Rajan panel against `special status’ states; recommends composite index to decide backwardness

The Raghuram Rajan Committee appointed by the government to evolve a general method for allocation of funds from the centre to the states has developed a composite development index based on both a state's development needs as well as its development performance for such fund transfers. 

The committee, headed by the then chief economic advisor and the present governor of the Reserve Bank of India, Raghuram Rajan, which looked into the demand for "special category" status by Bihar, however, recommended against such a classification and instead suggested a new methodology for devolving funds on states based on a 'multi dimensional index (MDI)'.

The committee has recommended that each state be given a fixed basic allocation of 0.3 per cent of overall funds, to which will be added its share stemming from need and performance to get its overall share, finance minister P Chidamabaram informed Parliament in a written statement today.

The committee's multi dimensional index of backwardness is based on per capita consumption as measured by the NSSO, the poverty ratio and a number of other measures outlined in the Twelfth Plan to remove poverty. 

States that score 0.6 and above on the index may be classified as 'least developed', while states that score below 0.6 and above 0.4 may be classified as 'less developed' and states that score below 0.4 may be classified as 'relatively developed'.

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 status are Goa, Kerala, Tamil Nadu, Punjab, Maharashtra, Uttrakhand and Haryana.

According to the report, the eleven less developed states are Manipur, West Bengal, Nagaland, Andhra Pradesh, Jammu and Kashmir, Mizoram, Gujarat, Tripura, Karnataka, Sikkim and Himachal Pradesh.

The report is likely to be implemented from the next financial year, Chidambaram said, adding "Prime Minister Manmohan Singh has directed that the recommendations of the committee may be examined and necessary action in this behalf may be taken".