Experts Call for Special Grants to Poorest States

Hyderabad: Experts underscored the need for the Centre to extend special grants to financially weaker states and advised states to clearly articulate their fiscal constraints to secure targeted support.

They also recommended that the Union government leverage multilateral development lending through international banks to help the poorest states close developmental gaps. The suggestions emerged at the 4th BPR Vithal Memorial Lecture on Challenges of Policy Making in a Fast-Changing World.

Responding to a question on population-linked transfers — and the shifting narrative where chief ministers of states such as Andhra Pradesh and Tamil Nadu are urging families to have more children because slower population growth is reducing their share of central transfers — Montek Singh Ahluwalia, a distinguished fellow at the Centre for Social and Economic Progress, said today’s fiscal debates reflect deeper complexities.

Dr Ahluwalia is also a former finance secretary and a former deputy chairman of the Planning Commission.

“States must logically say that they need special grants to overcome constraints in a direct way, and the central government must use multilateral development lending through banks for the poorest states to bring about change,” he said while addressing the event virtually. He added that states should be given flexibility in using such funds, but accountability will remain essential when seeking targeted support.

Ahluwalia also noted that the future will witness rapid urban expansion, with nearly 50 per cent of India’s population expected to move from low-income regions to higher-income urban clusters, particularly from rural areas to emerging city hubs.

Addressing the broader growth challenge, he said India’s current structural growth rate is around 6.5 per cent. Achieving the vision of Viksit Bharat by 2047, however, would require sustaining eight per cent real GDP growth — a target that calls for major reforms and consistent policy efforts.

He stressed the importance of acknowledging new global constraints, including geopolitical uncertainty, climate change, technological disruption and evolving global trade dynamics.

In his opening remarks, Dr Duvvuri Subba Rao, former governor of the Reserve Bank of India, described Vithal as an “intellectual bureaucrat” whose influence spanned economics, political science, philosophy, history and public policy. He highlighted Vithal’s long tenure as finance secretary of undivided Andhra Pradesh and his reputation for earning the trust of seven Chief Ministers during his career.

The lecture brought together economists, policymakers and administrators to examine the fiscal challenges confronting both the Centre and states amid rapid socioeconomic change.