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)'.

Giving details of the report Finance Minister P Chidambaram on Thursday said that the committee has suggested that the 28 states be split into three categories -- least developed, less developed and relatively developed -- depending upon their MDI scores.

As regards the allocation of funds, the report suggested that each state should get a basic fixed allocation and an additional allocation depending on its development needs and development performance.

"The demand for funds and special attention of different States would be more than adequately met by the twin recommendations of the basic allocation of 0.3 percent of overall funds to each state and the categorization of states that scores 0.6 and above as least developed states," Chidambaram said.

According to the Committee, these two recommendations, along with the allocation methodology, will effectively subsume what is now 'special category' status.

Bihar along with some other states have been demanding '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 eleven less developed states are Manipur, West Bengal, Nagaland, Andhra Pradesh, Jammu and Kashmir, Mizoram, Gujarat, Tripura, Karnataka, Sikkim and Himachal Pradesh.

The report was likely to be implemented from the next financial year, Chidambaram said. “Prime Minister Manmohan Singh has directed that the recommendations of the committee may be examined and necessary action in this behalf may be taken,” the Finance Minister said.

He added that the Department of Economic Affairs will soon examine the report and take necessary steps. The panel was asked to suggest methods for identifying backwardness of states using a variety of criteria and also to recommend how the criteria may be reflected in future planning and devolution of funds from the Centre to the states.

The panel has proposed a general method for allocating funds from the Centre to the states based on both state's development needs as well as its development performance. Each State, as per the new criteria, will get a fixed basic allocation of 0.3 percent of overall funds, to which will be added its share stemming from need and performance to get its overall share.

Multi dimensional index of backwardness, it said, is based on per capita consumption as measured by the NSSO, the poverty ratio and a number of other measures which correspond to the multi dimensional approach to defining poverty outlined in the Twelfth Plan.

As per the report, the states with score of 0.6 and above on the Index have been classified as 'Least Developed'; states with score below 0.6 and above 0.4 'Less Developed'; and states with score of below 0.4 'relatively developed'.


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