Modi’s Bihar package was hardly a lure, but state never lost out on central largesse

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New Delhi | Published: November 10, 2015 1:18:49 AM

In the run-up to the Bihar assembly polls, PM Narendra Modi unveiled a Rs 1.65 lakh crore “development package” for the state, which was in fact only an affirmation...

In the run-up to the Bihar assembly polls, PM Narendra Modi unveiled a Rs 1.65 lakh crore “development package” for the state, which was in fact only an affirmation that the current pace of central-sector investments in the state would continue. Not for nothing that the package hasn’t  caught the fancy of the electorate.

Bihar has long clamoured for special-category state eying incremental financial support from the Centre, but the state hasn’t got a bad deal even without such succour. Being the second largest recipient of central funds among Indian states after the much larger Uttar Pradesh, Bihar’s own revenue from various sources was just 39% of the funds transferred to it by the Centre in FY15. This was even as, on an average, about 54% of the resources with states in the year were raised by themselves and the Centre’s contribution was 46%.

The state’s own tax revenue was 61% of states’ share in central taxes in the year. Compare that with Gujarat, in the case of which “own tax receipts” were 5.4 times the tax devolution from the Centre or even Madhya Pradesh, which was listed by the Raghuram Rajan committee as the third most backward state after Odisha and Bihar, which raised tax revenues 1.4 times.


The 14th Finance Commission (FFC) has increased the share of states in central tax revenues from 32% to 42%. While Bihar, like other states, would also benefit from this in terms of a jump in untied transfers, its relative share among states in tax transfers from the Centre would  fall to 9.6% in the five-year FFC period (FY16-FY20) from 10.9% in the previous five years. This was mainly due to lowering of weight assigned to population (25% to 17.5%) and fiscal discipline (17.5% to nil) in the FFC criteria. Nevertheless, Bihar would continue to be the second largest recipient of central funds in the FFC period as well.

Bihar CM Nitish Kumar, who has romped home in the polls, had slammed the reduction in Bihar’s share in central taxes and also the withdrawal of backward region grant from the Centre. Responding to Kumar’s complaint, finance minister Arun Jaitley had said that total transfers to the state in the FFC period would be Rs 4.08 lakh crore compared with Rs 1.73 lakh crore between FY11-FY15, an increase of 136%.

In fact, the special category states are not getting better treatment than Bihar or similar states that get major shares of central funds. Together, the 11 special category states receive less than a fifth of all central transfers while Bihar’s share was roughly half of the combined receipts of all special category states.

Bihar is catching up with the rest of the country. As per the Central Statistics Office, the growth rate of the state’s GSDP at constant (2004-05) prices was 9.12% in FY14 and 9.45% in FY15 compared to national GDP growth of 4.74% (2004-05 prices) in FY14 and 7.3% (2011-12 prices) in FY15.

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