Left out in the storm

Super cyclone Amphan has aggravated the woes of West Bengal which is already embroiled in a bitter struggle against COVID-19 as various factors threaten to complicate such efforts. This piece will focus on one of these major challenge — namely economic. Again this issue will be restricted to three areas: Amphan related damages and the role of the central and state governments in managing such disasters; present mechanism of managing tax and non-tax revenues between centre and state government under a governance structure of 'cooperative federalism and economic consequences of the reverse migration of workers to their home state. The triggers of this brief piece have come from the anguish of the citizens on the Centre's neglect of Bengal during Amphan and allegation of the honourable Governor of Bengal and other Union ministers that the cost of the damage done is being overestimated to grab money from Centre and that the State depends on Central assistance for food and money though Bengal is one of the largest producers of rice and vegetables in India.

On May 20, Amphan devastated all the districts of South Bengal including the Sunderbans, the famous mangrove island, which maintains the ecological balance of this Bay of Bengal region. As per an initial estimate of the State administration, the monetary loss could be over Rs 1 lakh crore. Two days after the cyclone, the Prime Minister of India made an aerial survey, along with the Chief Minister and the Governor, and made an announcement of Rs 1,000 cr worth of Central assistance to the victims. Angry citizens have reacted to this paltry amount (which covers only one per cent of the estimated damage) as an insult to the state and many of them have requested the Chief Minister to refuse the same.

This article explores the existence of any kind of established mechanism in the federal structure of governance which guides the Central and state governments on how to tackle disasters like Amphan. The XV Finance Commission (FC-XV) in their November 2019 report for the year 2020-21 has dedicated a separate chapter (Chapter 6) on Disaster Risk Management. In the report, the Finance Commission (FC-XV) has recommended the setting up of mitigation funds at both national and state levels in the form of a National Disaster Mitigation Fund (NDMF) and State Disaster Mitigation Funds (SDMF). Since the levy of National Calamity Contingent Duty (NCCD) has largely been subsumed under GST, the Commission has also recommended funds for the National Disaster Response Fund (NDRF).

The coverage of these new funds, recommended by this Commission, goes beyond the disaster response funds that already exist at the national (NDRF) and state (SDRF) levels. Hence, FC-XV has recommended the creation of funds for disaster mitigation along with disaster response, which would together be called as National Disaster Risk Management Fund (NDRMF) and State Disaster Risk Management Funds (SDRMF). FC-XV has recommended a total amount of Rs 28,983 cr in 2020-21 for SDRMF, of which Rs 22,184 cr would be the share of the Central Government. The Commission has also recommended the total national allocation of Rs 12,390 cr, in 2020-21, for NDRMF.

To determine state-wise allocations for disaster risk management, the XV Finance Commission has used a new methodology which combines capacity (as reflected through past expenditure), risk exposure (area and population) and susceptibility to hazard and vulnerability (disaster risk index). FC-XV has allocated Rs 1,348 cr for West Bengal (4.8 per cent of total SDRMF) of which Rs 1,011 cr would be borne by the Central Government. The Prime Minister has actually announced Rs 1,000 crore, out of this Rs 1,011 cr fund, allocated for West Bengal under State Disaster Risk Management Fund (SDRMF). Other major beneficiaries of this fund are Odisha (Rs 2,139 cr), Maharashtra (Rs 4,296 cr), Madhya Pradesh (Rs 2,427 cr), Gujarat (Rs 1,765 cr), Bihar (Rs 1,888 cr), Andhra Pradesh (Rs 1,491 cr). Till now, not a single penny has been provided by the Central government to West Bengal, for Amphan affected people of the State, from the Rs 12,390 cr National Disaster Risk Management Fund (NDRMF).

As a related side note, the state of West Bengal acts as the only land link, through a narrow corridor, between mainland India and the vast north-eastern states of the country. Bengal also provides the seaports to the landlocked north-east India which is surrounded by five foreign countries, namely, Nepal, Bhutan, China, Myanmar and Bangladesh. Thus, from a strategic point of view, Bengal, though divided in 1947, still holds an important position in independent India.

As is the case any time political games over funds are taking place, West Bengal has been accused of being overly reliant on the Centre before and during this crisis. This surplus fund requirement has been attributed to everything from corruption to expensive welfare schemes. The numbers, however, tell a different story and one that paints a narrative that goes against such claims of excessive dependency. In 2017-18 Bengal's GSDP was around 6 per cent of the GDP that year. As the GSDP growth rate of Bengal is much higher than that of India's GDP growth rate, Bengal's contribution to the nation's GDP has increased further. This contribution becomes more significant if we consider that Bengal has a land share of a mere 2.7 per cent of total land and is home to over 7.5 per cent of India's total population.

