Raghuram Rajan data backs Nitish Kumar plea: Bihar is 2nd most backward

The index,developed by a committee led by Raghuram Rajan when he was chief economic adviser before being appointed RBI governor,shows Bihar is more backward than all the north-eastern and other hilly states to whom the Centre had been giving special support under various Plan schemes.

Editorial:Backward move

Orissa,Bihar,Madhya Pradesh and Chhattisgarh have been ranked as the least developed states,in that order,by the committee. If the panel’s recommendations are accepted,it will translate into a larger share of Central funds for these states. Interestingly,Gujarat figures in the list of “less developed” states and is ranked 12th overall in terms of development. It is less developed compared to Haryana,Uttarakhand and Kerala.

The other interesting aspect is that the “least developed” index is dominated by non-UPA ruled states,which make up six of the bottom ten.

Goa,Kerala and Tamil Nadu are ranked the most developed states. The list has bunched all 28 states in three baskets of “least developed,” “less developed,” and “relatively developed,” with the committee creating an index that used measures such as per capita consumption and poverty ratio.

The committee was a part of Finance Minister P Chidambaram’s budget FY’14. He had promised a relook at the concept of backwardness in the allocation of Plan funds. Bihar Chief Minister Nitish Kumar had made a strong pitch for treating his state as a “special category” to get more funds from the Centre at concessional rates.

The index ranges from zero to one,with one being the most backward and zero the least backward or “relatively developed.”

The other states in the “relatively developed” list include Punjab,Maharashtra,Uttarakhand and Haryana. (See Chart) The committee’s commendations could impact transfer of resources to states through the Backward Regions Grant Fund and under various Central Schemes though the Constitutional devolution of funds would continue to be under the formula worked out by the Finance Commission.

Though the multi-dimensional index of backwardness has called for subsuming the “special category status” for states,it is likely to play a role in forging of political alliances ahead of the upcoming election season with its recommendation to allocate higher funds to least developed states through a new formula based on development needs and performance. Nitish Kumar had earlier said the JD (U),which recently broke off its 17-year tie-up with the NDA,will support any party that gives Bihar special category status.

In contrast,the seven N-E states along with Jammu & Kashmir,Himachal Pradesh and Uttarakhand are tagged as “special category” based on factors including terrain and remoteness of their location. Bihar,Orissa,Jharkhand and Chhattisgarh have been long seeking the same status to help improve their pace of development.

Other debt-ridden states like West Bengal,Punjab and Kerala that have in the past also sought special category status did not make the cut in the new index. While West Bengal was ranked 17th and classified as less developed while Punjab and Kerala have been included amongst the “relatively developed” states with Kerala as the second most developed state in the country .

Outlining the broad contours of the report,Chidambaram said: “My view is that the report captures in a better way the degree of backwardness of each state and is a good measure for planning and devolution of funds.” He said that it had been cleared by the Prime Minister. “Its implementation will take some time and most likely will start from the next financial year,” said Chidambaram.

adding that the report will also be discussed with line ministries such as rural development and human resource development that devolve a large amount of funds.

“I am sure that the Planning Commission will also like to look into it. The department of economic affairs will now process it and take further action,” he said.

Each state would be given a fixed 0.3 per cent of funds and an additional allocation depending on its development needs and performance. In a nutshell,8.4 per cent of funds will be allocated to all 28 states on a fixed basis (0.3 per cent per state). Of the remaining 91.6 per cent money,three quarters will be allocated based on need and one quarter on performance.

The index is based on the average of 10 criteria including monthly per capita consumption expenditure,education,health,household amenities,poverty rate,female literacy,percent of SC-ST,and connectivity. States that scored over 0.6 on the index were categoried as least developed.

“Least developed” states should be eligible for other forms of central support that would help enhance the process of development,the committee has further said. It has also suggested that the index should be updated every five years and the allocation formula re-examined after 10 years based on experience.

Reacting to the rankings,Nitish Kumar said the state has inched a step closer to getting special assistance. “Bihar is a backward state and any special assistance will help in its development. The report recommendations,if implemented,can help other states as well”.

The report also includes a dissent note by member Shaibal Gupta from Bihar who has questioned the inclusion of percentage of SC/ST in the population as a sub-component of the index and has argued for exclusion of other components such as household banking facilities and per capita income instead of the monthly per capita consumption expenditure for constructing the index. “As a measure of under-development of a geographical area,per capita income is superior to per capita expenditure,” he said in his dissent note,adding that if this was used,Bihar would have been the most underdeveloped state in the index.