Presentation on Raghuram Rajan's Report on State Development Index by Nitesh Singh Patel. IMT, nagpur

2. HISTORY
•GADGIL FORMULA :
• NAMED AFTER THEN PLANNING COMMISSION CHAIRMAN DR. D R GADGIL.
• WAS INTRODUCED DURING FOURTH AND FIFTH FIVE YEAR PLAN.
• IT HAD THE FOLLOWING FORMULA :-
 SPECIAL CATEGORY STATES LIKE ASSAM, JAMMU AND KASHMIR AND NAGALAND WERE GIVEN PREFERENCE.
 THE REMAINING BALANCE OF CENTRAL ASSISTANCE WAS SHOULD DONE ON FOLLOWING BASIS –
Weight(%) Criteria
60 Population
10 Tax Effort
10 Per capita state income
10 Irrigation and Power projects
10 Problems of individual states

3. GADGIL-MUKHERJEE FORMULA :
• NAMED AFTER THEN CHAIRMAN OF PLANNING COMMISSION DR. PRANAB MUKHERJEE.
• THE NEW REVISED FORMULA IS GIVEN IN FOLLOWING TABLE –
Weight(%) Criteria
55 Population
25 Per capita income
5 Fiscal Management
15 Special problems
100 Total

4. THE RAGHURAM RAJAN COMMITEE
• STATE DEVELOPMENT INDEX IS A MEASURE OF REDUCING THE REGIONAL DISPARITIES, SUBSTANTIAL
DIFFERENCES IN DEVELOPMENT BETWEEN DIFFERENT STATES.
• IN MAY’13 GOVERNMENT DECIDED TO CONSTITUTE AN EXPERT COMMITTEE TO CONSIDER
BACKWARDNESS OF THE STATES.
• THE COMMITTEE CAME UP WITH A NEW CONCEPT CALLED AS COMPOSITE DEVELOPMENT INDEX OF
STATES.

5. THE COMMITTEE MEMBERS
•DR. RAGHURAM G. RAJAN- CHAIRMAN
•SHRI SHAIBAL GUPTA
•DR. BHARAT RAMASWAMI
•SHRI NAJEEB JUNG
•DR. NIRAJA G. JAYAL
•SHRI TUHIN PANDEY

6. THE COMMITTEE’S RECOMMENDATIONS
• GENERALIZED METHOD FOR ALLOCATING CENTRAL GOVT. FUNDS TO STATES BASED ON:
1. NEEDS
2. PERFORMANCE

7. INDEX FOR NEED IS BASED ON
• MONTHLY PER CAPITA CONSUMPTION
EXPENDITURE
• EDUCATION
• HEALTH
• HOUSEHOLD AMENITIES
• POVERTY RATE
• FEMALE LITERACY
• PERCENT OF SC-ST POPULATION
• URBANIZATION RATE
• FINANCIAL INCLUSION
• CONNECTIVITY

8. NEED BASED ALLOCATION
• STATES WITH HIGHER INDEX ARE THE LESS DEVELOPED STATES
• 80% WEIGHTAGE TO THE POPULATION
• 20% WEIGHTAGE TO THE AREA

9. DISTRIBUTION PATTERN OF CENTRAL GOVT. FUNDS
FIXED , 8.4
NEED BASED, 68.7
PERFORMANCE
BASED, 22.9
FIXED NEED BASED PERFORMANCE BASED

10. THE REAL SCENE
• ACCORDING TO LAW OF AVERAGE EVERY STATE MUST HAVE GOT 3.6% ALLOCATION
• BUT THIS RANGE VARIES BETWEEN 0.3% TO 16.41%
• THERE ARE 3 CATEGORIES OF STATES ACCORDING TO THIS COMMITTEE:
1. LEAST DEVELOPED: (UNDER) DEVELOPMENT INDEX OF 0.6 OR MORE
2. LESS DEVELOPED: (UNDER) DEVELOPMENT INDEX BETWEEN 0.4-0.6
3. RELATIVELY DEVELOPED: (UNDER) DEVELOPMENT INDEX OF LESS THAN 0.4

11. KEY ISSUES FACED WHILE DEVISING
THE REPORT 1. Whether the
underdevelopment
index is positively
correlated with left-
wing extremism
such that the
allocation formula
gives more to states
affected by such
insurgencies

12. NEED INDEX ALLOCATION SHARE

13. NEED INDEX ALLOCATION SHARE
•Allocation shares are determined not only by the index of underdevelopment and
improvements in it, but also by their population and area. Going by this criteria, larger
states do get higher allocations.
Figure , states with a higher fraction of districts affected by LWE also score higher on
the underdevelopment index, and therefore are allocated a higher share of funds based
on need.

