July 05, 2020
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Splitting Headache

The new states aren’t complaining. But for their parents, it will be a painful parting of ways.

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Splitting Headache

Are we slowly and steadily headed towards a future known as the United States of India? If government, aka the Planning Commission, has to be believed, yes. Says a senior advisor in Yojana Bhavan: "More states will mean efficient administration, better performance and equitable development. In 15-20 years, we could end up with 30-35 states with no state having a population of more than 40 million."


  • All mineral resources, their royalties and major industries go to Jharkhand
  • Unequal distribution means Bihar has less land but more people
  • Lion’s share of the debt goes to Bihar
  • Parent state left with just water resources
  • Lantern age awaits Bihar as power units fall in the new state

    Any state which crosses this population mark, say experts, should be split for economic viability. Historical evidence shows that states which have emerged after such division, like Andhra, Punjab and Haryana, have grown better after the split. So, on July 25, when three of India’s biggest and most populous states were carved into two - Bihar into north Bihar and Jharkhand, Madhya Pradesh into MP and Chhattisgarh, and Uttar Pradesh into UP and Uttaranchal, was that another significant step towards a more efficient federation of India?


  • UP will lose at least Rs 1,900 cr in tourism revenue
  • UP also has to support the new state for at least a year
  • Three major riverheads of Ganga, Yamuna and Sharada fall in the new state.
  • UP can’t tap these waters for hydel power
  • Poor infrastructure will hurt the new state financially

    Right now, politicians are divided over smaller states - most crib that it will strengthen the demand for several ethnic carve-outs - Harit Pradesh from UP, Bundelkhand from UP and MP, Bodoland from Assam, Gorkhaland or North Bengal from West Bengal, Vindhyachal from MP, Vidarbha from Maharashtra, Telengana from Andhra and Kodagu from Karnataka. Demands that will be met with smiles from bjp whose declared policy has been to encourage the creation of smaller states.


  • Revenues from forest produce will go to the new state
  • MP will be power deficient and dependent on Chhattisgarh
  • The loss of mining revenues will pinch MP
  • MP loses bidi industry
  • The parent may have to impose octroi to shore up its sagging revenues

    But in the states, disappointment is palpable. For one, state plan support still runs on the population criterion, so every state will lose significantly in Central grants, even as initial expenditure on the new states will shoot up for creating new infrastructure and new governance centres. Bihar and MP in particular are set to be impoverished in terms of natural resources, at least in the short term. Even UP will lose - Uttaranchal may be only 10 per cent of its area and home to only 8-9 million out of its whopping 160 million, but is also the golden goose in terms of tourism and forest produce.

    Rich in holy shrines like Gangotri, Yamunotri, Kedarnath and Badrinath, and resorts like Nainital and Mussoorie, the region attracts 83 million tourists. Including Haridwar and its Kumbh melas, it earns Rs 1,900 crore revenue annually from tourism, out of Rs 5,750 crore earned by UP. The tourism department is working towards developing other areas like the Bundelkhand region. But "all this cannot happen overnight. It will take some time," states S.C. Tripathi, finance secretary.

    There’s more. Forest officials are worried UP will be left only with arid non-fertile land and thorny shrubs, with 6 per cent of its 17 per cent forest cover and six of the seven national parks coming in Uttaranchal. Annual earnings from forest produce will come down to Rs 25 crore from Rs 160 crore. Since the three riverheads of Ganga, Yamuna and Sharada will be in the new state, it will become the source of 1,000 MW of hydropower resources. As UP will now find it difficult to tap the power at will, its power tariff, revised recently, might see another hike soon, predicts power minister Naresh Agarwal. Also, UP will have to tackle the thorny issue of sharing of the waters of these rivers, its main source of irrigation. State officials are planning to appeal to the Centre to set up a River Board so that the sharing can be smooth.

    But the greatest fear of the cash-strapped UP government, which is mending its fiscal ways with aid from World Bank, is that it will have to support Uttaranchal for a year and beyond, with less plan support. "Everything is so confusing right now that we can’t account for specifics," says a senior finance department official. But Yojana Bhavan says that in all probability Uttaranchal will be made a Special Category State so that it’s eligible for special assistance. Despite the tourism, the new state will have a poor fiscal situation because of its underdeveloped hilly terrain with little infrastructure. On the other hand, since Nainital, the most popular choice for state capital, will see a lot of construction, land prices around the region will climb.

    If the political leadership in UP is squabbling over revenue losses, in Bihar, the state seemingly worst-hit by bifurcation, a no-holds-barred battle is on. Each party is vying with each other in demanding astronomical but "economically viable" compensation packages from the Centre for the truncated state - Laloo Yadav’s rjd has asked for Rs 1.79 lakh crore and waiver of loans of over Rs 30,000 crore, while the state bjp has demanded compensation for both: Rs 1.15 lakh crore for Bihar and Rs 85,000 crore for Jharkhand. A special cell has been constituted in the Planning Commission to consider the economic packages.

