Rajan defends report on states, says it will encourage growth

RBI Governor Raghuram Rajan on Friday defended his development index for measuring backwardness of states, saying the aim is to "encourage development" and "everything over and above that is a political spin."

Last month, the Raghuram Rajan panel report made a case for ending the 'special category' criteria for providing additional assistance to poorer states. It ranked Goa and Kerala as the most advanced states and Odisha and Bihar the least.

"The whole point was we want to encourage development. If your development increases, then there will be bonus of more funds...Everything over and above that is a political spin," Rajan said after an RBI board meeting here.

"It does not mean that the higher 10 states are rich states and it also does not mean that the lower 10 states are very poor states. People are making a big deal about which pool they are in," he said.

Tamil Nadu Chief Minister J Jayalalithaa had rejected the Rajan Committee report for its "skewed" allocation formula and had said it was a "thinly disguised attempt to provide an intellectual justification to deliver resources to a potential political ally.

"The background to the constitution of the Committee was the repeated demand of the Government of Bihar to confer 'Special Category Status' on it to enable greater fund flow to the state to address its developmental deficit," she said in a letter to Prime Minister Manmohan Singh dated October 1.

Bihar Chief Minister Nitish Kumar, however, welcomed the recommendations, describing it as a "big victory" which would put Bihar on the path of development. 

Rajan explained that if some states are at the bottom of the index, it does not mean that they are condemned.

If the index suggests that a state has scored the worst, it would get more funds, according to this formula, and subsequent allocations would be linked to the progress it makes on development.

The committee, which was set up by the government amid demands for "special category" status by Bihar, has suggested a new methodology for devolving funds on states based on a Multi Dimensional Index (MDI).

The panel suggested that the 28 states be split into three categories -- least developed, less developed and relatively developed -- depending upon their MDI scores.

The report recommends that each state should get a basic fixed allocation and an additional allocation depending on its development needs and performance.

Bihar, along with some other states, have demanded "special category" status to get more funds from the centre.

Based on the MDI scores, the 10 least developed states are Odisha, Bihar, Madhya Pradesh, Chhattisgarh, Jharkhand, Arunachal Pradesh, Assam, Meghalaya, Uttar Pradesh and Rajasthan.

The seven most developed status are Goa, Kerala, Tamil Nadu, Punjab, Maharashtra, Uttarakhand and Haryana.

According to the report, the 11 less-developed states are Manipur, West Bengal, Nagaland, Andhra Pradesh, Jammu and Kashmir, Mizoram, Gujarat, Tripura, Karnataka, Sikkim and Himachal Pradesh.