Skip to main content

Gujarat model for new budget? "Incentivize" high growth states for economic growth: Official document

New finance minister Arun Jaitley: Tall order?
By  Rajiv Shah
Will the Government of India’s new policy framework for budget adopt the “model” worked out by the Gujarat government under Narendra Modi, in which the richer states should walk away with a much higher cake of the Central funds as compared to the poorer states? It would seem so, if one takes a closer look at one of the most crucial documents prepared by the Gujarat government late last year, but not made public because of reasons best known to the officialdom. Submitted to the Centre-appointed 14th Finance Commission, the document crucially calls for “an urgent need to include” a formula in devolution of Central funds which would “incentivize economic efficiency.”
Handed over to the Centre in October 2013 and still under consideration, the Gujarat government specifically says in the document, “It is important to incentivize the states with high tax contribution” , and subsequently national growth. This is particularly important because, according to it, “post-1991, in the absence of central intervention, the industries can set up their unit at any place at their will, depending on the investment environment prevailing in that state. In changed environment, states have to position themselves as an attractive investment destination.” Gujarat government officials who prepared the document under Modi's direction are keeping fingers crossed: Will new finance minister Arun Jaitley oblige?
The memorandum elaborates, “Several industries were set up in Gujarat in the last two decades. They had many locations to choose from.” They, however, came to Gujarat “not by chance or accident but were attracted to the state due to several definite positive factors and conscious policies of the state government which included tax breaks, good law and order situations, good infrastructure, better electricity, less bureaucratic hurdles, better industrial relations etc.” All this may have proved beneficial to the state, but it meant a huge cost to the “state's environment.”
Indicating that under the new economic policy “efficient” states individually have contributed towards the size of the Indian economy, even as getting less amount from the Central pool, the document stresses how their resources and infrastructure have been put under stress, adding, it is important to “reward the effort of states for their contribution in the economy.” Hence, it says, states with a higher contribution to the national gross domestic product (GDP) should be “awarded... It becomes important to support the efforts of states for achieving efficient utilisation of resources that ultimately leads to growth”, adding, Central devolutions should “benefit states based on the contributions they make” to the nation economy.
Pointing out that such an approach would only “further channelize to increasing the size of the national economy”, the document recommends, “The performance of states in gross capital formation could be utilised to gauge state's contribution to the national economic growth.” As part of this criterion, according to the document, one should also see how well does a particular state follow “fiscal discipline” – “It is important to incentivize states on increasing capital expenditure. We would suggest to consider inclusion of the parameter that captures the improvement in the ratio of capital expenditure of a states to its total revenue expenditure to average ratio across all the states.”
Yet another factor relating to to the “efficiency criterion”, according to the document, should be migrations in a particular state for “social and economic opportunities, both short term and long term.” The document says, “Migration load induces additional pressure on the cost of provisioning of public services to the in-migration.” Pointing out that the states which suffer the most as a result of migration are Maharashtra, Delhi and Gujarat, it points out, states like Bihar, Uttar Pradesh, and Tamil Nadu have negative net migration rate.
“We are of the view that migrations, both short term and long term, have a significant fiscal impact on the state government to provide services. Cost of public provisioning of services to additional population/ migrants is significant especially in urban conglomerates of Mumbai, Delhi and industrially developed areas of Gujarat like Ahmedabad, Surat etc, where urban infrastructure has to be created and maintained”, the document says, adding, contribution towards the in-migration parameter must “take into account migration rate and migration growth rate.” In the absence of reliable data on migration, “a proxy parameter can be used”, of “the growth in urban population in each state, since the cost of providing services and infrastructure in urban areas is easily relatable to the migrant population.”
So, which states should stand to gain? Those that contribute a higher proportion to the gross domestic product (GDP) of India in proportion to its population, the document seeks to suggest by offering a table. The “net gainers” by giving emphasis on the efficiency parameter would be states like Gujarat, Maharashtra, Andhra Pradesh and Haryana, which have contributed a much higher proportion to the national economy than proportion of population. And, Gujarat should gain the most, as its population is 5.6 per cent, while its contribution to the national economy is 7.32 per cent, suggesting a much higher per capita contribution than any other state of India.
Giving a list of 15 major states, the document goes to suggest which other the states that should gain – Maharashtra (13.1 per cent population, 14.95 per cent contribution to GDP), Andhra Pradesh (7.5 per cent vs 7.84 per cent), Chhattisgarh (1.3 per cent vs 1.67 per cent), Haryana (3 per cent vs 3.68 per cent), Odisha (2.3 per cent vs 2.58 per cent), and Rajasthan (4.3 per cent vs 4.99 per cent), and Tamil Nadu (7.6 per cent vs 7.65 per cent). And the states that should be losers are Bihar (3 per cent vs 2.95 per cent), Karnataka (5.6 per cent vs 5.55 per cent), Kerala (3.8 per cent vs 3.77 per cent), Madhya Pradesh (4.1 per cent vs 3.71 per cent), Punjab (3.9 per cent vs 3.2 per cent), UP (9.4 per cent vs 8.19 per cent), and West Bengal (7.5 per cent vs 6,52 per cent).
---
This article was first published HERE

Comments

TRENDING

Avoidable Narmada floods: Modi birthday fete caused long wait for release of dam waters

Counterview Desk  Top advocacy group, South Asia Network on Dams, Rivers and People (SANDRP), has accused the Sardar Sarovar dam operators for once again acting in an "unaccountable" manner, bringing "avoidable floods in downstream Gujarat."  In a detailed analysis, SANDRP has said that the water level at the Golden Bridge in Bharuch approached the highest flood level on September 17, 2023, but these "could have been significantly lower and much less disastrous" both for the upstream and downstream areas of the dam, if the authorities had taken action earlier based on available actionable information.

Biden urged to warn Modi: US can declare India as worst religious freedom offender

By Our Representative  During a Congressional Briefing held on Capitol Hill, Washington DC, Nadine Maenza, former Chair of the United States Commission on International Religious Freedom (USCIRF), has wondered why the Biden administration should raise issues of mass anti-minority mob violence  -- particularly in Haryana and Manipur -- with Modi. Modi should be told that if such violence continues, the US will be “compelled by law” to designate India as one of the world’s worst offenders of religious freedom, she urged.

From 'Naatu-Naatu' to 'Nipah-Nipah': Dancing to the tune of western pipers?

By Dr Amitav Banerjee, MD*  Some critics have commented that the ecstatic response of most Indians to the Oscar for the racy Indian song, “Naatu-Naatu” from the film, “RRR” reeks of sheer racism, insulting visuals and a colonial hangover. It was perhaps these ingredients that impressed the Academy of Motion Picture Arts and Sciences, one critic says.

Why iconic Urdu book stall, publishing house Maktaba Jamia died an 'unnatural' death

By Firoz Bakht Ahmed*  We have all grown through the fragrant flavours and flairs of our childhood, one of them being our childhood mother-tongue historic magazines like, “Thakurmar Jhuli” (Bengali), “Khilauna”, Payam-e-Taleem" (Urdu), “Hans” (Marathi), “Parag” (Hindi), “Chitralekha” (Gujarati), “Chandamama” (Telugu), etc. I “drank” Urdu while suckling his mother and learnt the language not from any madrasa, school or college but from these publications only — my treasure trove!

A Hindu alternative to Valentine's Day? 'Shiv-Parvati was first love marriage in Universe'

By Rajiv Shah*   The other day, I was searching on Google a quote on Maha Shivratri which I wanted to send to someone, a confirmed Shiv Bhakt, quite close to me -- with an underlying message to act positively instead of being negative. On top of the search, I chanced upon an article in, imagine!, a Nashik Corporation site which offered me something very unusual. 

Asset managers hold '2.8 times more equity' in fossil fuel cos than in green investments

By Deepanwita Gita Niyogi*  The world’s largest asset managers are far off track to meet the  2050 net zero commitments , a new study  released by InfluenceMap , a London-based think tank working on climate change and sustainability, says. Released on August 1, the Asset Managers and Climate Change 2023 report by FinanceMap, a work stream of InfluenceMap, finds that the world’s largest asset managers have not improved on their climate performance in the past two years.

Evading primary responsibility, ONGC decides to invest Rs 15,000 crore in sick subsidiary

By NS Venkataraman*  It is reported that Oil and Natural Gas Corporation (ONGC) will infuse about Rs 15,000 crore in ONGC Petro-additions Ltd (OPaL) as part of a financial restructuring exercise. ONGC currently holds 49.36 per cent stake in (OPaL), which operates a mega petrochemical plant at Dahej in Gujarat. GAIL (India) Ltd has 49.21 per cent interest and Gujarat State Petrochemical Corporation (GSPC) has the remaining 1.43 per cent.

Why Bangladesh is achieving 'new heights' amidst economic collapse of Pakistan

By Sufian Siddique*  Pakistan's economy is on the brink of bankruptcy like Sri Lanka's. Pakistan's foreign exchange reserves have fallen below $3 billion. They have asked the IMF for a 'bailout loan' a long time ago, but the IMF is trying to impose strict conditions that Pakistan's current ruling coalition has no capacity to meet. Even China and Saudi Arabia, Pakistan's long-standing loyal friends, are now reluctant to shoulder Pakistan's burden.

Sales, profits of Indian firms 'deteriorate', yet no significant increase in cost pressures

By Our Representative  The Indian Institute of Management-Ahmedabad's (IIM-A's) latest Business Inflation Expectations Survey (BIES), a monthly exercise, has said that while cost perceptions data does not indicate significant increase of cost pressures, sales and profits of the Indian firms have deteriorated.

Buddhist shrines were 'massively destroyed' by Brahmanical rulers: Historian DN Jha

Nalanda mahavihara By Our Representative Prominent historian DN Jha, an expert in India's ancient and medieval past, in his new book , "Against the Grain: Notes on Identity, Intolerance and History", in a sharp critique of "Hindutva ideologues", who look at the ancient period of Indian history as "a golden age marked by social harmony, devoid of any religious violence", has said, "Demolition and desecration of rival religious establishments, and the appropriation of their idols, was not uncommon in India before the advent of Islam".