'Revise Gadgil formula'

The Gadgil formula for transfers of Plan funds to states needs to be revisited in the present day context, says the mid-term appraisal (MTA) of the Tenth Five-Year Plan.

While the formula had ensured a predictable flow of non-discretionary financial resources from the Centre to support development projects in the states, it did not seem to have mitigated regional disparities, the MTA explains.

"All such formulae and transfer mechanisms should be reviewed to ensure that not only are they transparent, but also that the instruments to tackle regional disparities have in-built mechanisms to ensure that a state's own efforts towards bringing about regional balance are rewarded," it said, adding that it is more important that the formulae do not promote perverse incentives.

While admitting that directed flow of financial support to less developed states remains the primary instrument available to the Centre, it points out that it is possible that despite this, desired development may not occur on account of poor governance or bad implementation.

Making preferential funding conditional on reforms would not be a feasible option as it would reduce the flow of resources to less developed areas, it said.

"It should be possible to define nationally acceptable minimum norms of human development and infrastructure development that every district in the country must attain and direct policies, initiatives and funds to fill the normative gaps and achieve these standards," the MTA said.

This would require a change in the pattern of providing central assistance to state Plans.

If the government intends to sharpen the focus on planning for states towards improving regional balance, significant allocations of central assistance for funding initiatives to support regional balance need to be considered.

Since total central assistance is likely to increase only incrementally from year to year, these allocations would have to be found by reorienting existing flows.

Presently, block loans and grants in the form of normal central assistance to support state Plans are provided as non-discretionary flows according to the Gadgil formula.

The formula can be modified through a consensus in the National Development Council. However, since recent proposals to alter the formula have been unable to garner the required consensus, it is likely that the arrangement will continue.