ADVOCACY PAPER THIRTEENTH FINANCE COMMISSION (2010-2015) Memoranda by the Government of Bihar and Political Parties & Professional Organisations & Brief Recommendations for the State Centre for Economic Policy and Public Finance Asian Development Research Institute 0 Publisher Centre for Economic Policy and Public Finance Asian Development Research Institute BSIDC Colony, Off Boring-Patliputra Road Patna – 800 013 (BIHAR) Phone : 0612-2265649 Fax : 0612-2267102 E-mail : [email protected] Website : www.adriindia.org Printer The Offsetters (India) Private Limited Chhajjubagh, Patna-800001 Disclaimer Usual disclaimers apply 1 CONTENTS Page No. PART A Brief Recommendations by the 4-8 Thirteenth Finance Commission PART B Bihar Government Memorandum 12-124 to the Thirteenth Finance Commission PART C Political Parties & Professional 130-207 Organisations’ Memorandum to the Thirteenth Finance Commission 2 PART A Brief Recommendations by the Thirteenth Finance Commission 3 Background In the existing federal financial arrangements of India, the financial resources are transferred from the centre to the states through a number of mechanisms. However, among them, it is the Finance Commission awards that are most important, both because of its size and the mandatory character of these recommendations. When the Thirteenth Finance Commission was formed in 2008, the Centre for Economic Policy and Public Finance (CEPPF) had already been established by the Government of Bihar in the Asian Development Research Institute (ADRI). As such, the CEPPF was entrusted with the responsibility of preparing the memorandum of the state government, to be presented to the Commission. For the three earlier Commissions, ADRI had presented a memorandum to the Tenth and Eleventh Finance Commission on its own behalf and, for the Twelfth Finance Commission, it had prepared and submitted a memorandum on behalf of all the political parties and professional organisations in the state. This practice of submitting a joint memorandum, prepared by ADRI, was also continued for the Thirteenth Finance Commission. As before, this joint memorandum was appreciated by the Commission and it had added weightage to the memorandum by the state government, resulting in higher devolutions to Bihar. The present document first records below in brief the recommendations of the Thirteenth Finance Commission for Bihar. In addition, it also contains two memorandums, the first prepared by the CEPPF for the state government, and the second prepared by ADRI on behalf of the political parties and professional organisations. Recommendations The FC13 retained the population criteria with unchanged weightage of 25 percent adopted by FC12. In place of income distance, FC13 had introduced a new criterion of fiscal capacity distance (47.5 percent) and fiscal discipline had a higher weightage of 17.5 percent (7.5 percent in FC12). For area, the weightage had remained unchanged at 10 percent. Based on the criteria and weights, Bihar’s inter-se share among the states is 10.917 percent and in service tax 11.089 percent. The average devolution to Bihar works out to 19.44 percent of GSDP which is higher by 5.87 percentage points compared to FC12. Considering a number of factors including the demands from states including Bihar, the important departures made by the FC13 in the scheme of tax devolution and grants from the FC12 are : 4 Share of states in the net proceed of the shareable central taxes was raised from 30.5 percent by FC12 to 32.0 percent by the FC13. The indicative limit of revenue transfers to states was raised from 38.0 percent by the FC12 to 39.5 percent by the FC13. Application of norms in assessment of non-plan revenue gap for determining amounts of grants-in-aid to states left with deficits in non-plan revenue account after tax devolution. Introduction of equalisation principle to provide grants for education and health to relatively more deficient states in their revenue capacity provided they maintain their normal expenditure on these heads at current level. Providing grants for maintenance of roads and bridges, heritage conservation, state specific needs, local bodies and calamity relief on a larger scale. Enlarging grants to local bodies substantially and modifying formula for their allocation among states to take account of deprivation in providing drinking water and sanitation. Debt Consolidation and Relief Facility Loans to states from National Small Savings Fund contracted till 2006-07 and outstanding amount at the end of 2009-10 was to be reset at a rate of interest of 9 percent subject to conditions prescribed. A window borrowing from central government is to be made available for fiscally weak states unable to raise loans from market. Benefit of interest