Rajan panel report may trigger new battle for funds

Raghuram Rajan panel report on development needs of the states may trigger a fresh political battle between the Centre and the states over fund allocation.

The report may also intensify the fight for special category status, to resolve which the panel was constituted.

The states losing their special status are bound to attack the Centre. Uttarakhand would be the first state to respond. Hitherto under special category due to geographical factors, the state has now been bracketed with relatively developed states, the top category in the development index.

Other special category states to be promoted to less developed states category are Himachal Pradesh, Jammu and Kashmir, Manipur, Mizoram, Nagaland, Sikkim and Tripura. Only three special category states out of  11 - Arunachal Pradesh, Assam, and Meghalaya - could make it to the least developed states group, which is to get special focus.

In spite of being flagged least developed, Bihar and Odisha are not likely to give up their demand for special category status. Panel member from Bihar Shaibal Gupta indicated this in his dissent note.

“For a state like Bihar, which is grappling with development deficit for nearly two centuries, ‘Special Category Status’ could trigger economic resurgence with private and public investment coming in a big way. For historically disadvantaged landlocked states, 'Special Category Status' is a necessary pre-condition for development,” the note said.

Gupta has challenged the inclusion of Monthly Per Capita Consumption Expenditure (MPCE) as one of the criteria for measuring underdevelopment. He says that due to remittances from migrants, there can be improvement in consumption expenditure but it does not contribute to economic development. 

He says that by replacing Per Capita Income with MPCE, the suggested index will considerably deprive the poor states of precious resources that are mediated through the Planning Commission and Finance Commissions.”

He says that it was contradictory to the terms of reference of the panel and the assurance given by the Finance Minister. His contention could inspire other poor states to contest the basis of measurement of underdevelopment.

The report has also left the issue somewhat open-ended by saying, “Allocation schemes based on such existing categorisations can be run  parallel to the one we have proposed based on need and performance, recognising they serve somewhat different purposes. The 10 “least developed” states that currently score above 0.6 could, for instance, be targeted for specific additional support.”