Jayalalithaa asks PM to reject Rajan panel report on states' development

Tamil Nadu CM says Union Finance Minister has committed 'a grave constitutional impropriety'

Tamil Nadu chief minister J Jayalalithaa on Wednesday came down heavily on the Raghuram Rajan committee’s report on development index of states, and asked the Prime Minister to reject the same. She added the 14th Finance Commission needed to be allowed to function freely without attempts such as deliberate tutoring from the central government masquerading as intellectual efforts at redressing backwardness.

“I am seriously concerned about the callous approach that the Union ministry of finance has adopted regarding this extremely sensitive issue in Centre-state financial relations in the country,” said the chief minister in her letter to the Prime Minister.

If the recommendations of the Rajan committee are accepted, Tamil Nadu will receive, on a per capita basis, less than half of what is otherwise transferred by the Centre and one-fifth of the highest per capita allocation for a non-special category state. “This is a regressive, unfair and completely perverse outcome,” she said.

The Union finance minister has committed “a grave constitutional impropriety” and has “deliberately sown the seeds of confusion” by setting up the expert committee after announcing the 14th Finance Commission, an established mechanism of financial transfer from the Centre to states, said Jayalalithaa.

Far from limiting itself to the question of enabling greater fund flow to a backward state based on its demands, the committee was given terms of reference to evolve criteria for identifying backward states and how the suggested criteria may be reflected in future planning and devolution of funds from the central government to the states, she said.

The discussion around the report already assumes that the criteria recommended by the committee are to be applied in general to determine allocation of resources from the Union government to the states.

“The report contains within it the danger of a substantial pre-emption of grant resources in favour of a few populous states if applied more generally to central transfers,” she said. Any such far reaching modification would have to be approved by the Planning Commission and by the National Development Council, for which this would not be an appropriate time as the United Progressive Alliance (UPA) government has barely six months remaining in office.

Some important dimensions of development like the per capital availability of water for both drinking and irrigation, environmental status and need to invest in resources have been excluded in the 10 components identified by the committee.

While the underdevelopment index may still benefit with some improvements and has a chance of redemption, the performance indicator developed by the committee is irredeemably flawed. The gap between the base and current year for measuring performance varies between two years in some cases to ten years at the most, which is also wrong.

It further recommends that two factors be introduced in the formula for allocation – ie share of population of state and share of area of state. Using any later population measure penalises the states, which have continuously worked towards the national goal of birth control and rewards those who did not. The allocation formula is further skewed by the proposal to square the underdevelopment index so that the least developed states will get disproportionately more resources. “This is a highly unfair mechanism,” she added.

It is quite apparent that this hurriedly drafted report is a thinly disguised attempt to provide an intellectual justification to deliver resources to a potential political ally and meet the political objective of the mentor of the report, said Jayalalithaa.