    Is there truth in Laloo’s "baadh, balu aur bhookh (flood, sand and hunger)" prediction? There is. Right now, Bihar, despite its abundant resources, is easily the worst-governed state in India - most social and economic indicators scale the bottom rung of the ladder. Bihar has the largest unemployment, illiteracy and tops in administrative costs. Jharkhand isn’t going to change any of that. For instance, the division is 48:52 in terms of land for Jharkhand, but 30:70 in population. So, Bihar will retain Rs 45,000 crore debt liability out of a total of Rs 60,000 crore. Yet, it will lose 67 per cent of its internal resources to the new state.

    Majority of Bihar’s revenue from commercial taxes, registration, excise and transport comes from the 18 districts of Jharkhand, as also from agriculture and land. And almost the entire revenue from mines and forests. The total revenue loss stands at Rs 1,500 crore. Jharkhand, on the other hand, will start with a net revenue of Rs 2,215 crore on its slate. The silver lining: due to the same population criterion, Bihar will get Rs 3,640 crore out of the total of Rs 5,200 crore received as share of Central taxes.

    Says minister of state for power Shyam Rajak: "Truncated Bihar will go back to the lantern (rjd symbol) age as the bulk of the energy now generated by Bihar’s own power project from Tenughat and Patratu will go to Jharkhand." Three-fourth of the power produced comes from Jharkhand, home also to India’s most well-known heavy industries - the Tatas’ steel and engineering plants, three national coal companies, the Bokaro Steel Plant and the Fertiliser Corp. Experts feel that since the region is endowed with abundant mineral resources from coal to bauxite and forests, Jharkhand has the potential to become the richest in the country.

    Yojana Bhavan empathises with Bihar but doesn’t agree with Laloo. Says an official: "The new state will be a net gainer as most of the industrial activity will go to it along with mineral deposits, leaving Bihar in an economic mess. Still, north Bihar will be left with an enormous pool of human resources and harnessable water resources which, if utilised properly, can bring rich dividends. To salvage Bihar, a lot of sunrise investment is required, especially in water resources, agriculture and traditional craft. And of course, institutional reform."

    Noted economist from Bihar, D.D. Guru, agrees: "True, after bifurcation the per capita revenue in Jharkhand state would be nearly Rs 3,000, while in Bihar it will nosedive to Rs 535. But though Jharkhand will have all the mines, minerals and industry, where is the fertile land? Except for one or two, almost all south Bihar industries are running in loss. Also, there is an economic limit to any mine or mineral-rich land. Ultimately, it is agro-based industries which could radically change the future of Bihar. See what happened in Punjab, Haryana, Gujarat or even Bengal. Bihar has the most fertile land, water, cheap labour, talented people and the time has come for the leadership to be forced to change for their development."

    Overall, MP seems to be the only divided state that’s happy. There’s no unseemly worry here over the division of assets and liabilities; rather the bonhomie with which the Bill was passed by the state assembly twice continues. But since the draft of the MP Reorganisation Bill was never discussed thoroughly in the assembly because of the overriding support for it, some of the problem areas may have been glossed over.

    Chhattisgarh yields 30 per cent of total revenue of MP, takes only 28 per cent of development plan expenditure and generates 40 per cent of the power. It is rich in natural resources, contributing mainly in mining, power, forest produce and excise. Forest produce earnings come to Rs 300 crore a year, with tendu (bidi leaves) contributing 60 per cent of the state’s total. And even though mining revenue is now half of the total of Rs 800 crore, in the long run, the income from bauxite, coal and iron ore mined in Korba, Chirmiri and Bastar, which go directly to Central bodies like ntpc, secl and mmtc, will be difficult to compensate.

    The Madhya Pradesh Electricity Board will be hit hard, with its losses already at 40 per cent of revenues. Chhattisgarh will not only be self-sufficient in power, but MP will be dependent on it for much of its demand as it has a much higher number of industries and other consumers. Still, state chief secretary K.S. Sharma is confident of equitable distribution: "Chhattisgarh has more natural resources and so some amount of revenue will be lost, but the rest of the state generates more revenue from commercial taxes; so it kind of balances out the whole thing." Sharma, who has formed a task force to look after dividing real estate, revenue, official work and assets and liabilities, says a clearer picture will emerge only by the year-end. But many feel that in the short term, MP may have to impose taxes like octroi to raise resources.

    Not to be ignored here is the huge financial burden on the Centre, in assistance, compensation and administrative costs. Setting up a decent state capital alone would cost at least Rs 1,000 crore. But division of states also means better representation of Indians from all corners. For instance, UP and Bihar have the maximum clout and representatives in Parliament. Yet, these two states are languishing in terms of development while peripheral states are doing quite well. Says a senior government official: "The heartland has become a millstone around the neck of the nation. And the Centre has become the victim of a ‘backward pull phenomenon’ where backward people, who cannot run their own state, are managing the nation."

    In fact, going by the population criterion, Bihar may see its fifth division yet, and Uttar Pradesh at least two more. As may some other states like Maharashtra. Says Guru: "Only after 10 years should we look at Bihar and look back on a wise decision." The more then, the fairer!

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