Measuring States: Money from Delhi

Given the plan outlay for each state is the primary mechanism through which states get money from New Delhi, one’d assume some predictability in this allocation. A reasonable guess would be that the outlay is either benchmarked to population or to the representation each state has in Parliament. Or even worse, maybe one’d expect a combination of both these factors, resulting in a situation similar to Tamil Nadu’s over-representation in the Lok Sabha. In which case the cluster of states benefitting from this outlay will be similar to our earlier classification.

But the data seems to suggest a level of arbitrariness that is very difficult to explain. While Andhra Pradesh, Karnataka, Gujarat and Uttar Pradesh have relatively high allocation, states similar and more suitable in profile to each of these both from a political perspective and a development view point — Tamil Nadu, Madhya Pradesh, Rajasthan and Bihar — have relatively low allocation. The chart below shows this distribution from 2008-2012.

Outlay Plan

Within the four southern states for instance, Kerala and Tamil Nadu have far less of an allocation compared to Andhra Pradesh and Karnataka. This is neither explained by per capita allocation nor by representation in Parliament. Development parameters and tax base don’t seem to justify the divergence either. It’s also not as if states that have opposition parties in poweer cluster together. For instance, Gujarat has a relatively high allocation while Madhya Pradesh and Rajasthan have much lower numbers. Rajasthan has had a Congress Chief Minister during this period while Madhya Pradesh has had one from the BJP. Likewise, Uttar Pradesh’s extremely high allocation is in contrast to a similarly poor, overpopulated and backward state in the Gangetic plains: Bihar. Other political considerations, such as a state’s MPs being crucial in propping up the UPA also don’t seem to cluster either. Gujarat and Karnataka have mostly BJP MPs who seem to have managed high allocation while Kerala, Tamil Nadu and Rajasthan have(/had) MPs crucial to the UPA and still these states have a thin slice of the pie.

In this regard, the relative efficiency of each state in utilising the allocation is another interesting data point to look at. After all, in this arbitrariness, a simple rule might then be: if a state is unable to even spend the money allocated to it one year, maybe allocating that state more money the next year is a bad idea. But that precisely is what is happening in the time period considered. Andhra Pradesh for instance returns a huge amount of its already huge allocation back to the central government; only to get an even bigger allocation the next year which it again returns the following year. Surprisingly, Uttar Pradesh, a state not known for an efficient bureaucracy or optimal resource management, seems to have at least spent all the money allocated to it and then some. Gujarat, another state with a relatively high allocation has an uneven record of utilisation and is possibly closer to Andhra Pradesh than it is to Uttar Pradesh. The chart below shows the fund utilisation for the period under consideration for each state.

Plan Utilization

Rajasthan and Tamil Nadu seem to consistently spend more money than what’s allocated to them. Surprisingly, a state that’s so advanced in every single development metric measured so far, Kerala, does not even manage to spend the little money it is allocated. Maharashtra, much like Andhra Pradesh, appears to be another huge drain on the resources of the country. The state gets a disproportionate share of the allocation and returns the funds the next year due to its inability to spend the money.

Perhaps there are other reasons for these allocations being skewed as they are. However, the source of the data does not seem to make those reasons explicit.

PS: The formula for allocation seems to be a modified version of this. Obviously that clarifies why Maharashtra has a high allocation given its tax base. But Andhra Pradesh and Karnataka?