Successive Finance Commissions have regarded the tax effort of states as one of the basic considerations governing grants-in-aid, notes C.H. Hanumantha Rao in ‘Regional Disparities, Smaller States and Statehood for Telangana’ (www.academicfoundation.com).
He cites the view of Asok Chanda, the Chairman of the Third Finance Commission, thus: “Liberal assistance to a State which had not used its taxing power adequately to narrow its budgetary gap would prove to be an inducement to it not to increase taxation. Secondly, it would benefit the more affluent taxpaying section of the population and not the poorer sections for whom federal assistance should obviously be granted.”
The author also studies the relationship between per capita state revenues and per capita income, and finds that on an average ‘an increase in per capita income by one rupee is associated with an increase of 4 paise in per capita tax revenues.’ Taking the all-India experience as a norm, he infers from 12-year data (1956-68) that per capita tax revenues of the Andhra region should have been higher than in Telangana because per capita income of Andhra is higher.
Towards the conclusion of the chapter devoted to ‘Budgetary surpluses of Telangana,’ Rao takes up the question of Rs 13.59 crore securities inherited by Telangana as its share in the former Hyderabad state. “The Government of Andhra Pradesh agreed to treat them as Telangana surpluses. The Telangana Regional Committee has demanded frequently that these securities be sold and the proceeds utilised for the development of Telangana.”
The author is of the view that it may not be in the interests of Telangana to sell these securities until the surpluses or the overspent amounts in Andhra are reimbursed and spent for the development of Telangana. “These securities in Reserve Bank may prove to be highly beneficial for Telangana, in the long run, in terms of an easy access to much needed investible funds.”
Topical study.
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