Jaya rejects Raghuram Rajan committee report

Rejecting the Raghuram Rajan Committee report for "skewed" allocation formula, Tamil Nadu Chief Minister J Jayalalithaa has 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, 2013.

The letter was released by the state government today.

She rued that the Report of the Committee for Evolving a Composite Development Index of States, also known as Raghuram Rajan Committee, had excluded important dimensions of development, including per capita availability of water and performance indicator of states.
The report was submitted to Finance Minister P Chidambaram recently.

"The completely skewed allocation formula which the Committee has recommended severely penalizes states which have consistently worked towards national goals of development and welfare. It pushes resource allocation to populous states which have historically underperformed," she said.

She said smaller states, regardless of their status of development, were protected because of the fixed 0.3 per cent share recommended for all states, regardless of size.

"It is quite apparent that this hurriedly drafted report is a thinly disguised attempt to provide an intellectual justification to deliver resources to a potential political ally," she said without naming anybody.

It was also an attempt at meeting the "political objective of the mentor of the report," she added.

States that suffer most in the proposed formula were the relatively large ones which over the last several decades had consistently performed well due to their own efforts,she said.

She said the allocation formula was further skewed by the proposal to square the underdevelopment index so that least developed states would get disproportionately more resources.

"This is a highly unfair mechanism. Using mathematical jugglery to disproportionately increase resource allocation to a selected group of states is invidious and an attempt to rob Peter to pay Paul," she contended.

Jayalalithaa said if the Committee's recommendations were applied, her state would receive on a per capita basis, less than half of what would be transferred by the Centre on an average per capita basis and one-fifth of the highest per capita allocation for a Non-Special Category state.

This was a "regressive, unfair and completely perverse outcome," she said.

"The bulk of transfer of funds from the Centre to states needs to take place based on recommendations of the Finance Commission which is constituted every five years," she said.
The Chief Minister said the report contains within it the danger of a substantial pre-emption of grant resources in favour of a few populous states if applied more generally to Central transfers. Any such far reaching modification would have to be approved by the Planning Commission and by the National Development Council, she said.

"With barely six months remaining for the completion of the UPA government's term in office, I do not think this is the appropriate time to undertake such a sensitive and complex exercise," she added.

Strongly urging that the report "ought to be rejected and not used in any form," Jayalalithaa said the 14th Finance Commission should be allowed to function freely without "deliberate tutoring and misleading inputs from the Government of India masquerading as intellectual attempts at redressing backwardness."

"I strongly decry the attempt of the Union Finance Minister and Ministry of Finance to prejudice and undermine the work of the Fourteenth Finance Commission," she said.
The Raghuram Rajan panel report had made a case for ending 'special category' criteria to provide additional assistance to poorer states, as it ranked Goa and Kerala as the most advanced state and Odisha and Bihar the least.

The committee, headed by the then Chief Economic Advisor Raghuram Rajan (now RBI governor) which was set up by the government amid demand for "special category" status by Bihar, suggested a new methodology for devolving funds on states based on a 'Multi Dimensional Index (MDI)'.