People's Democracy

(Weekly Organ of the Communist Party of India (Marxist)


No. 34

August 23, 2009



CPI(M) Makes Suggestions for UPís Development


WHILE meeting the 13th Finance Commission at Lucknow, the Uttar Pradesh state committee of the Communist Party of India (Marxist) conveyed its gratefulness to the commission for having given it a chance to put forward its opinions about the development of the state. Yet the state committee was sceptical whether the commission would be able to do justice to the states. The CPI(M)ís apprehensions were based on many grounds.




First, a Finance Commission is constituted in a unilateral manner. In a way, it represents the central government. The centre neither consults the states while constituting it nor gives them any representation in it. Proper representation of the centre as well as the states requires that the states are consulted before its constitution and that the Inter-State Council endorses its formation.

Secondly, the countryís constitution clearly specifies what the scope of a Finance Commissionís work is. But it has been seen for some time that the centre ignores these provisions, sometimes violates them, and decides its terms of reference unilaterally. Six terms of reference have been decided in this manner for the 13th Finance Commission as well. It goes without saying that some of these directives are unnecessary or outside the constitutional limits and divert attention from the main issues. First, a careful look over these directives shows that, while deciding them, the centre has only one aim before itself --- to tilt the distribution of resources in its favour, which amounts to meting out unjust treatment to the states. Secondly, in such a situation, the states can get justice only if the commission ignores the additional directives, asserts its autonomy and issues the stipulation that the centre and the states must together decide the terms of reference for a Finance Commission and a meeting of the Inter-State Council must endorse them. Thirdly, the commission must ignore the directive numbered 6(2) and take into account the committed expenditure of the states on civil administration, debt servicing, salaries and pensions etc.

With the faith that the 13th Finance Commission would keep these points in view and thus adopt a just and non-partisan attitude towards the centre as well as the states, the CPI(M)ís UP state committee put forward certain suggestions regarding the development of Uttar Pradesh.




The partyís memorandum said UP has a specific importance for the countryís economy and its development. To talk of the countryís progress and development without paying due attention to a proper and integrated development of this most populous Indian state is simply meaningless. It is therefore imperative that the Finance Commission must think over the stateís economy and development in totality. Without going into too many details, the CPI(M) state committee drew the commissionís attention to some crucial facts in this regard.

The state is suffering from multi-dimensional backwardness. Here the per capita income is about half of the national average. The rate of growth is only 2.9 per cent. As a result, too many people are living below the poverty line, and the bulk of them are suffering from malnutrition. The main victims of the latter are children, women and weaker sections like dalits and minorities.

Agriculture constitutes the backbone of the stateís economy. But agriculture is now undergoing a severe crisis. There is stagnation in the agricultural production in UP for the last one decade or so. Agriculture here is to a significant extent based on monsoon. As a result, there is a drought situation in several districts almost every year. This year, at least 40 districts are in the grip of a severe drought. The plight of the peasantry is deteriorating day by day, and starvation stalks the countryside. News of peasants committing suicide are very common.

The situation in industry is also alarming. It too is in the grip of a crisis. Small and cottage industries have been an important source of employment in UP, but they are getting destroyed in increasing numbers. About half of 15 lakh such units in the state are closed; the rest are either sick or running in losses. The severely affected exports in the wake of the ongoing recession are only hastening the pace of their destruction.

The rate of capital formation is very low in the state. Only 10 per cent of the state governmentís total expenditure goes into capital formation. In such a situation, there is no hope that there will be a change for the betterment of the industrial scenario in the near future.

The backward, underdeveloped or undeveloped status of infrastructure in various parts of the state is a serious handicap to the development of industries in the state.

The state is facing a severe shortage of jobs. Unemployment is increasingly growing. Educated unemployed alone number more than 50 lakhs, officially. The ban on recruitment to government jobs and the progressive decline of public sector enterprises have further compounded the problem.

The socio-economic backwardness, feudal attitudes towards women, foetus killing, casteism, communalism, superstitions and child marriage etc are hampering the socio-economic progress of the state and thereby its economic growth and development as well.

