New Delhi, January 31, 2017

Cites lower than expected benefit from budgetary allocation to states

The Economic Survey 2016-2017 has suggested providing a portion of the additional budgetary support to natural resource rich states in the form of a Universal Basic Income (UBI) to households within the State Government’s territory.

The additional budgetary support to natural resource rich states such as Sikkim, Arunachal Pradesh, Mizoram and Nagaland is currently disbursed as a Redistributive Resource Transfers (RRT) and is credited to the State Government’s coffers.

The Survey argues that there has been a lower benefit than expected to natural resource rich states that have been receiving budgetary support from the Centre.

The Survey notes that “there is no evidence of a positive relationship between these transfers and various economic outcome, including per capita consumption, GSDP growth, development of manufacturing, own tax revenue effort, and institutional quality.”

This phenomenon has been termed as the “aid curse” and the “natural resources curse” internationally, according to the Survey.

The Survey also goes ahead and notes that “larger RRT flows seem to negatively affect fiscal effort (defined as the share of own tax revenue to GSDP).” This means that state governments that have been getting higher allocation are collecting lower tax revenues.

In the Indian context, the Survey notes there is a ‘RRT curse’ similar to the “natural resources curse” internationally. The Survey notes that the Centre should move towards linking budgetary support to fiscal and governance efforts on the part of the States.

The Survey based its findings on the Redistributive Resource Transfers’ (RRT) from the Centre (between 1994 and 2015) and value of natural resources for Indian States (over 1980 and 2014) and correlates these with several economic outcomes and an index of governance.

[The Hindu Business Line]