Nitish Kumar writes to Arun Jaitley raising concern over devolution

Patna: Bihar Chief Minister Nitish Kumar has written a letter to Union Finance Minister Arun Jaitley expressing concern over devolution to the state over the next five years as per the 14th Finance Commission recommendations, while thanking the finance minister for his "unwavering commitment" towards development of Bihar.

"I thank you for expressing an unwavering commitment of the Union Government towards overall development of Bihar and betterment of its people. However, a lot is desired in deeds, which, it seems, doesn't appear to be forthcoming," he said in a letter to the Union Finance Minister yesterday.

Claiming that the state government's concern over proposed devolution on the basis of 14th Finance Commission recommendations has not been assuaged, Kumar claimed Bihar had been let down by the horizontal distribution of funds under the divisible pool of resources as per the 14th Finance Commission recommendations.
"Statistically, it appears that the allocation recommended by the 14th Finance Commission out of the divisible pool is 136 per cent more than what was allocated by the 13th Finance Commission, but both the allocation figures are not comparable at all," the Chief Minister said.

The commission itself has noted that since there was little scope to increase the share of aggregate transfers from the Union Government to the states, all that it has done is to suggest compositional shift in the total transfers, Kumar said.

Elaborating, he said that as regards vertical distribution under the 13th Finance Commission, the size of the divisible pool of resources was 32 per cent of the net tax revenue receipts of the Union Government, but there were other transfers through grants-in-aid to the states.

Under the 14th Finance Commission, the divisible pool of resources has undoubtedly become larger at 42 per cent of the net tax revenue receipts of the Centre, but all other transfers to the states would be less which the Commission itself has noted, Kumar said and claimed that component-wise comparison of different transfer figures was bound to be misleading.

"We ought to compare only total transfers to the state. The impact of changes in vertical transfer patterns is similar in all states. But, whether the recommendations are fair to Bihar can be judged only by analysing the horizontal distribution pattern," the chief minister pointed out.

The chief minister wrote in his letter, "A decrease in the share of divisible pool of taxes for Bihar from 10.92 per cent to 9.67 per cent is not insignificant, but a sizable reduction of 1.25 percentage point. The reasons for the decrease in allocation are surprising and untenable."

He said that Bihar would receive less allocation because, first, "Income distance" was given less weightage thus failing to capture Bihar's historical disadvantage; second, "Area" was given higher weightage penalising a densely populated state like Bihar; third, assigning some weight to "Forest area" which is very low in the Gangetic plains, thus a disadvantage to Bihar.

Bihar has also been penalised for financial prudency which was maintained by constraining our non-plan expenditure, the Chief Minister said.

On the contrary, the states with revenue deficits have been rewarded, Kumar said.
"It is startling that 14th Finance Commission has in fact penalized states which have observed financial discipline as standards set by previous Finance Commissions," he noted.

He also regretted that the state government's endeavour to increase the green cover has not been recognised by the Commission as well as loss of lives and property in Bihar due to annual occurrence of floods from rivers originating in Nepal which accrued additional financial burden on the state.

The Chief Minister further lamented that Bihar's backwardness on physical and social infrastructure parameters and the lowest per capita income of the people have been ignored and said that the allocation pattern under the 14th Finance Commission recommendation was not only unfair but also defied equalisation principle.

"I would again like to reiterate that the total central pool available for all states is Rs 39.48 lakh crore, out of which Bihar will be getting Rs 3.83 lakh crore at 9.6 per cent of total resources over the next five years (2015-20) which is a substantial decrease both in percentage terms (10.8 per cent) and percentage points (1.2) in comparison to Rs 1.58 lakh crore that our state had got from a total financial kitty of Rs 14.55 lakh crore under the 13th Finance Commission recommendations," he said.

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The chief minister said that Bihar was being subjected to further disadvantage by pruning the Centrally Sponsored Schemes (CSS) and discontinuation of allocation of funds under the Backward Regions Grant Fund Programme and Integrated Action Plan for left-wing extremism affected districts.

Not only have some of the CSS been pruned, but also the state's share in the remaining schemes was being increased significantly causing an additional financial burden to the state, Kumar said.

He explained that the contention that Bihar was given an additional fund of Rs 12,147 crore in 2015-16 due to increased share in central taxes was a misnomer because it did not account for reduction in central grants in state plan schemes.

