Shaibal Gupta. Telegraph picture

Member of the Raghuram Rajan Committee and noted economist Shaibal Gupta has hailed the panel’s report as “historic” and defended his note of dissent.

“It is a first round victory for Bihar. The war remains,” he said, stressing that it was the first time in independent India that a strategy had been made by the Union government to develop backward states. “It opens a window for special status category for Bihar in future as the report indicates that the parameters would be reviewed every five years,” he told reporters.

Gupta, who is seen as Bihar chief minister Nitish Kumar’s nominee in the Raghuram Rajan committee, had put up a nine-page note of dissent, expressing his strong reservations over the committee’s refusal to grant special category status to Bihar and also objecting to the variables used by the committee to arrive at the development index.

When Nitish hailed the recommendations, the opposition, namely the BJP, asked what he was celebrating about when his own man had put in a note of dissent.

“When the freight equalisation policy was framed in 1953, there were protests. It ruined the future of Bihar. I have put the note of dissent so that it may be looked into in future. I have objected to certain variables used, like per capita consumption instead of per capita income. I felt that per capita electricity variable should also have been used,” he said.

Gupta added that the dissent note should be viewed positively. “It’s like you expect Rs 1,000 but are given only Rs 900,” he said. Besides, he said, despite his note of dissent he was not rejecting the report. “It is a positive development. In terms of devolution of funds from the Centre, Bihar would be the maximum gainer. In terms of quantum it would be Uttar Pradesh, because of its population. The recommendations are based on both need and performance of backward states,” he said. He said tax holidays might be considered for investors. When pointed out that the existing mechanism of devolution of funds from the Centre to the state, through finance commission and the planning commission, have not been changed, Gupta said the committee did not have jurisdiction over fund distribution or to suggest the quantum of funds.

“The committee has laid down parameters for fund devolution. Perhaps, the finance commission and other mechanism will adopt the parameters suggested by us,” he said. Asked if the Centre could afford to give funds to the least developed states, which contributed more than half the population, Gupta pointed out that India was giving tax relief of over Rs 5 lakh crore to the corporate world and it was natural for the nation to find funds for developing underdeveloped states to keep its GDP growth falling.

It is important to remember that the new formula suggested by the Rajan panel won’t apply to a very large chunk of the funds that the Centre routinely disburses to the states. That is because the finance commission lays down the principles and the procedures through which the Centre doled out about 54 per cent of the total funds in 2011-12.

The Thirteenth Finance Commission had determined that the share of all the states in “the net proceeds of shareable central taxes shall be 32 per cent in each of the financial years from 2010- 11 to 2014- 15”. Another very large chunk — almost 46 per cent — was decided by the Planning Commission, which has its own formula for apportioning funds to states.

The Rajan committee has only proposed a general method for allocating funds from the Centre to states based both on a state’s development needs as well as its performance.