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Rajan Report: ‘INDIA UNDER-DEVELOPED’, by Shivaji Sarkar, 3 Oct, 2013 Print E-mail

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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