Centripetal Bias in the Federal Fiscal Relations in India Growing Regional Disparity and Feeling of Discrimination—
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Centripetal Bias in the Federal Fiscal Relations in India Growing Regional Disparity and Feeling of Discrimination— A Case Study of West Bengal Polly Datta South Asia Institute Heidelberg University Germany 2004 Acknowledgement In the preparation of this study primary sources such as the Central government’s documents as well as the State government’s have been consulted. In this regard, Economic Review, Statistical Abstract, Budget Speech given by the Finance Minister before the West Bengal Assembly, Budget Statement, Memorandum Submitted to the different Finance Commissions and the Planning Commission by the West Bengal government, report of the meeting of National Development Council, report of the meeting of the Inter-State Council, Report of the State Finance Commissions, Report of the Comptroller of Auditor General, Government of West Bengal, document of West Bengal on Centre-State Financial Relations have been mainly dealt with. In collecting these material, I have been immensely benefited by Planning Commission Library, New Delhi; National Institute of Public Finance and Policy, New Delhi; Office of the Comptroller of Auditor General of India and SAPRU House Library in New Delhi. In West Bengal, I have mainly consulted, Centre for Studies in Social Sciences, Calcutta; State Institute for Rural Development, Kalyani, Nadia; Institute of Social Science, Calcutta; Commercial Library, Calcutta; West Bengal Legislative Assembly House Library; Bureau of Applied Economics and Statistics, government of West Bengal; National Library and Muzaffar Ahmad Pathagar, (CPI (M) Party Library) . Besides, I also consulted Tübingen Universität Bibliothek; India Office Library; Max-Planck Institute Library, Heidelberg; South Asia Institute Library; Heidelberg, Oxford University Library, Oxford; SOAS Library and London School of Economics Library I have been also been benefited from my discussion with, B.K. Kundu, Secretary of State Planning Board, K.K Sen, Deputy Secratry Department of Planning, S, Barma, Principle Secretary, Prabir Biswas, Secretary to Principle Accountant General. Ujjal Nandi, Senior Audit Officer, Nripen Bannerjee, Member of the State Finance Commission and different party members of the CPI (M) I have been also immensely benefited by wise and insightful discussion with my guide Prof. Dietmer Rothermund from time to time during my research period. I entirely bear the shortcomings, if any, of this work. Polly Datta Contents Table of Contents.................................................................................. 1 Introduction............................................................................................ 9 1. Bengal Provincial Finance and Feeling of Discrimination During the Pre-Independence Period..................................................................... 19 1.1 Adverse impact on Bengal’s finance during the early phase of the Company’s Days ................................................................................ 21 1.2 Permanent Settlement as means of regular extraction of wealth from Bengal and consequent effect on Bengal’s finance........................... 27 1.3 Historical background of Imperial-Provincial financial relations during the pre-Meston era i.e., from 1793 to 1921.............................................. 52 1.4 Bengal Provincial finance under Meston Settlement and compared to other Provinces................................................................................... 61 1.5 Bengal Provincial finance in the depression of 1930s......................... 74 1.6 Bengal Provincial finance from Government of India Act, 1935 till Independence...................................................................................... 77 2. Political Economy of the Federalising Process in West Bengal and the Feeling of Discrimination During the Pre and Post-Left Front Era......... 87 2.1 Politics of discrimination during the pre-Left Front era...................... 91 2.2 West Bengal and the Centre during the Left Front era...................... 106 2.3 Politics of discrimination.................................................................... 130 3. History of Economic and Industrial Development of West Bengal Including Eastern Region.......................................................................... 139 3.1 Why is eastern region as a whole lagging behind?................................ 139 3.2 Structural and historical constraints placed on West Bengal’s economy.. 142 4. Distributive Injustice to West Bengal by the Centre or Just a Case of Regional Imbalance?............................................................................. 170 4.1 Transfers made by the Finance Commissions.................................. 172 4.2 Transfers made by the Planning Commissions................................. 176 4.3 Transfer of resources through Centrally controlled financial institutions and commercial scheduled banks..................................................... 182 4.4 New Economic Policy and subsequent change in fiscal federal relations and regional imbalance..................................................................... 185 5. Parameters of Discrimination as Alleged by the Left Front Government.......................................................................................... 200 5.1 Industrial licensing policy.................................................................. 201 5.2 Low credit-deposit ratio and low level of financial support by Financial institutions........................................................................ 211 5.3 Low level of Plan outlay: result of regressive structure of the Indian federation or due to fiscal imprudence practised by the State?...... 218 6. Economic Policy Reform and Budgetary Performance of West Bengal During the 1990s Compared to Other States and the Previous Decade................................................................................................... 243 6.1 Trends in State governments finances over the last two decades (1980- 81 and 1999-00)............................................................................... 244 6.2 Comparative budgetary position of West Bengal during 1990s........ 256 6.3 Trends of the State’s own tax revenue during the last two decades.. 265 6.4 Existing sales tax structure of West Bengal and its evolution............ 274 6.5 Declining trend of the States’ non-tax revenue................................. 283 7. Federalism From Below-A Case Study of West Bengal................. 294 7.1 Centre-led, Centrally controlled decentralisation during 1990’s......... 299 7.2 West Bengal A Case Study................................................................ 308 7.3 Resource raising potential of the PRIs of West Bengal...................... 327 8. Conclusion.................................................................................... 338 9. Bibliography................................................................................. 343 Table of Contents Annual Average Revenue and Expenditure of Different Provinces in British India Between 1760-64 and 1778-79 ............................................................................ 24 Annual Average Surplus (+) and Deficits (-) of Different Provinces Between 1760-64 and 1814-29.................................................................................. 25 Amount Received From Bengal to other Presidencies Between 1771-72 and 1780-81.................................................................................................. 26 Gross land Revenue in the Principal Provinces/Presidencies Between 1856-57 & 1870- 71............................................................................................................................32 Land Revenue Per Head of Population Between 19881 and 1920............................ 33 Progress of Public Works in British India Between 1842-43 and 1882-83.............. 36 Return on Irrigation Investment of Different Provinces in 1879-80........................ 39 Expansion of Irrigation in Bengal Compared to Other Provinces in 1880................. 39 Return on Irrigation in Different Provinces in 1900-01................................................ 40 Percentage Distribution of Investment in Irrigation Between 1898 & 1914 in Different Provinces........................................................................................................................ 40 Public Works (Ordinary) Expenditure in the Principal Provinces as Percentage of the Total in India Between 1864-66 and 1871-72.............................................................. 43 Percentage Distribution of Investment in Railways During the end of 1897-98 & During the Between 1898 and 1914............................................................................... 45 Local Taxation in Different Provinces in 1872-73........................................................ 48 Local Taxation of Different Provinces other than Municipal Taxation in 1872-73..... 49 Local Taxation in Different Provinces in 1888-89............................... ......................... 51 Per Head Local Taxation and Land Revenue in Different Provinces in 1915-16........ 51 Resumption of Imperial Government from Provincial Resources in 1887................ 55 Resumption by the Government of India from Provincial Resources in 1892.......... 56 Unequal Impact of Resumption Made by Imperial Government As Presented by Mr. Gokhale Before the Welby Commission, 1896............................................................