14. 2.Whether Special Categorization Method is required
Based On The following Criteria
(i) Hilly and difficult terrain
(ii) Low population density and/or sizeable
share of tribal population.
(iii) Strategic location along borders with
neighboring countries
(iv) Economic and Infrastructural
backwardness.
(v) Non-viable nature of state finances.
•At present there are eleven Special
category States
•Some of them has high per capita income it
may not adequately measure what reaches
the people.
•Average Income is likely to be appropriated
by resource-extracting corporations that
may or may not be owned in the state.
• So we can’t judge if the states are
underdeveloped or not

15. REPLACEMENT OF SPECIAL CATEGORIZATION
CONT...
MERITS OF PREVIOUS SYSTEM
•States under this category have a low
resource base and are not in a position
to mobilize resources for their
developmental.
• Centre to target specific benefits. The Centre may want to
offer additional forms of support to states that are particularly
underdeveloped
ACCORDING TO NEW SYSTEM
The 10 “least developed” states that currently score above 0.6
could, for instance, be targeted for specific additional
support. Current “least developed” states would be Arunachal
Pradesh, Assam, Bihar, Chattisgarh, Jharkhand,Madhya
Pradesh, Meghalaya, Odisha, Rajasthan, and Uttar Pradesh

16. CRITICISMS
• BIBEK DEBROY SAYS THE RBI GOVERNOR'S REPORT ON GROWTH OF INDIAN STATES IS FLAWED.
• TAMIL NADU CHIEF MINISTER JAYALALITHAA WROTE TO PRIME MINISTER MANMOHAN SINGH
URGING HIM TO REJECT THE REPORT.
• COMMITTEE MEMBER SHAIBAL GUPTA SUMS UP ALL THAT IS WRONG WITH THE METHODOLOGY
USED TO ARRIVE AT THE CONCLUSION.
• THE REPORT SEVERELY PENALISES STATES THAT HAVE CONSISTENTLY WORKED TOWARDS THE
NATIONAL GOALS OF DEVELOPMENT AND WELFARE, WHILE IT SETS ASIDE HUGE ALLOCATIONS TO
STATES THAT HAVE HISTORICALLY BEEN UNDER-PERFORMERS.

17. PRAISE
• THE REPORT PAVES WAY FOR MORE FUNDING FROM THE CENTRE FOR ODISHA, BIHAR, AND M.P.
AND U.P. WHILE GOA, KERALA, TAMIL NADU, MAHARASHTRA AND HARYANA STAND TO LOSE.
• NITISH KUMAR WELCOMES RAGHURAM RAJAN REPORT RANKING BIHAR 'LEAST ADVANCED‘ .

18. RECOMMENDATIONS
• THE FRAMEWORK OUTLINED IN THIS REPORT BE USED TO ALLOCATE SOME OF THE DEVELOPMENT FUNDS
THAT ARE ALLOCATED BY THE CENTER TO THE STATES.
• THE PROPOSED UNDERDEVELOPMENT INDEX BE UPDATED ON A QUINQUENNIAL BASIS AND PERFORMANCE
BE MEASURED RELATIVE TO THE LAST UPDATE.
• THE INDEX AND THE ALLOCATION FORMULA BE RE-EXAMINED AFTER 10 YEARS AND REVISIONS PROPOSED
BASED ON EXPERIENCE.
• “LEAST DEVELOPED” STATES, AS IDENTIFIED BY THE INDEX, BE ELIGIBLE FOR OTHER FORMS OF CENTRAL
SUPPORT THAT THE CENTER MAY DEEM NECESSARY TO ENHANCE THE PROCESS OF DEVELOPMENT.

19. CONCLUSION
• CHANGES IN THE WEIGHTAGE OF THE PARAMETERS DETERMINING THE STATE DEVELOPMENT INDEX.
• DIVIDE STATES INTO THREE CATEGORIES – LEAST DEVELOPED, LESS DEVELOPED AND RELATIVELY
DEVELOPED.
• EXTRA FUNDING TO STATES ACCORDING TO ABOVE CATEGORIES
• THE REPORT IS BEING APPRECIATED BY STATES UNDER LEAST DEVELOPED CATEGORY AND CRITICIZED BY
STATES UNDER RELATIVELY DEVELOPED CATEGORY.
• CURRENTLY THE REPORT HAS BEEN SENT TO THE PLANNING COMMISSION FOR NECESSARY ACTIONS.

20. CONTRIBUTIONS
• HISTORY – PAREENA NEEMA (SLIDES 2 & 3)
• INTRODUCTION – NITESH SINGH PATEL(SLIDES 4 – 10)
• KEY ISSUES FACED WHILE DEVISING THE REPORT – POULAMI SARKAR (SLIDES 11 – 15)
• CRITICISM AND PRAISE – PRERNA BANSAL(SLIDES 16 & 17)
• RECOMMENDATIONS AND CONCLUSION – PRALOY KUMAR SAHA(SLIDES 18 & 19)