There are many ways India has been plundered by successive governments.
The first is through fiscal transfers of money from wealth-generating states to the more populous and fiscally profligate states. This takes place in two ways. First, a direct transfer to the states by way of devolution. The second is by creating special schemes into which the Centre pours grants.
There are other ways but these shall be discussed in another article.
Gainers and losers
The per capita contribution of Maharashtra – the largest taxpayer to the government’s exchequer – was Rs 32,600 (see chart). Against this, the per capita return to the state by the centre was a mere Rs 4,800. Look at the other three losers. Gujarat paid out Rs 20,200 per capita but got back Rs 4,900. Karnataka paid out Rs 19,000 per capita but got back Rs 6,300. And Tamil Nadu paid out Rs 18,500 per capita but got back a mere Rs 6,200.
But there were gainer states too. The biggest gainers were Bihar, Uttar Pradesh (UP), Rajasthan, West Bengal, and Madhya Pradesh (MP).
When a state cannot generate the funds it requires, and must depend on government doles, it needs to be helped out. But there ought to be conditions and benchmarks laid down. If the state fails to improve its per capita GSDP, its funding support should either be cut down, or its territories should be given away temporarily, for management to a state that can ensure a higher GSDP. A good example is how NOIDA, which does not come under the state administration of UP even though it is part of that state, generates more per capita income than the whole of UP. Inept states should be compelled to give away their cities, if they cannot improve incomes themselves. That hasn’t been done.
The transfer of funds takes place in another way as well. The Central government retains with itself some funds which it grants to select states for specified projects. And these amounts can be quite large.
Thus, while the share of states in Central taxes went up by 2.9 times from 2012-13, the discretionary grants available with the Central government went up 3.43 times. By 2019-20, these grants had swelled to around Rs.6.5 lakh crore. It is also worthwhile noting that non-plan grants went up by a whopping 5.14 times. Have government employees seen a three-fold increase in their salaries? Effectively, the government enriched itself, even while people did not make that much of money.
The government’s willingness to allow states which cannot manage themselves to be given more money is terrible.
India boasts that its GDP has swelled to become the fifth largest in the world. But watch the per capita GDP growth. India’s ranking is a terrible #145. Even Bangladesh is now nipping at India’s heels, and could boast of a higher per capital GDP than India.
Economists have constantly pointed out that economic growth must be measured in terms of per capita GDP growth, and not GDP alone. It is easier to grow GDP based on borrowed money and grants. But it must make people’s lives improve. Thus, per capita GDP growth is crucial.
Successive governments in India have opted for loan-waivers, doles, and grants. That is extremely unfair to wealth generators, and disastrous for the future of India’s survival as a nation.
The sheer absurdity was brilliantly brought out on YouTube by Praveen Chakravarty in June 2017. He pointed out how while Tamil Nadu farmers were protesting a farm loan waiver that was denied, UP went ahead and announced a waiver of Rs.36,000 crore worth loans for 15 million farmers. The irony was that Tamil Nadu (and three other states, Maharashtra, Gujarat, and Karnataka) paid for UP’s loan waiver.
Chakravarty pointed out how for every rupee of tax that a resident of UP contributed, he got back Rs 200 from the centre (by way of state share and grants). The average person in Bihar got back Rs 400 for every rupee paid as taxes.
Sadly, just four states -- Maharashtra, Gujarat, Tamil Nadu, and Karnataka - contribute to as much as 50 per cent of all government revenues and are actually paying the “economic costs of building this nation”.
States like UP, MP and Bihar have depended more on government doles and grants. There is a grant for building Ayodhya, Mathura, Prayagraj, Varanasi among others -- all taken from Central grants.
Thus, the government has created a situation where it is profitable to call yourself poor.
This parasitic approach, of leeching off wealth generating states is nothing but plunder. The amounts are larger than those ransacked by the infamous Nadir Shah or Mahmud Ghazni.
The author is consulting editor with FPJ