Table 1 shows the Composite Productivity Index (SCPI) of 10 major Indian states in terms of their GSDP contribution in the FY 2017-18. SCPI is the average of the ratio between the states' GSDP share and population share and the ratio between the states' GSDP share and land share. This is a much better measure of assessing the performance of a state as it takes into consideration the utilisation of the skills of the human resources in the productive use of the land they possess. Recent reverse migration of millions of labourers to their home states, including West Bengal, highlighted their important contribution to the host states' GSDP. The pathetic living conditions of the migrant workers reveal how most of the host states have appropriated the surplus values they have created. Table 1 indicates that if SCPI figures are considered instead of GSDP contribution to the economy, the ranking of the states' changes. For example, Bengal with an SCPI score of 1.47 ranks 3rd compared to its 6th rank in terms of GSDP share.

For historical reasons, Bengal which has the highest population concentration, with a ratio of 2.8 between population shares and land share, among all the major states, does not depend on special Central assistance to manage its economy. Figures in Table 2 explain how Bengal finances its budget. Two important entries in the table are the huge interest payment (over 2.67 per cent of GSDP) the West Bengal Government has to regularly make to the Central Government for the past loans it owes to the Centre. Second, there is an entry of Rs 63,775 cr (5.5 per cent of GSDP) against the PDR deficit.

Devolution of the tax proceeds 'is the distribution between the Union and the states, of the net proceeds of taxes which are to be, or maybe, divided between them' (FC-XV). The process has two components: (i) the distribution of these net proceeds, constituting the 'divisible pool of taxes' between the Union and the states is called vertical devolution. The FC-IVX (2015-20) recommended 42 per cent of the divisible pool for sharing with the States, against 32 per cent recommended by the FC-XIII. The FC-XV has reduced the share to 41 per cent; (ii) after determining the states' aggregate share in the divisible pool; the next step is to recommend the horizontal devolution among the states. The 'divisible pool of taxes' are then distributed among different states on the basis of a formula which has six parameters (with respective weights) namely- tax efforts: rewards states that are able to collect a high amount of taxes in relation to their GDP (2.5 per cent); demographic performance: health education gender equity etc (12.5 per cent); income distance: a criterion that awards poorer states more money in order to achieve equity across the Union (45 per cent); forest & ecology (10 per cent); area (15 per cent) and population (15 per cent).

It has long been alleged that as FC-IVX changed the base year of the population from 1971 census to population as per 2011 census, the states that are relatively smaller in size and have successfully controlled their population growth are among the worst sufferers in the matter of tax share. In 2019-20, West Bengal's share of the tax pool was 7.32 per cent compared to shares of the states with high birth rates like UP (17.95 per cent), Bihar (9.66 per cent) and MP (7.54 per cent), However, figures in Table 1 suggest that one simple rule of thumb is to hand-hold those states whose SCPI score is less than one.

As per this above-stated devolution method, the divisible tax pool in 2019-20 should be Rs 10,33,702 cr (42 per cent of the total tax revenue of the Union). But in Table 3, the figure against the divisible tax pool shows Rs 8,03,133 cr! The difference of Rs 2,30,669 cr is the different types of cess (like Coal cess) and duties which the Central Government does not share with the states as per this formula. West Bengal's share of this divisible tax pool amounts to Rs 58,789 cr (7.32 per cent of Rs 8,03,133 cr) which is the 'Pre-Devolution Revenue' mentioned in Table 2. The estimated deficit in 2019-20 was Rs 4,986 cr which is only 0.4 per cent of the GSDP of West Bengal.

Moving on, as per FC-XV document the tax revenue of the Union and states in India stood at around 17.5 per cent of GDP in 2018-19. Table 3 indicates that in 2019-20 the gross tax receipt of the Central government was 11.66 per cent. This indicates that the state's taxes constitute less than 6 per cent of the GDP. States are left with very little scope to mobilise resources by imposing taxes. As a result, the states will have to mobilise their own resources. Here lies the real challenge to densely populated states like West Bengal. Bengal urgently needs money to combat COVID-19, rebuild the Amphan ravaged districts and feed lakhs of migrants who have returned home with bitter experiences in their host states. Though this may give an opportunity to retain them in the home state and use their skills to strengthen the local economy, any concrete rehabilitation project would need money. The Centre has not yet paid the budgeted allocations of the State which are long overdue. The request to Union Finance Minister to ease the borrowing capacity of the state has been responded to with a long rope of stringent conditionality which reminds one of IMF conditions when India borrowed from them in 1991. It seems that the Central Government has no clue as to how to go about addressing the situation and it is in not in a position to help states in this hour of crisis.

Regardless of whatever reason the Centre has for not treating the devastation of Cyclone Amphan as a national problem, we may conclude that their neglect in this time of need is a sure sign that the much-hyped 'cooperative federalism' is already dead.