Why Bihar is special
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The centre of gravity of Indian politics had shifted from the east to the west and south by the 1920s. Bombay and the southern group of industrialists became strong supporters of the Congress, and donated a large sum of money to it. Freight-equalisation was the most substantive gift from the party to the industrial conglomerates in south and west India.
T.T. Krishnamachari, an industrialist-turned-politician from Tamil Nadu, introduced freight-equalisation to ensure availability of coal, iron and cement at the same price throughout the country, neutralising the natural advantage of mineral-rich states. This led to the deprivation of eastern states like Bihar, West Bengal and Orissa.
Besides the freight-equalisation policy, the Central government has discriminated against Bihar by giving it the lowest per capita plan and non-plan grants. Recently, the Central government gave Rs 8,000 crore to the Bundelkhand region of Uttar Pradesh. But it did not reimburse Bihar for the expenditures it incurred around the same time due to floods and drought. Under UPA 1's Common Minimum Programme, Bihar was promised a package that was ignored in the six subsequent union budgets. In the Central budget of 2010-11, several states were given substantial state-specific assistance, but Bihar was neglected.
The special category states get significant excise duty concessions, incentivising industry to locate manufacturing units there. About 30 per cent of the Central government's gross budgetary support for plan expenditure also goes to these states. They receive 90 per cent of plan assistance as grants, and only 10 per cent as loans. The 12th Finance Commission had recommended that the Centre give only grants, and leave it to the states to raise loans from the market. For special category states, this formula is restricted to Centrally sponsored schemes and external aid.
According to the 13th Finance Commission Report, special category states will be given additional resource support through higher maintenance expenditure on irrigation, roads and bridges, higher Central funding (90 per cent) as grants to the State Disaster Relief Fund, non-plan revenue deficit grants to make up for assessed deficits, and higher incentives for grid-connected renewable energy. These need-based transfers are as necessary for Bihar as they are for other special states.