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.”
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.
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