By Ranjit Devraj
NEW DELHI, Sep 4 2000 (IPS)

Already a land of stark disparities, India now faces a new divide between its richer, faster liberalising coastal states and the backward, over-populated ones in the land-locked north.

When the federal government tried to bridge that divide last month by awarding a greater share of federal tax revenues to the latter, the former struck back, forcing changes in a five-yearly distribution of the revenues among the states.

Led by southern Andhra Pradesh state, ruled by a key ally of Prime Minister Atal Bihari Vajpayee, the better off states are complaining that they are being made to pick up the bill for mis-governance and runaway population growth in the poorer states.

“Good performers are being penalised,” said Andhra Pradesh Chief Minister Chandrababu Naidu, who has won international acclaim as India’s most progressive government leader.

Naidu, who is pioneering the use of information technology in governance in India, prevailed on Vajpayee to roll back the financial award that favoured northern Uttar Pradesh and eastern Bihar — India’s two most populous and backward states.

The Andhra Pradesh chief minister did so after talks with other disgruntled state chief ministers, several of them leaders of regional parties in Vajpayee’s coalition.

A large chunk of government revenues are collected by the federal government every year. These are distributed among states in line with the five-yearly suggestions of the Finance Commission, a constitutional body.

The panel was created with an inbuilt bias in favour of the backward states and this was the first time that its award was challenged.

Vocally supporting Naidu were state chief ministers E.K. Nayanar of southern coastal Kerala, Prafulla Kumar Mahanta of north-eastern Assam, Om Prakash Chautala of northern Haryana, Prakash Singh Badal of northern Punjab, M. Karunanidhi of southern coastal Tamil Nadu and Keshubhai Patel of western coastal Gujarat.

The chief ministers demanded that weightage be given to states for their performance in population control, human development and governance, while dividing the federal revenues.

Naidu argued that the Finance Commission’s awards were making things difficult for those states, which were serious about implementing economic liberalisation policies.

India has been criticised by the World Bank for limiting its nine-year-old economic reforms to the federal level. The country has been advised that these cannot be successful, unless implemented fully at the states level.

At the same time, the federal government has been advised to allow greater economic freedom to the states and foster healthy competition among them.

The economic reforms were initiated by the monolithic, centrist Congress party, which ruled India for most of the 53 years since independence from British colonial rule.

However, for the past four years, a series of coalition governments, dependent on powerful regional parties, have ruled in New Delhi and the clamour for greater devolution of financial powers to the states has been louder.

Key economic decisions continue to be in the tight grip of the federal government and a rigid bureaucracy, as potential foreign investors have often discovered.

A study by the U.S.-based Harvard Institute for International Development says policy-making at the sub-national (state) level, is vital if India’s states are to pursue suitable economic growth strategies.

Coastal states, for example, can focus on an export-led growth strategy. Others with a large pool of skilled human resources, like Tamil Nadu and Karnataka, can promote the services sector, suggests the study by noted economist, Jeffrey Sachs.

The Harvard study also brought out glaring disparities in investment among India’s states.

For example, less populous Gujarat, got more than a fifth of private investment proposals in the last decade, while Bihar, with a tenth of India’s population, received just five percent of such offers.

Skewed private investment is one of the reasons for the sharpening disparities among India’s better off and poorer states.

A study by Montek Singh Ahluwalia, a member of India’s Planning Commission, found that western coastal Maharashtra and Gujarat clocked an eight percent growth rate in the 1990s.

During the same period, Bihar, Uttar Pradesh and eastern coastal Orissa, saw declining growth, which was attributed to poor governance.

Political analysts noted that the meeting of the better performing states convened by the Andhra Pradesh chief minister, marked the emergence of a caucus of richer states.

According to analyst Jairam Ramesh, who works for the Congress party, a new caste system of forward states and backward states was being created. The unprecedented questioning of the Finance Commission award, posed a serious threat to the unity of India, he warned.

“States like Andhra Pradesh, Tamil Nadu and Maharasthra…have a duty to come forward and help the weaker states,” he said.

Excerpt: