Raghu ram rajan report _______________________________________________________ A six-member expert committee constituted by the Centre on fixing a new criterion for determining the backwardness of Indian states recently gave its report, claiming Odisha, Bihar and Madhya Pradesh are the least developed states in the country. The report recognises Goa, Kerala and Tamil Nadu as the most developed states in the country. The panel was led by Raghuram Rajan, former Chief Economic Adviser in the Finance Ministry and now the Governor of Reserve Bank of India. The other members of the expert committee have been Shaibal Gupta, a member of the Asian Development Research Institute in Patna; Bharat Ramaswami, professor, Indian Statistical Institute; Najeeb Jung, Vice-Chancellor of Jamia Millia Islamia University; Niraja G. Jayal, a professor at the Centre for the Study of Law and Governance, Jawaharlal Nehru University; and Tuhin Pandey, adviser, Planning Commission. The panel was formed by the Centre to finalise the new criteria to determine backwardness of states for granting special category status and was asked to submit its report in two months. The panel was set up in the wake of the demand for special category status for Bihar by its Chief Minister Mr. Nitish Kumar, who held a rally in Delhi to push for this in March 2013. The committee was asked to look at the gap between a state’s statistics and the national average in terms of per-capita income and other human development indicators, and evolve a composite development index. The Raghuram Rajan panel report has suggested for ending the ‘special category’ criteria for providing additional assistance to poorer states and suggested a new methodology for devolving funds on states based on a ‘Multi Dimensional Index (MDI)‘. The MDI of backwardness will be constructed to rank India’s on the basis of 10 indicators, such as monthly per-capita consumption expenditure, education, health, poverty rate, female literacy, urbanisation rate, financial inclusion and physical connectivity. Based on the MDI scores, the 10 least developed states are Odisha, Bihar, Madhya Pradesh, Chhattisgarh, Jharkhand, Arunachal Pradesh, Assam, Meghalaya, Uttar Pradesh and Rajasthan. The seven most developed states are Goa, Kerala, Tamil Nadu, Punjab, Maharashtra, Uttrakhand and Haryana. The committee has suggested that depending upon their MDI scores the 28 states be split into three categories – Least developed Less developed Relatively developed As regards the allocation of funds, the report suggested that: Each state should get a basic fixed allocation; and An additional allocation depending on its development needs and development performance. The report recommends that each state get a fixed basic allocation of 0.3% of overall central funds. Of the balance, three-fourths will be allocated based on need and one-fourth based on the state’s improvements on its performance. A review will be conducted once in five years. As per the panel’s recommendations, Bihar, Madhya Pradesh, Odisha, Rajasthan and Uttar Pradesh will get a larger share than their current share of total central assistance to state plans and centrally-sponsored schemes. Kerala, Tamil Nadu and Maharashtra are expected to lose substantially. States will have an incentive to better their governance. Comments The report provides a sound basis of how to go forward in providing much-needed financial assistance to the backward and more backward and most backward states of India because it captures in a better way the degree of backwardness and shows a way forward of how to devolve funds. The recommendation to scrap the term Special Category Status, introduced in 1969, is logical as states will find their needs met through the new methodology. Showering central funds to least developed states could become a perverse incentive for them to stay backward. So, states that strive to shed backwardness must be rewarded more. A larger proportion of the allocation should go towards improvement in the states’ performance. There are certain significant anomalies in the report. Though the Finance Commission takes into account the backwardness of states, their relative inability to raise taxes as well as the progress they make on fiscal discipline, the Rajan panel has decided to use another set of 10 variables. Some of these have been criticised in a dissenting note in the report — Bihar, for instance, has half Orissa’s per capita income, but is considered less backward; Gujarat has the third-highest per capita income if one removes city-states like Delhi, but it is considered “less developed” by the Rajan panel. The Rajan panel recommendations cannot be implemented easily — the 14th Finance Commission will likely raise the share of fiscal transfers it controls and the NDC will not take kindly to such massive shifts where 19 out of 28 states lose out.
Posted on: Sun, 06 Oct 2013 06:15:27 +0000
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