relief on NSSF and write-off was to be made available to states only if they bring about necessary amendments/enactment of FRBM. Local Bodies Against a total sum of Rs. 25,000 crore as recommended by FC12 as grant-in-aid to augment the consolidated fund of states to supplement the resources of municipalities and Panchayats, the FC13 recommended an aggregate grant of Rs. 87,519 crore for local bodies. This amounts to 1.93 percent of the total transfer from the divisible pool. For inter-se allocation of grants to states, the FC13 enhanced the weight of population criterion to 50 percent, as against 40 percent by FC12. The distance from highest per capita sectoral income criterion was given a weight of 20 percent for ULBs and 10 percent for PRIs. Area and index of 5 devolution was given a weight of 10 percent and 15 percent, respectively. Based on these criteria the local bodies of Bihar were allotted a sum of Rs. 5682.1 crore. Calamity Relief Fund (CRF) The FC13 enhanced the total size of CRF to Rs. 26,373.00 crore from Rs. 21,333.33 crore as recommended by the FC12. Though FC13 recommended higher CRF for each state, it retained the shares of centre and states at 75 percent and 25 percent respectively as adopted by FC12 (Bihar had suggested the state’s contribution to be nil). Grants-in-aid (i) The FC13 recommended a total grant of Rs. 24,068 crore grant for elementary education for all states and, for Bihar, it was Rs. 4018 crore as against Rs. 2683.76 crore by the FC12. (ii) The recommended environment related total grants is Rs. 10,000 crore with Rs. 5000 crore each for forests and water sector management. For Bihar, the recommended amounts are, Rs. 38.4 crore (forest) and Rs. 304 crore (water management), making a total of Rs. 342.4 crore for five years award period (2010-15). (iii) A grant of Rs. 19,930 crore over the award period is recommended for maintenance of roads and bridges in all states and, for Bihar, the recommended amount is Rs. 464 crore as against Rs. 309.36 crore by FC12. (iv) For improvement in justice delivery, FC13 recommended a total of Rs. 5000 crore; for Bihar, the amount is 385 crore. (v) Total amount recommended as incentive for issuing UIDs for the five years (2010-15) is Rs. 2989 crore; for Bihar, it is Rs. 369 crore. (vi) The District Innovation Fund for increasing the efficiency of capital assets already created, a fund of Rs. 1 crore is made available to every district in the country and Bihar gets Rs. 38 crore. (vii) For improvement in statistical system at the state and district level, the FC13 recommended a sum of Rs. 616 crore with Rs. 1 crore for each district and Bihar gets Rs. 38 crore. (viii) For setting up a pensioners’ data base, FC13 recommend a total sum of Rs. 225, of which Bihar gets Rs. 10 crore. 6 State specific Needs A total grant of Rs. 27,945 crore is recommended to all state for state specific needs, of which Bihar gets Rs. 1845.0 crore for a five years period. The details are as under : Sl. Amount (Rs. Item No. crore) 1. Construction of Panchayat Sarkar Bhavan 1000 2. Public Training Academy 206 3. Police Housing 106 4. Nalanda Heritage Zone 50 5. Conservation of Archaeological Sites 50 6. Establishment of new ITIs 100 7. Interlinking of Rivers for Flood prevention 333 Total 1845 Thus, Bihar gets a total of 1,72,944.10 crore for a period of five years (2010-15). The break-up of this total sum is presented below. Sl. Amount (Rs. Items No. crore) 1. Share in Central Taxes and Duties 1,58,341.20 2. Grants-in-Aid : 14,602.80 (i) Elementary Education 4,018.00 (ii) Local Bodies 5,682.10 (iii) Calamity Relief Fund (CRF) 1,411.20 (iv) For Improving Outcomes (a) Improvement in Justice Delivery 385.00 (b) Incentive for Issuing UIDs 369.00 (c) District Innovation Fund 38.00 (d) Improving Statistical System at State/Districts 38.00 (e) Employee and Pension Data Base 10.00 (v) Environment Related Grants (a) Forests 38.40 (b) Water Sector Management 304.00 (vi) Maintenance of Roads and Bridges 464.00 (vii) State specific Needs 1845.00 3. Total Transfers Items 1+2 1,72,944.10 Note : An amount of Rs. 60,000 crore was given to states as grants-in-aid which comprised of (a) GST compensation grants (Rs. 50,000 crore), (b) Grants for reduction in IMR (Rs. 5000 crore), (c) Renewable energy grant (Rs. 5000 crore). The state-wise allocation of these grants are not given, and hence not included. 7 Statement of Recommended and actual transfers from Eighth, Ninth, Tenth, Eleventh, Twelfth and Thirteenth Finance Commission to Bihar Recommended Actual Transfers Devolution Devolution Grants-in- Grants-in- of Central Total of Central Total Total aid aid Tax Tax Eighth Finance Commission 1984 - 89 4005.82 214.65 4220.47 4780.12 214.65 4994.77 774.30 Ninth Finance Commission (1st Report)