asking for handouts from the Centre when making such promises at home.

If the government succumbs to their demands, it will set off a cycle of similar demands from other undeserving states: Tamil Nadu Chief Minister J Jayalalithaa has already been making noises about a special package in return for Rajya Sabha support. In any case, the government need not be in a hurry to rush into such arrangements. The 14th Finance Commission on the devolution of central funds to the states is due to submit its report in October this year, which means the current dispensation has some breathing space. Given the parlous state of Central finances, it should take it.