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Partnership of unequals

Asim Dasgupta, finance minister of West Bengal in the Left Front government, from 1987 to 2011 says centrally sponsored schemes on state subjects should be transferred to states along with the funds.
Asim Dasgupta | Print Edition: July 20, 2014

Asim Dasgupta
Asim Dasgupta
As laid down by the Constitution, all important items of development expenditure, as well as administrative expenditure, are the responsibility of state governments. In the development agenda of a state like West Bengal, for instance, there are about 1,800 km of national highways (which are under the National Highway Authority of India, a central body), some18,000 km of roads built and looked after by the state public works department and about 100,000 km constructed and maintained by various local bodies. In terms of total expenditure on roads in the state, 90 per cent is by the state government.


Education is in the concurrent list, but once again more than 80 per cent of the total expenditure on education in the state is incurred by the state government. In health again, about 75 per cent of the costs are shouldered by state governments. In administration, the state has employees serving right down to the block and panchayat level. Central government employees exist only up to the district level and that too only in the higher positions. Law and order is a state subject as well and the state shoulders most of the costs.

But when it comes to tax revenues, about two thirds of the total tax receipts of the country goes to the central government and only one third is shared by all the states.

So there is clearly an imbalance between expenditure and revenue. There is a provision in the Constitution for devolution of a portion of Central taxes raised in a state to that state, but the proportion being given is not enough. After raising the matter repeatedly, the overall ratio has gone up from 30.5 per cent to 32 per cent, but the Left parties' demand has always been that it should be 50 per cent. So that demand very much remains alive.

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For some years now there has been a proliferation of centrally sponsored schemes relating to state subjects. There is no clarity in the Constitution about these schemes. If they are administered entirely by the Centre, do they constitute an encroachment on state powers? At present the guidelines are all centrally imposed and funds are largely disbursed only by the Centre. States have to willy-nilly follow these guidelines. We, the Left, maintain that if there is a centrally sponsored scheme relating to a state subject, the administration of the scheme should be transferred to the state(s) concerned, along with the funds for the project. The Centre can still be involved - there could a joint Centre-state review of the implementation in the third quarter of each financial year and states could be given incentives for improved performance. But the overall control should be with the state.

Fortunately, there has been some movement in this direction. The Rashtriya Krishi Vikas Yojna, launched in 2007, incorporates some of these suggestions. Funds for this scheme, meant to boost agricultural production, are being transferred to states. Again, the formation of the Inter-State Council - in 1990, when the Left supported V.P. Singh government was in power - has made a difference, with a number of its recommendations being accepted. But one does not seem to hear much about the Council lately. Are meetings being regularly held any more?

It is true that many of the states have a heavy debt burden. But why does this debt burden arise? The most important component of this burden is the money that comes from small saving schemes. Some 80 per cent of the net small savings of a state comes back to the state in the form of a loan from the National Small Savings Fund at 12 per cent interest. So the more the people of a state invest in small savings - and West Bengal holds first position - the bigger its loan becomes. Some relief has been provided in this respect at the behest of the 13th Finance Commission - states pay a lower rate of interest if they meet the requirements of the Fiscal Responsibility and Budget Management Act - but it is not enough. We believe states should be given the option of whether they want this loan or not.

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Then there is central plan assistance to states, of which 70 per cent is a loan and only the remaining, a grant. What sort of 'assistance' is this? If the state government gave similar assistance to local bodies, they would all go sick. Lately, only the grant portion is being given, the loan withdrawn altogether. There is also the so called assistance given by the National Bank for Agriculture and Rural Development to states - this is entirely in the form of loan, which must be repaid. Often funds transferred by the Centre to states reach too late to be used up in a particular financial year and are kept in deposit accounts - these too are shown as liabilities of the state.

There are many other issues, including some that are specific to particular states. West Bengal, for instance, is being denied coal royalty at the latest rate. We still get royalty at the rate fixed in 1991, which has since been revised more than once. There are two kinds of earnings for the state government from coal - coal cess and coal royalty. We are told that because West Bengal gets coal cess, which many other states do not, it will not get royalty at the latest rate. Where is the logic in this?

These are some of the pain points in Centre-state financial relations which the forthcoming budget could address.

Asim Dasgupta was finance minister of West Bengal in the Left Front government, from 1987 to 2011.

(as told to Debashish Mukerji)

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