Tina Edwin The southern States are less dependent on transfers from the Centre than many of their northern peers, but a cut in transfers could leave their fiscal situation precariously poised and upset some of their expenditure plans.

That is exactly what they fear will happen when the 15th Finance Commission uses the 2011 population data — rather than the 1971 numbers — as the base to finalise a formula to share the taxes collected by the Centre. The previous Finance Commission had used 1971 data while giving some weightage to the 2011 numbers to capture the demographic changes.

Finance Commissions are obliged to ensure the poorer States have adequate resources to finance socioeconomic development and critical infrastructure, to ensure balanced regional development that’s inclusive and equitable. That would invariably mean higher transfers to the laggard States, sometimes at the expense of the more prosperous ones.

Therefore, the fears of southern States are not entirely misplaced. Their share in India’s population has declined by four percentage points between 1971 and 2011 while that of the economically laggard States of the North has correspondingly increased.

A strong emphasis on education and healthcare has helped Andhra Pradesh, Telangana, Tamil Nadu and Karnataka to slow population growth and speed up economic expansion.

That has translated into higher per capita income for people in these States — about twice that of people in States such Bihar, Madhya Pradesh, Rajasthan and Uttar Pradesh, commonly referred to as BIMARU States, and the three States created out of them in 2000.

Here’s an explainer on how divergent development has been in these southern and northern States.

Surging numbers

In 1971, the BIMARU States, or Bihar, Madhya Pradesh, Rajasthan and Uttar Pradesh, together had 57 per cent more population than Karnataka, Kerala, Tamil Nadu and Andhra Pradesh. The BIMARU States, prior to the carving out of Chhattisgarh, Jharkhand and Uttarakhand, were home to 212.11 million people while the four southern States had a population of 135.35 million.

By 2011, the population of the BIMARU States including the three newly carved out ones was more than double that of the number of people in the four southern States. This happened as population of the northern States grew 142 per cent in 40 years, compared to 86 per cent in the southern States. Thus, by 2011, the population in the northern States had increased to 513.71 million, compared to 251.23 million in the southern States. What’s more, the population of the four southern States was smaller than the combined population of Uttar Pradesh and Rajasthan alone.

The rapid increase of population in the North meant that their share in the total population of the country increased from 38.7 per cent in 1971 to 42.4 per cent in 2011. In comparison, the share of population of south declined from 24.7 per cent to 20.7 per cent.

Fertility rates:

The population growth is largely a function of number of children a woman bears. The total fertility rate (TFR) for the country was 5.5 in 1971, largely because rural fertility rate was 5.4. It had declined to 2.3 by 2013, almost the rate which if population stabilises. The TFR for the South Indian States were much below the national average in 1971. It ranged between 4.6 in Andhra Pradesh and 3.9 in Tamil Nadu. On the other hand, the TFR for the northern States was way above national average with women bearing as many as six or more children at that point.

With greater emphasis on education and healthcare, the southern States managed to bring down their fertility rate below 2 by 2013, it ranged between 1.7 and 1.9 in the four states. In contrast, only Uttarakhand had achieved that feat among the northern States considered for this article. Bihar had the highest TFR at 3.4 in 2013, followed by Uttar Pradesh close behind with 3.1. In the other northern States, TFR ranged between 2.6 (Chhattisgarh) and 2.9 (Madhya Pradesh).

Size of the economy:

Gross state domestic product for 1971 is not readily available, so consider the numbers for 1980-81. That year, the combined size of the economies of Bihar, Madhya Pradesh, Uttar Pradesh and Rajasthan was about 32 per cent larger than the combined size of the economies of Andhra Pradesh, Karnataka, Kerala and Tamil Nadu. The size of four northern States were estimated at ₹35,332 crore compared to ₹26,768 crore of the four southern States, at constant 1980-81 prices.

Over the next 36 years, each State followed its own social and economic development agenda while at the Centre, the process of liberalising the economy began after Rajiv Gandhi became the Prime Minister in 1984. By 2016-17, the southern States had become 15 per cent larger than their northern States. The economies of northern region which included Chhattisgarh, Jharkhand and Uttarakhand were estimated at ₹29,61,459 crore in 2016-17 while the southern States, which included Telangana, grew much larger to ₹34,19,330 crore, at 2011-12 prices.

Per capita income

Slowing population growth and fast economic growth have ensured that the South Indian populace have higher incomes now. In 1980-81, the difference in per capita income of people across seven of these eight States was relatively narrow. It ranged between ₹1,220 and ₹1,520 at constant 1980-81 prices.

Bihar was the only outlier in this group, with per capita estimated at ₹917. It continues to lag even now, with per capita net State domestic product of ₹26,693 at 2011-12 prices.

Uttar Pradesh was relatively better off at ₹38,884. Yet, it compares very poorly with the per capita income of the southern States. Kerala, for instance, had per capita income of ₹1,28,347 in 2016-17 and Karnataka, ₹1,20,496. The only laggard in the South was Andhra Pradesh with per capita income of ₹95,566 but that’s a result of the recent bifurcation of the State, with several prosperous parts going to Telangana. Still, Andhra’s per capita was far higher than the ₹72,072 of Rajasthan, the State with the highest per capita income among the northern States considered. Chhattisgarh was next at ₹71,214.

Contribution to direct tax kitty

India collected ₹8,49,818.48 crore in direct taxes in 2016-17 and about 23.5 per cent of that originated in the southern States including Telangana. In comparison, the contribution of the northern States in question was only 9.7 per cent. Karnataka was the largest contributor, accounting for 10.1 per cent of all direct taxes collected by the Union government, after Maharashtra (37 per cent) and Delhi (12.8 per cent).

The skew in contribution is largely due to concentration of registered offices of corporate entities in Maharashtra (chiefly, Mumbai-Pune belt), Delhi and Karnataka (particularly knowledge-based companies). Uttar Pradesh accounted for 3.4 per cent of direct taxes collected, thanks to significant number of companies registered in Noida area. Rajasthan contributed 2.4 per cent and Madhya Pradesh 1.9 per cent. The three carved out States and Bihar together accounted for just 2 per cent of the total direct taxes.

Share of incorporated enterprises:

Maharashtra has 19.7 per cent of all active incorporated companies and Delhi 18.2 per cent due to concentration of registered offices in these regions. The two regions became magnets for businesses much before Independence. The southern States together accounted for 22.7 per cent of the companies, mostly due to large number of companies registered in Karnataka and Telangana (earlier part of undivided Andhra Pradesh). In comparison, North accounted for just 14.7 per cent of the companies, with Uttar Pradesh alone accounting for 6 per cent and Rajasthan 3.1 per cent.