Indicators of Development presented by Raghuram Rajan Committee

Recently , The Finance Ministry has tabled the report of the Raghuram Rajan Committee that was formed to suggest ways to identify indicators of the relative “Backwardness of the States” for equitable allocation of Central funds. The Rajan Committee has come up with a Multi-Dimensional Index that will help measure backwardness and aid the Centre in allocating funds to states.

Finance Minister P.Chidamabaram said that, “ the demand for funds and special attention of different States will be more than adequately met by the twin recommendations on the basic allocation of 0.3 per cent of overall funds to each State and the categorisation of States as “ Least Developed ” States.”

The report places Goa on top with regard to Development, followed by Kerala. Punjab is a distant third.

The committee, which is likely to become the basis of allocation of funds in the future, shows a paradigm shift in how Economic Development is measured. Apparently, it rejects evaluation on the basis economic growth indicators only.

 It also states why developed states like Gujarat are performing poorly on human development indicators (HDI), including infant mortality rate and malnutrition. Due to a better HDI, Kerala has been ranked the second best-developed state. Though Tamil Nadu is far behind Kerala, it is third among the “relatively developed” states.

The index proposed by the committee includes 10 sub-components: Monthly per capita consumption expenditure, education, health, household amenities, poverty rate, female literacy, per cent of SC/ST population, urbanisation rate, financial inclusion and connectivity.

For devolution of funds to the states, the committee has proposed a formula which takes into account population and area of the states.

At present, there are 11 special category states: Arunachal Pradesh, Assam, Himachal Pradesh, Jammu & Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura and Uttarakhand.

The Raghuram Rajan Committee’s report on criteria for determining backwardness of states has placed Karnataka among the relatively developed states. It ranks 10th in terms of development. The state will now lose its share in allocations from the Centre.

According to a finance commission formula, the state gets 4.39 per cent of the Centre’s total allocation. Now, it will get only 3.73 per cent.

Gujarat has been categorized as “less developed state,” just below Tripura.

According to the committee, which was constituted following political pressure from Bihar Chief Minister Nitish Kumar, Odisha is the least developed state , followed by Bihar and Madhya Pradesh.