The Raghuram Rajan Committee has submitted its report on a new underdevelopment index, which it calls the composite development index, on September 1, 2013. It has a lengthy dissenting note, which has attracted as much attention as the main report. Analysts have also criticised it, as its finding was said to favour some state or the other. I shall not discuss this report from any one of these angles, but only on the merit of what has been written in this report.
There was already a Gadgil-Mukherjee Index (named after the previous deputy chairpersons of Planning Commission) for the purpose of giving grants, which had a provision for special category states. It is this category, eyed by some states, that prompted this new classification.
It was constituted in the light of the finance minister's Budget (2013) speech, in which he wanted "a more egalitarian society, coupled with balance development of different regions".
The criterion works out in this way that the states that score more points are treated as less developed.
The Committee has decided that the states that score 0.6 and above are "least developed" in which fall Odisha (0.8), Bihar (0.76), Madhya Pradesh (0.76), Chhattisgarh (0.75), Jharkhand (0.75), Arunachal (0.73), Assam (0.71), Meghalaya (0.69), UP (0.64) and Rajasthan (0.63). Less developed ones (0.6 to 0.4) are Manipur (0.57), West Bengal (0.55), Nagaland (0.55), Andhra Pradesh (0.52), J&K (0.50), Mizoram (0.49), Gujarat (0.49), Tripura (0.47), Karnataka (0.45), Sikkim (0.43), Haryana (0.4) and Himachal (0.4). Relatively developed ones are below 0.4 namely, Uttarakhand (0.38), Maharashtra (0.35), Punjab (0.35), Tamil Nadu (0.34), Kerala (0.09) and Goa (0.05). This report abolishes the concept of "special category" on the ground that the demand will be adequately met by the present formula.
There has been considerable controversy about adopting the criterion of consumption expenditure rather than income, that is, per capita Net State Domestic Product (NSDP).
The Committee's first argument is that consumption expenditure "appropriately measures the well being of an average individual in a state, which the underdevelopment index should capture". The Committee's second argument is that "resource rich states may have high levels of average income, which is likely to be appropriated by resource-extracting corporations that may or may not be owned in the state. As a result, average consumption at the household level may still be low".
Conceptually, the use of expenditure rather than income as a criterion is quite unjustified. Per capita income is the basis of Human Development Index (HDI), which is internationally accepted since it is relied upon by UNDP.
Even the finance minister mentioned income and not expenditure, in his Budget speech.
Second, particularly by introducing the issues of (i) ownership by people not belonging to the state and (ii) difference between mineral resource extracting corporation and manufacturing corporation, the Committee has brought dangerous and undesirable issues to the fore.
Third, the expenditure criterion has led to absurd results such as an average person from Goa which is the most developed state gets allocated much more than an average person from Bihar, which is the poorest state. Odisha has been rated as the most backward state though its per capita income is Rs 51,130, which is more than double of Bihar at Rs 25,023, as pointed out by Shaibal Gupta in his dissenting note.
Last, but not the least, there is no justification for abolishing special category states, which are mainly the hilly areas, where delivery is a serious problem apart from viability. This criterion could have been revisited, but not discarded. It is like throwing away the baby with the bath water.
smukher2000@yahoo.com
There was already a Gadgil-Mukherjee Index (named after the previous deputy chairpersons of Planning Commission) for the purpose of giving grants, which had a provision for special category states. It is this category, eyed by some states, that prompted this new classification.
It was constituted in the light of the finance minister's Budget (2013) speech, in which he wanted "a more egalitarian society, coupled with balance development of different regions".
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The index proposed is based on the average of the following ten sub components, namely, (i) monthly per capita consumption expenditure - not the income per head (ii) education - computed as a weighted average of attendance ratio and number of institutions for primary and secondary education (iii) health measured by a single indicator - infant mortality rate (iv) household amenities, which is a weighted average of the number of households having electricity, drinking water, sanitation, phone etc (v) poverty rate taken from the Planning Commission (vi) female literacy - taken from Census, (vii) per cent of SC-ST population taken from Census, (viii) urbanisation rate taken from Census, (ix) financial inclusion, and (x) connectivity, which is a weighted average of indicators such as length of highways, rail route.
The criterion works out in this way that the states that score more points are treated as less developed.
The Committee has decided that the states that score 0.6 and above are "least developed" in which fall Odisha (0.8), Bihar (0.76), Madhya Pradesh (0.76), Chhattisgarh (0.75), Jharkhand (0.75), Arunachal (0.73), Assam (0.71), Meghalaya (0.69), UP (0.64) and Rajasthan (0.63). Less developed ones (0.6 to 0.4) are Manipur (0.57), West Bengal (0.55), Nagaland (0.55), Andhra Pradesh (0.52), J&K (0.50), Mizoram (0.49), Gujarat (0.49), Tripura (0.47), Karnataka (0.45), Sikkim (0.43), Haryana (0.4) and Himachal (0.4). Relatively developed ones are below 0.4 namely, Uttarakhand (0.38), Maharashtra (0.35), Punjab (0.35), Tamil Nadu (0.34), Kerala (0.09) and Goa (0.05). This report abolishes the concept of "special category" on the ground that the demand will be adequately met by the present formula.
There has been considerable controversy about adopting the criterion of consumption expenditure rather than income, that is, per capita Net State Domestic Product (NSDP).
The Committee's first argument is that consumption expenditure "appropriately measures the well being of an average individual in a state, which the underdevelopment index should capture". The Committee's second argument is that "resource rich states may have high levels of average income, which is likely to be appropriated by resource-extracting corporations that may or may not be owned in the state. As a result, average consumption at the household level may still be low".
Conceptually, the use of expenditure rather than income as a criterion is quite unjustified. Per capita income is the basis of Human Development Index (HDI), which is internationally accepted since it is relied upon by UNDP.
Even the finance minister mentioned income and not expenditure, in his Budget speech.
Second, particularly by introducing the issues of (i) ownership by people not belonging to the state and (ii) difference between mineral resource extracting corporation and manufacturing corporation, the Committee has brought dangerous and undesirable issues to the fore.
Third, the expenditure criterion has led to absurd results such as an average person from Goa which is the most developed state gets allocated much more than an average person from Bihar, which is the poorest state. Odisha has been rated as the most backward state though its per capita income is Rs 51,130, which is more than double of Bihar at Rs 25,023, as pointed out by Shaibal Gupta in his dissenting note.
Last, but not the least, there is no justification for abolishing special category states, which are mainly the hilly areas, where delivery is a serious problem apart from viability. This criterion could have been revisited, but not discarded. It is like throwing away the baby with the bath water.
smukher2000@yahoo.com