Raguram Rajan panel brings new index to measure state’s development

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The much awaited Raghuram Rajan chaired Committee has proposed a new index for measuring the development of states. The six member committee was appointed when Dr Raghuram Rajan was serving as the Economic Advisor to the Prime Minister for Evolving a Composite Development Index of States. The new index may phase out the present category of special category states in allocating discretionary transfers from the centre.

According to the index, there are 7 relatively developed states out of 28, 11 less developed states and 10 least developed states in the country. Goa and Kerala are the top states in terms of economic progress using the multidimensional development index.

An interesting political reading of the newly appointed RBI governor’s report is that BJP’s Prime Ministerial candidate -Narendra Mody’ s Gujarat is categorized as a less developed state along with the terrorism affected Jammu and Kashmir and the politically disturbed North Eastern states of Naglaland and Meghalaya.

Similarly, Uttarakhand comes under the first category of relatively developed states while Uttar Pradesh comes under the third category of least developed states

Regarding the indicators of progressiveness, the committee has brought some notable freshness as there is more wieghtage to human development and consumption related indicators, instead of the traditional indicators like per capita income. The Committee has developed a Multi Dimensional Index, giving more weight to per capita consumption- a methodology preferred by the NSSO in helping the planning commission to measure poverty.

Other indicators in the multidimensional index are the poverty ratio, education, health, household amenities, female literacy, percentage of Scheduled Caste/Tribe population, urbanisation rate, financial inclusion, and connectivity.

The committee’s idea of multidimensional index based upon per capita consumption may influence the YV Reddy headed Fourteenth Finance Commission in developing its own criteria in interstate resource transfer.

The Committee has recommended that each state may get a fixed basic allocation of 0.3 per cent of overall funds. To this fixed share, need and performance based incentives will be added to get its overall share.

The new index, with its given details, slightly penalizes the performing states and a resource transfer based on such a biased scale may not incentivize the states to get further progressiveness.

Finance Minister P Chidambaram has lauded the committee by countervailing the imbalance between performance and backwardness. He informed that the Committee has proposed a general method for allocating fund transfer based on state’s development needs as well as its development performance.