Amid growing hue and cry of states demanding special category status – Bihar and Uttar Pradesh are already dangling the support carrot to the UPA, while west Bengal chief minister Mamata Banerjee is threatening an agitation unless the Centre restructures loan repayment schedule – the parent in the UPA decided to turn to an intelligent uncle, Raghuram Rajan, to decide which kid will get how much.

A six-member committee headed by Rajan was set up in May to measure backwardness of states, based on which the government will decide on granting special category status to states.

The panel’s report, submitted on September 26, ranks states on a multi-dimensional index (MDI) from zero to one (zero being the most developed state) and classified them into three categories – least developed, less developed and relatively developed.

The report, which puts Goa, Kerala and Tamil Nadu among the ‘relatively developed’ states, and Bihar, Odisha and UP in the ‘least developed’ category, is now being examined by the finance ministry.

In its report, the panel has recommended that each state should be given a fixed basic allocation of 0.3 percent of overall central funds, to which its share stemming from the need and performance (as per index) will be added.

The panel measured backwardness on the basis of 10 economic indicators:

* per capita expenditure

* education (attendance ratios and schools per capita)

* infant mortality rate

* access to basic household amenities

* poverty rate (Tendulkar committee format)

* female literacy rate

* proportion of scheduled caste and tribe population

* rate of urbanisation

* access to banking services i.e. financial inclusion 

* transport connectivity.

While Goa (with an index score of 0.045) has scored off the charts on most variables (see box), states like Odisha (0.798) and Bihar (0.765) languish at the bottom. However, what is interesting is that Gujarat (0.491) has been grouped along with states like West Bengal (0.551), which is neck deep in debt. In fact, the Mamata government has made frequent requests to the Centre to release more funds to help the state come out of the debt trap she claims was the result of 34 years of misgovernance under the Left Front.

So going by the panel’s recommendation, Banerjee’s debt-burdened state will only get a few more crores than Narendra Modi’s “vibrant” Gujarat. This is something that has not gone down well either the Banerjee-led Trinamool Congress or the BJP – and for different reasons. 

While Banerjee has – as usual – expressed anguish and disappointment over the report, BJP is crying foul over its authenticity. The party said Gujarat did not require any ranking as it has already been hailed as the most developed state of the country.

Note of Dissent 

However, what really caught attention was the dissent note of committee member Shaibal Gupta, attached with the report. In his 10-page note, Gupta has questioned the soundness of the economic analysis used by the panel. First, he has raised concerns on the use of per capita expenditure instead of per capita income. According to Gupta, per capita income would have been a true indicator of income as it includes savings. 

Per capita expenditure, Gupta notes, “will always under-measure the difference between the richer and poorer areas as compared to the per capita income”.

Second, he has disagreed with the use of proportion of SC/ST population and financial inclusion as variables, arguing that while the former is not a process variable, the latter is already included in household amenities variable.

Similar questions have been raised by other economists also since the report fails to clarify which states will be given special category status and what will happen to states granted this status but that now figure in the better-off categories.

R Ramakumar, associate professor at Tata Institute of Social Sciences says: “An MDI may be constructed in numerous ways and there is no fixed formula. There are three main problems with such composite indices – the weight given to variables, inclusion/exclusion of variables, and the exact variables used to represent a particular aspect of backwardness (for instance one can use either literacy or dropout or enrolment rate to measure education) and all these deeply affect results of the study. 

“And there is no one method, whether Rajan’s or anybody else’s, that can be considered superior.” 

Ramakumar also points out that UP, Bihar, Chhattisgarh, Jharkhand and Odisha will gain but it will be at the cost of penalising the well-performing states. “If the Rajan formula is accepted, 19 out of 28 states will lose out on funds and the north-eastern states will be the biggest losers. States which have been doing well need central funds to maintain their social and physical infrastructure and slashing their funds will negatively impact the states. It would then become an unfair case of penalising states for doing well,” he says.

Chirashree Dasgupta, associate professor of economics at Ambedkar University, Delhi, says, “It is always better to use assets as a measure of income instead of expenditure but the reason why most economists rely on expenditure as a variable is because of the easy availability of data.” 

Asked about Gujarat being put in the same bracket as, say, West Bengal, Dasgupta says the hype around Gujarat is baseless and it is indeed lagging on various indicators of human development. “There is only one section of people who are doing extremely well and a vast majority of people have poor standards of living. So that really is not a problem of the report and people are only politicising it when they are crying foul over this aspect,” she says. 

“However, one crucial aspect missing in the report is that it fails to take a stand on exactly which states should be granted a special category status. Hence, the entire exercise of setting up a committee does not seem justified.”

Analysts have also questioned the constitutional validity of the panel when the 14th finance commission chaired by Dr YV Reddy is already working on deciding the allocation of central funds to states.

Like most committee reports in India, this one too has received its share of criticism and it will be interesting to find out what the finance ministry does with this report once the finance commission report is out.

Whether or not it will be thrown into a far corner of the ministry’s shelf, one will find out only in future but for now most individuals are wondering whether Rajan distributed the cake pieces among kids in too much of a hurry.

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WHO IS WHERE

Least Developed (with score 0.6 and above): Odisha, Bihar, Madhya Pradesh, Chhattisgarh, Jharkhand, Arunachal Pradesh, Assam, Meghalaya, Uttar Pradesh and Rajasthan

Less Developed (score between 0.6 and 0.4): Manipur, West Bengal, Nagaland, Andhra Pradesh, Jammu and Kashmir, Mizoram, Gujarat, Tripura, Karnataka, Sikkim and Himachal Pradesh

Relatively Developed (score below 0.4): Haryana, Uttarakhand, Maharashtra, Punjab, Tamil Nadu, Kerala and Goa.