Rich in central aid, poor in development

The Economic Survey 2016-17 has reprimanded the states for not ensuring growth matching the central financial assistance. It has put the onus on the states for overall development and fiscal prudence.

The Survey highlighted the relation between redistributive resource transfers (RRTs) and gross state domestic product (GSDP) of the respective states. RRT to a state is defined as gross devolution adjusted for the respective state’s share in aggregate gross domestic product. RRTs could be aids, grants or the Budget devolution to the states.

In a new chapter, The ‘Other Indias’: Two Analytical Narratives (Redistributive and Natural Resources) on States’ Development, the Survey said the highest RRT recipient states have lagged on overall governance. “The higher the RRT, the slower is growth, the smaller is the share of manufacturing in GSDP and lower is its own tax revenues of the states.”

Pointing to the lack of development in the states despite increasing provisions from the Centre as well as the state’s own funds, the Survey said GSDP growth continued to be sluggish. “Larger RRT inflows seem to have no positive impact on per capita GSDP growth, and may negatively impact manufacturing share, fiscal effort and governance.”

Gross devolution per-capita per annum was ~32,000, on an average, for the top 10 recipients, of which ~26,000 (81 per cent) was estimated as RRT in 2015 by the Survey. The top 10 recipients are Sikkim, Arunachal Pradesh, Mizoram, Nagaland, Manipur, Meghalaya, Tripura, Jammu and Kashmir, Himachal Pradesh and Assam (all special category states).

Annual per capita RRT flows for all the northeastern states (except Assam) and Jammu and Kashmir have exceeded the annual per-capita consumption expenditure that defines the allIndia poverty lines, especially the rural.

The Survey argued the need of strict monitoring of funds extended to the states. To encourage better governance and sound institutional practices, the fund transfer mechanism could explicitly include a few monitorable institutional indicators as criteria for receiving transfers. “The question is whether RRT can be tied more strictly to fiscal and governance efforts on the part of the states, as provided for by the Thirteenth Finance Commission. Another idea that merits discussion is providing a universal basic income (UBI) directly to households in states receiving large RRT and reliant on natural resource revenues.”

The Survey blamed migration on the discouraging policies of the domicile states. “Internal migration has been rising over time, nearly doubling in the 2000s relative to the 1990s. This acceleration has taken place in the backdrop of discouraging incentives such as domicile provisions for working in different states, lack of portability of benefits, legal and other entitlements upon relocation.”

Mineral-rich states, the Economic Survey said, states have tended to grow less rapidly than resource-scarce economies. “There is no evidence to suggest that mineral wealth has been a boon. There is a need to improve governance, to ensure a more productive use of the resources, especially in the states that are relying so heavily on them.” It asked resource-rich states to bolster efforts to counter any possible downsides of a “resource curse” that might emerge.

Pointing to the lack of development in the states despite increasing provisions from the Centre as well as the state’s own funds, the Survey said GSDP growth continued to be sluggish