Paper: GS – III, Subject: Economy, Topic: Growth and Development, Issue: Speeding Up Development in Lagging States.
Context:
India’s development is uneven, with richer states having more resources and fiscal strength, while poorer states struggle financially and remain caught in a cycle of low revenue, limited spending, and poor development outcomes.
Key Highlights:
The Development Dilemma of Lagging States:
Several Indian states, including Assam, Bihar, Chhattisgarh, Jharkhand, Madhya Pradesh, Rajasthan, and Uttar Pradesh, face a significant development dilemma.
- These states exhibit lower levels of both economic and social development compared to other states. This situation is compounded by the following factors:
- Low Public Spending: The level of public spending in these states is comparatively very low.
- For instance, in 2022-23, per capita government spending of around ₹17,000 per capita in Bihar was only about one-fourth that of Himachal Pradesh at ₹67,700.
- Limited Fiscal Space: These states have limited capacity to increase public spending due to lower revenue receipts from their own sources.
- Bihar, for example, raises less than 30% of its total revenues from its own sources, compared to over 80% in Haryana.
- High Indebtedness: Their capacity to borrow is quite constrained, since their indebtedness (relative to gross state domestic product) is much higher on average at 31% compared to around 25% for better-off states.
- Constrained Borrowing Capacity: Their annual fiscal deficits, at around 3.4% on average, are also higher compared to 2.4% for better-off states and higher than permissible under the states’ fiscal responsibility and budget management laws.
- Existing Expenditure Allocation: These states already allocate a significant portion of their expenditure to capital and social sectors, comparable to or even higher than that of better-off states.
- Their average outlay for capital expenditure, at close to 16% of the total, is already higher than that of balanced development’ states and equal to that of growth-oriented states.
- Similarly, their allocation for social expenditure, at nearly 40% on average, is higher than that of growth oriented or ‘balanced development states and similar to the 41% share in social development’ oriented states.
Two-Tier Performance-Linked Approach for Development Expenditure:
By adopting a two-tier performance-linked approach that emphasizes conditional cash transfers and rationalizes centrally sponsored schemes, these states can improve the efficiency of government spending and achieve better development outcomes.
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