While the whole of the state is suffering from backwardness, it has assumed excruciating dimensions in the region of Bundelkhand. The situation in the region of Purvanchal too is pathetic because of appalling poverty.

The UP state committee of the CPI(M) expressed hope that while making its recommendations, the 13th Finance Commission would take into account the high population of the state, its poverty, illiteracy and educational backwardness, uneven development and other important factors. This, the party said, is necessary if the commissionís recommendations are to be of help in the stateís development.




With this aspect in view, the CPI(M) state committee made some important suggestions in its memorandum to the commission.  

There is a financial imbalance between the centre and the states. A big part of the developmental works is the responsibility of the states, while a bulk of the financial resources is allotted to the centre. For example, in 2004-05, Rs 3.62 lakh crore were spent on developmental works in the states, and it was one and a half times the central governmentís expenditure. But only 38 per cent of the total revenue receipts in the country went to the states while the centre got 62 per cent. This is totally unjustified and hampers the developmental works. Therefore, the CPI(M) state committee demanded that the Finance Commission effect a change in the situation and allot at least 50 per cent of the revenue to the states. Implementing this principle of distribution is of utmost importance for the backward states like Uttar Pradesh. The commission must also make a provision for total transfer of some tax receipts to the states. This is essential for financially strengthening the states. The income over and above this stipulation must be equally divided between the centre and the states. The CPI(M) state committee also suggested that some taxes, mentioned in articles 268 and 269 of the constitution, are not a part of the divisible pool but they must be included in the divisible pool.

The taxation policy of the central government, particularly the exemptions it grants in the divisible pool taxes, and its agreements with the international organisations on the subjects in the state list, adversely affect the statesí income. Hence the CPI(M) state committee urged the commission to study the central governmentís taxation policy from this angle, and make proposals about compensating the states for the losses thus caused.

At present, the states are not allowed to contract a loan from the market. Also, they are entitled to only 15 per cent share of the loans contracted from the market. This hampers the developmental works in the states. Hence it is necessary that this limit is raised to one third of the loans taken from the market. This limit may be further raised to 40 per cent in case of states like UP, in view of their special requirements.

Through a recent amendment to the constitution, the centre has monopolised the right to impose service taxes. This has deprived the states of an important source of income, which is sure to adversely affect the developmental works there. Hence the CPI(M) state committee demanded that along with the centre, the states too must have the right to impose service taxes.

The strategy adopted by the centre and the high interest rates on the loans the states have taken, have added to their debt burden and a big part of their revenue income goes out for debt servicing. The Finance Commission must therefore seriously consider a reduction in the interest rate on the loans being given to the states and a debt waiver package for them. In the case of UP in particular, the central government must waive 50 per cent of its loan and charge a maximum interest rate of six per cent on the rest of the loan.




With the centre having implemented the Sixth Pay Commission recommendations, big pressure is coming upon the states including Uttar Pradesh to implement them. This is also creating a lot of discontent. But the financial resources of the states is not such that they may implement these recommendations. In such a situation, it becomes imperative that the centre bear at least 50 per cent of the expenditure which the implementation of the Sixth Pay Commission recommendations in the states would involve.      

The centre runs several schemes in the name of development. The states have to implement such schemes according to the conditions fixed by the central government. In such a situation, these schemes are not being properly implemented. Hence the CPI(M) state committee suggested that the centreís development schemes for UP must be handed over to the state government along with the funds allocated for them. The state government must have full freedom to make plans for them and implement those plans. The central intervention must be only to ensure that the funds allocated for its schemes are being properly utilised. 

The population of 1971 has been made the basis for financial transfers. This is totally improper and impracticable, as it does not reflect the changed requirements because of the changes in the demographic profile over the last four decades. Hence, the population of 2001 instead of 1971 must be made the basis for financial transfers.

In view of the serious situation in and the backwardness of eastern UP and Bundelkhand, the commission must recommend that the centre announce special packages for them.

In the end, the CPI(M) state committee demanded that, in view of the importance of Uttar Pradesh, its requirements and its key role in the countryís development, the 13th Finance Commission must put the state in a special category while making its recommendations to the centre.

(Subheadings have been added by the Editorial Department.)