Economic Highlights
New Delhi, 3 October 2013
Rajan Report
‘INDIA UNDER-DEVELOPED’
By Shivaji Sarkar
India is neither developed nor developing
but is an under-developed country. This is what the Raghuram Rajan committee ‘Evolving
Composite Development Index of States’ has concluded. Undoubtedly, its views
would upset many an applecart.
It is possibly also one of the
reports most damning of the UPA Government and virtually indicates that
Manmohanomics since 1991 has not helped the country come out of the syndrome of
poverty. The development process, as per its conclusion, is a virtual misnomer.
The committee has not found any State
which is developed. Even Gujarat was found to
be in middle category of less developed as its development pattern is not uniform.
In fact, there are large patches which do not conform to parameters of
development. Supposedly developed States such as Punjab, Kerala, Uttarakhand,
Haryana, Maharashtra, Goa and Tamil Nadu
according to the committee’s assessments could be considered as “relatively
developed”.
This means these States do not come
anywhere close to the international development standards. The committee found
that these were only ahead in relative Indian terms. In the overall parameters
of ten counts that included individual per capita consumption, these States
also demonstrated districts and regions which are far behind than the
supposedly developed areas in a State. Development is restricted to certain
pockets be it the expansive Maharashtra, tiny Goa, Kerala or Punjab.
This also raises questions on
globalization of the economy. Has it helped the country or has it cost hard? Since
in 1997-98 India
was less integrated with the global system, it was able to cushion off the
upheavals in the South-East Asian economies. The tumble did not have much
effect except for a few businesses, which had exposure to the S-E Asian
countries.
In 2008, as its integration
increased, India
found itself in a difficult situation to cope up with the Lehman crisis. It has
affected its growth, increased the losses of banks – as there are more defaults
in repayments, shrunk jobs and lesser developed areas face graver situation. Despite
it not doing so badly, its currency has been the worst hit.
The Raghuram Rajan panel has reopened
the big question. Should India
rethink how it should reduce its dependence on the US and other western countries? It
has pointed out obliquely that pouring Foreign Direct Investment (FDI) is not
helping the hinterlands.
However, interestingly the committee
was set up by the UPA Government for an ostensible political purpose. The Centre
sought to placate Bihar Chief Minister Nitish Kumar by granting his State the
available “special category” status. This category was created basically to benefit
the politically sensitive States of the North-East by the Finance Commission so
that these could be given extra financial benefit to overcome their development
deficit.
The committee responded by recommending
abolition of the “special category” status and evolved a new index on the basis
of severe development deficit. Bihar was
clubbed in the category of least developed. But in reality when it comes to
allocation of funds it would fall way behind Uttar Pradesh.
The committee found that Uttar Pradesh
having worse development indicators needs higher allocation of funds. In a way
it is a windfall for largest State in the country and also possibly suits the
UPA Government very well. It has a friendly Samajwadi Party government and in
the ensuing elections it could play a significant role in helping the Congress.
Therefore, the Rajan panel serves
more than the development cause of States. It decides the dynamics of Indian
electoral politics through its composite (of politics and development) index. This
apart, it also penalizes States that are clearly political opponents of the UPA
such as Tamil Nadu. As the index puts it in the highest category of “relative
development” it tends to deprive the southern State less than half of what
would be transferred on an average per capita basis. The State would be getting
far less of Central allocations. The committee mentions this possibility as it
says making new basis for funding could have some fall outs and so it has
recommended a uniform 0.3 per cent of uniform allocation.
Though Tamil Nadu has been clubbed
with the highest category, its development deficit in more than half of its
districts is too striking in terms of poverty, consumption, female literacy,
and other indicators that the committee has based its report. Of course, its
certain developed areas including Chennai and Hasan are the cynosure.
The report would also cause political
problems in the North-East. Earlier, they were in special category States and
enjoyed a particular benefit. Now Meghalaya,
Assam and
Arunachal would continue to get the maximum funds being in the “least
developed” segment. But Manipur, Nagaland, Mizoram, Tripura and Sikkim would
get far less being in a higher category of “less developed”. So would Jammu and Kashmir,
Himachal and Uttarakhand.
The
special status is in the context of Centre-State finances. A special category State gets preferential treatment in
federal assistance and tax breaks. There were only three such States in 1969,
when the Gadgil formula for sharing Central Plan assistance among States was
devised. Now, there are 11-- the seven North-Eastern States,
Sikkim, Uttarakhand, Jammu and Kashmir
and Himachal Pradesh. They are given a higher share of the Union Government's
resource allocation because of harsh terrain, backwardness and other social
problems. All of these also happen to be border
States.
The
North-East and Jammu & Kashmir would lose a lot in terms of excise duty
concessions, higher budgetary support for Plan assistance and loans. Till now
these States get 90 per cent of Plan assistance which is renewed even if the State
fails to raise the remaining ten per cent. Other States get a maximum of 70 per
cent.
Though
the Rajan panel suggests a new methodology it may be a difficult political game
to implement. It might cause further turmoil
in the North-East and Jammu and Kashmir as
these may resent being clubbed with resource-rich Bihar
and UP.
The Rajan
panel wants a new paradigm in development allocations. Politically, it may
cause extreme difficulties for either the UPA, which would possibly defer any
decision on it or the successive government in 2014. Bihar and UP may become a new
bone of contention in development funding by depriving the hilly States of N-E
or J&K. In conclusion, the panel may have raised new issues but would these
be politically implementable? --- INFA
(Copyright. India News
and Feature Alliance)
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