Case for special package: Does Punjab need fiscal or development fix?

  • Atul Sood
  • Updated: Jun 16, 2015 10:29 IST

The debate on central package to meet the development needs of Punjab, as articulated in the columns of this newspaper in recent days, has to be located in a larger context of changing the Centre-state relations and the macroeconomic policy environment where most states, including Punjab, share the strongly corporatist development agenda of the new governing coalition that came to power in 2014.

Changes in three major areas — regulation of land, labour, and the Centre-state relations — are the core elements through which an institutional environment is being created that favours investors, particularly foreign investors, at the cost of the country’s ordinary working class.


The Centre-state relations over the past few years have gone through major changes. There are multiple channels with overlapping jurisdictions that impact the flow of resources between the Centre and states. In the past few years, the distinction between statutory transfers of the Finance Commission (which uses a fixed criterion for tax devolution to the states) and non-statutory transfers of the Planning Commission for transfers of funds has been blurred. Of late, this distinction is no longer meeting the needs of the powers that be and the Centre-state relations are being altered in other significant ways.


Till 2014, the gross budgetary support to the plan in the Planning Commission had two components — support to the central plan (60%) and support to the state plan 40%, including special central assistance and special plan assistance. Budgetary support to the central plan in turn had two components — central sector schemes and centrally sponsored schemes. The remaining 40% component of the plan — the central assistance to state plan — was in the form of additional central assistance (ACA), special central assistance (SCA), special plan assistance (SPA) and normal central assistance (NCA).

Fiscal transfers made under the normal central assistance were determined by the Gadgil formula and thus were standardised on the basis of a well-defined criterion. How the formula based transfers in the Planning Commission were being given a lesser role can be estimated by the fact that in 2011, the centrally sponsored schemes (CSS) alone exceeded the normal central assistance by 143%.

Not only the CSS, but other schematic transfers also got greater share of resource transfers in the name of helping the “backward states”. The aggregate transfers to the states stood at an average of 44% of the Union government revenues in the first four years of the 13th Finance Commission. Within this, the statutory transfers of the Finance Commission stood at mere 27% and remaining was plan transfer. Normal central assistance, the only formula based transfer was just 3.8% of these plan transfers and a large chunk of plan grants were transfers under the CSS. Within the normal central assistance, the distinction between special plan grants and special central grants helped further reduce the share of completely non-discretionary transfers to just around 50%.


In simple terms, over the years, the central government has been trying to make backdoor entry into state’s fiscal space through the mechanism of fund transfer. This was to ensure that the policy discretion at the level of provinces was curtailed to an extent that the states could not choose their distinct development priorities, if they wanted to. All states got into a race to get a larger share of “discretionary” transfers by owning and adopting the principles that informed the discretion of the Centre and there by homogenise across space the larger framework of economic reform and social policy that the Centre had adopted in the 90s. The control was not only about where money could be used and how the money was to be used but many a times in order to meet its objectives, the Centre bypassed the state exchequer by transferring resources directly to the grassroots organisations, civil society organisations, non-governmental organisations etc.


In the new scheme of things where policy-making is more explicitly for investors, corporates and growth (capital accumulation at large), the earlier strategy on the Centre-state relations is now passé. The 14th Finance Commission recommendations, closure of the Planning Commission and recently stated approach of the new regime on the relationship between the Centre and states sums up the contemporary need of capital accumulation and growth. Most state governments, including Punjab, are party to this new “vision” of resource transfers. Apparently, it may appear that the Centre wants to give greater discretion to the states. Withdrawal of the Planning Commission and 42% share of resources are supposedly steps in this direction. What does this greater discretion actually mean is a different story.

It has already been explicitly suggested by the Centre that if the states amend their laws (on concurrent subjects like land and labour) in line with the Centres’ thinking or go beyond, they are doing good. If they resist, legislation on these subjects as modified by the Centre should be applicable. In fact, with the Centre failing to move on these issues in Parliament, there is now dependence on the so-called forwardlooking states to provide leadership in this. The indirect mechanism of centralising and homogenising development that has been adopted for the past many years is now being converted openly and explicitly into a race to the bottom in the larger interests of capital.


The party in power in Punjab is part of the ruling coalition and fully shares the development perspective of the Centre, including brutally squeezing the landless, small peasantry and the working class to become competitive and investor friendly. It just wants to be treated differently in resource transfers, get greater access to resources without elaborating any change in its development strategy or without specifying what use these resources are going to be put to.

The people of Punjab have a right to know the development strategy. What is the development vision of the state? And to what use additional resources will be put to. To meet the development needs of the state, Punjab needs more resources for quality education, health, sanitation, nutrition etc. The people of Punjab need to be convinced that the fight for better package from the Centre is for the betterment of the average citizen of the state. On the fiscal side, the facts are that total resources given by the Centre to Punjab (tax transfers and grants) have not seen a dip over the past 25 years, but have marginally increased. What has happened is that statutory transfers (tax transfers) have remained the same or gone down a little while the discretionary transfers (grants) have increased. Punjab’s own fiscal management is characterised by a negative bias against social sector spending, its inability to think of fiscal management with an alternative development perspective and within a more genuine federal structure.


By not discussing real issues of resource use and transfers, the governments and the ruling elite of Punjab is able to hide the fact that there is no real difference in the larger development perspective of the central government and the ruling elite of Punjab. In the race to the bottom, the Central government is squeezing all working people, Punjabis and non-Punjabis. The obsessive arguments on how Punjab is being ignored misses how government will continue to fail in providing basic social infrastructure, clean water and sanitation, elementary education and all of other basic services to the vast majority of Punjab’s people, especially the rural and urban working classes, irrespective of whether it gets the a financial package from the Centre.

(The writer is associate professor, Centre for the Study of Regional Development, director North-East India Studies Programme, Jawaharlal Nehru University)

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