Economic backwardness of the hills of Manipur : Revenue sharing

Kachui Timothy Zimik, IRS
The State of Manipur occupies a total area of 22,327 square kilometers (sq. kms.). Geographically speaking, Manipur is divided into two contrasting landscapes - the fertile Imphal valley area at the centre constituting about ten percent of the total area and (2) the mountains and hills occupying the remaining ninety percent of the total area. These mountains and hills encircle the Imphal valley from all sides. Prior to the creation of seven new districts, Manipur was divided into nine districts. The Imphal valley comprising the four districts of Imphal East, Imphal West, Bishnupur and Thoubal has an area of about 2,238 sq. kms. (10%) and the five hill districts of Churachandpur, Ukhrul, Tamenglong, Chandel and Senapati have a total area of about 20,089 sq. kms. (90%).
The Imphal valley is densely populated whereas the hills are sparsely populated. As per the census 2011, the total population of Manipur is 28,55,794 (sources: Registrar General of India and Statistical Handbook of Manipur 2017). Out of this total population, the Imphal valley has a population of 16,33,672 (57.20%) and the hills have a population of 12,22,122 (42.80%).
Economic backwardness of the hill districts of Manipur
As compared with the Imphal valley, the hill districts of Manipur are indeed economically very backward. The divide between the valley and the hills is very wide and is increasing. In his recent budget presentation for the year 2020-21, the Chief Minister of Manipur had acknowledged this important fact and informed the State Legislative Assembly that his Government had taken great strides to bridge the divide between the valley and the hill areas of the State. This is a positive development, but much more is required to be done. There are many reasons for the economic backwardness of the hills of Manipur which include mountainous geographical conditions, lack of resources, poor infrastructure, law and order situation, absence of entrepreneurship, low standard of education, rampant unemployment, ignorance of the hill people, primitive subsistence farming, indifference and negligence on the part of the stakeholders, and faulty implementation of Government schemes. All these issues deserve serious consideration and action. However, in this article, we will focus on the issue of revenue sharing between the valley and the hills of Manipur.
Revenue sharing
On the 14th February, 2020, the Chief Minister of Manipur presented the budget estimate (expenditure) of Rs 21,224 crore for the fiscal year 2020-21. The total receipts are estimated at Rs 20,146 crore - revenue receipts at Rs 18,083 crore and capital receipts at Rs. 2,063 crore. The total estimates of the State’s own tax and non-tax are Rs 1,325 crore and Rs 257 crore respectively. The actual receipt from the state’s share in Central taxes and Duties is estimated at Rs 5,630 crore. Further, the revenue expenditure is estimated at Rs 16,445 crore while the capital outlay is estimated at Rs 3,356 crore. The fiscal deficit is estimated at Rs 1,363 crore for 2020-21.
From the yearly budget presentation, it can be seen that 90% of the total revenue receipt of Manipur is provided by the Central Government. In other words, the State generates only 10% of the revenues/financial resources. The Central Government provides the 90% of the state’s revenues in the form of Central taxes and grants-in-aid. The State is heavily dependent on the grants -in -aid from the Centre. The State normally receives the following grants: (1) revenue deficit grants (Rs 2,824 crore for 2020-21), (2) grants to local bodies, (3) disaster management grants, (4) sector-specific and performance-based grants and (5) special or state-specific grants. Apart from this, the Central Government takes up Centrally Sponsored Schemes such as Pradhan Mantri Gram Sadak Yojana (PMGSY), Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), etc. Let us see how the States of India or State of Manipur get the share of revenue from the Central Government. As per the Constitutional arrangement, the Finance Commission (FC) allocates the States’ share in the divisible pool of Central taxes based on a formula. The 15th Finance Commission has used six criteria for devolution of Central taxes to States for financial year 2020-21 and certain weight has been assigned to each criterion. The criteria and the weight assigned for each criterion are as below:
INCOME DISTANCE is the difference between the per capita income of a State with the average per capita income of all States. States with lower per capita income would be given a higher share to maintain equity among States. Weight assigned for this criterion is 45.
POPULATION is an indicator of the expenditure needs of a State. Weight assigned for this criterion is 15.
AREA is used as a criterion because a State with larger area has to incur additional administrative costs to deliver services. Weight assigned for this criterion is 15.
FOREST AND ECOLOGY criterion is used because States with larger forest covers bear the cost of not having area available for other economic activities. Weight assigned for this criterion is 10.
DEMOGRAPHIC PERFORMANCE criterion has been introduced to reward efforts made by States in controlling their population. Weight assigned for this criterion is 12.5.
TAX EFFORT criterion is used to reward States with higher tax collection efficiency. Weight assigned for this criterion is 2.5.
The share of the valley and the hill districts of Manipur is worked out in a chart on the basis of formula used by the 15th Finance Commission (FC) for 2020-21 as under:
Note: Margin in assigning weight can be 1 to 2 percent plus or minus which will have no impact on the overall final conclusion.
The above chart clearly shows that the hills of Manipur are not getting their legitimate share of revenues provided by the Central Government despite the fact that the share of the hills should be roughly about 51% of the revenues received from the Central Government. This is one of the main reasons for big divide between the valley and the hills of Manipur. The deprivation of revenues to the hill districts has led to complete economic backwardness and marginalization of the hill people of Manipur. As a matter of entitlement, the revenues of the State must be shared equitably between the valley and the hills.
The hill people must be actively involved in budget exercise of the State to ensure that revenues of the State are shared between the hills and the valley in a fair manner. All efforts should be made to ensure that ninety percent of the total area of the State does not remain underdeveloped and neglected. The hill people of Manipur have the equal rights and entitlements to the revenues of the State.
The Imphal valley is blessed by nature-very fertile land of 2,238 square kilometers, moderate climate, surrounded from all sides by beautiful green hills and mountains, streams and rivers flowing down from the hills, the largest freshwater floating Loktak lake of North East India, and commercially viable oil belt and huge reserves of natural gas. The hills of Manipur have beautiful landscapes, minerals, fast flowing rivers for hydropower projects, good and conducive climatic conditions for horticulture, sericulture, medicinal and cash crops.
The industrious people of Manipur can take full advantage of the blessings given to them by nature. Singapore (721 sq. kms.) with less than one-third of total area of Imphal valley was a poor undeveloped country in the 1960s, but now it is one of the richest States in the world having top world-class educational Institutions, vibrant economy, roaring financial hub, best infrastructures, high standard of living, etc. Singapore did not have natural resources except its strategic location. Singapore’s greatness is attributed to the far-sighted political leadership of the former Prime Minister Lee Kuan Yew and his strong financial and economic policies and corruption-free environment in the Government. Singapore uses its small size to their advantage. Manipur’s immense untapped potential should now be unleashed and realized as Singapore had done it.
To overcome some of the State’s geographical disadvantages and economic backwardness, we must fully focus on quality education, good governance, human capital and skill development, hydro-power, service sector, agricultural Innovations, integrated and innovative farming, eco-tourism, horticulture, sports, agro-based industries including food processing, and IT/ITES industries.
The plain and the hill people of Manipur working together can bring the required changes and make Manipur a much better place to live in peace, harmony and prosperity.

The author is the Principal Commissioner of Income Tax. The views expressed in this article are his personal views, and not the views of the Government of India.