Raghuram G Rajan Panel Ranks States for Centre's Allocation of Funds Thursday Sep 26,2013

In May 2013 the Union government constituted a committee headed by Raghuram G Rajan, now RBI Governor, to suggest ways to identify indicators of the relative backwardness of the States for equitable allocation of Central funds

Central allocations are governed by the Gadgil-Mukherjee formula that places the greatest weight on the State’s population, followed by other factors like per capita income and literacy

A panel headed by Raghuram Rajan has recommended a new index of backwardness to determine which States need special assistance

The report, which the Prime Minister and the Finance Minister have reviewed, was made public on Thursday Sep 26,2013

The report recommends that each of 28 States get 0.3 per cent of overall Central funds allocated and of the remaining 91.6% -

• three-fourths be allocated based on need and 
• one-fourth based on the State’s improvements on its performance, to be reviewed every five years

One of the panel’s5 members, Patna-based Shaibal Gupta of the Asian Development Research Institute, has disagreed substantially with the panel’s choice of indicators, in a long dissent note appended to the report.  

The most significant disagreement is with the panel’s decision to use monthly per capital expenditure derived from National Sample Survey Organisation reports as a measure of income, rather than per capita State domestic product, which he said substantially altered State rankings

The Panel has proposed an index of backwardness composed of 10 equally weighted indicators for monthly per capita consumption expenditure, education, health, household amenities, poverty rate, female literacy, percentage of the Scheduled Caste/Scheduled Tribe population, urbanisation rate, financial inclusion and physical connectivity

The 10 States that score above 0.6 (out of 1) on the composite index have been classified as “least developed,” the 11 States that scored from 0.4 to 0.6 are “less developed” and the seven States that scored less than 0.4 are “relatively developed.” 

The new methodology ranks Odisha as India’s most backward State, Bihar, which has been seeking ‘special’ status, as the second most backward and Goa is India’s most developed State

If the recommendations are accepted, Bihar, Madhya Pradesh, Odisha, Rajasthan and Uttar Pradesh will get a larger share of Central funds than their current share of total Central assistance to State plans and Centrally sponsored schemes, while Kerala, Tamil Nadu and Maharashtra will lose substantially.