Kumar also sought clarity from the Union Finance Minister over the fate of financial dividend which Bihar was getting on the basis of the Bihar Reorganisation Act, 2000.

"Now you have mentioned in your letter that though the Central assistance to BRGF (states) stands subsumed in larger devolution to the States in Financial Year 2015-16, the centre is committed to fund the liability of Special Plan for Bihar in the 12th Five Year Plan in phased manner," he reminded Jaitley with a rider that this commitment from the Centre appeared to be vague and more so due to the experience of truncated release in last financial year.

Against a total sanction of Rs 8,308.68 crore for Power sector under Special Plan in Bihar, only Rs 2,417.62 crore have been released in last two financial years, despite a total pending requisition of Rs 4693.40 crore by the State, he pointed out.

This was adversely impacting the implementation of these schemes and sought assurance for timely release for completion of these schemes, he said.

Reviving his pet political agenda for special status grant to Bihar, Kumar said that the incentive was required to boost private sector investment under prevailing market-centric strategy.

"On the specific question of Special Category States, you may appreciate that in the light of present "market-centric" development strategy, the possibility of attracting private sector investment to a state is limited in the absence of various tax incentives.....A special Category State also gets preferential treatment in federal assistance and tax breaks," he said.

"The central government, therefore, cannot absolve itself from the issue of granting Special Category Status to Bihar by saying that there is no report of 14th Finance Commission, if it genuinely desires to address the backwardness of the state in a holistic manner," Kumar said.

"It is the prerogative of the Union Government to grant Special Category Status to states and Bihar deserves to be so declared rightfully," Kumar pointed out.

On Prime Minister Narendra Modi's package for poll-bound Bihar, the chief minister reiterated that Rs 1.25 lakh crore package was nothing more than repackaging of old schemes to a large extent.

"The detailed analysis reveals that against the much hyped claim of Rs 1.25 lakh crore, at least Rs 1.08 lakh crore, i.E. 87 per cent of the projects is nothing but a mere repackaging of old schemes, appropriation of pre-approved allocations for old schemes and continued contributions to ongoing schemes which were announced by various ministries at different points of time in the past," he said.

"You (Jaitley) have also accepted the same when you discuss the road sector projects in your letter, though you still call them "new". Out of the schemes related to road sector only 11 Schemes are those which were earlier awarded under BOT contracting System," Kumar said in a rejoinder to the Union Finance Minister.

With the BJP charging the state government with failing to acquire land and complete other formalities for the road projects, Kumar said that it was not true that financial closure of those projects could not have been achieved due to land acquisition issues alone as all projects had land acquired for it or it was under advanced process sufficient enough for financial closure.

The chief minister said that the state government cannot be unilaterally blamed for delay in land acquisition as the road projects may have been tendered under Engineering, Procurement and Construction (EPC) mode but still various other contracting components such as appointment of construction supervision consultant/Authority Engineer, finalisation of detailed designs etc. Is awaited.

He pointed out that still the state government was able to construct 8,183 km roads in the last five years at the cost of Rs 19,863 crore facing similar constraints of land acquisition and other practical impediments.

"It would thus not be fair to hold the state responsible for projects sanctioned in the past which have not taken off," Kumar said.

Kumar also charged the Centre with putting additional financial burden on a poor state like Bihar by asking it to provide requisite land and local clearance for execution of various projects.

He cited the example of the construction of greenfield airport in Patna for which Rs 2,000 crore has been allocated under the Prime Minister's package, but maintains silence over the cost of land which could be more than Rs 10,000 crore at current market rate.

"From where will the state bring such a huge amount of money? Thus, such announcements in the package would be non-starters unless the Union government makes adequate provision of required resources," he said.

The implementation of PMGSY in Bihar was encountering a serious funding crisis, Kumar said.

Against total sanctioned projects worth Rs 20,198.85 crore, the total release by the Centre is only Rs 10,551.22 crore. Thus, the state needs an immediate release of Rs 9,650 crore for completing the projects already sanctioned up to 2013-14, he demanded.

The yearly release of funds by the Centre has been insufficient, leading to stoppage of work on sanctioned projects. The state despite its financial constraint, has tried to salvage the situation by putting in its own resources to the tune of Rs 924 crore, he said.

Concluding his letter to Jaitley, the chief minister demanded an affirmative decision on the demand for special category status, additional grants-in-aid and genuine special assistance on an assured basis and in a fair manner which he claimed, will go a long way in development of the state and well-being of its people.