Rajan panel omitted key factors in state ranking: Experts

Shaibal Gupta, Asian Development Research Institute has submitted a dissent note protesting against the non-inclusion of certain variables in the report prepared by Raghuram Rajan panel.

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Economist Haseeb Drabu too objects to clubbing of developed and underdeveloped states. He says it will be a huge disaster if money meant for Bihar will find its way to Gujarat on account of both being placed on the same table. Below is the verbatim transcript of their discussion on CNBC-TV18 Q: I read some of your dissenting points, what is your central theory? Is it that underdeveloped states will get less money because of the way that index is created? Gupta: Let me dispel the misgivings that I am against the report. The report in some sense is very historic and has created certain benchmark which we need to understand. My contention is not about the revolution.
My objection was on the question of ranking which was done on the basis of the variables that were chosen and my central reservations about the variable was related to per capita income versus monthly per capita expenditure. So, that was the central point of difference and I wanted that variable to be taken up.
Secondly, I was very clear that while preparing the index one should concentrate mainly on the output variable rather than the background variable. There are several component of background variable that could be taken but that was not taken and because we felt that the background variable are not critical, but inspite of that the schedule caste and schedule tribe population was taken.
My main objection was not about the report as such which was based on performance and need and that was a very unique thing. This is because whenever we talk about need that is the historical disabilities a particular state faced, but the performance was based on the quality of work that they have been able to do and the development that has taken place. So, in one sense it was a good thing that your non-performance should not be rewarded. Q: There were some allegations that the index will result in lower money to BJP rule states, for instance states like Gujarat. Is that correct understanding because when you look at the table it looks as if Gujarat will get more money, the percentage goes up from 3.05 to 3.69? Would you say that probably BJP states will suffer and Bihar which is a state which the Centre wants to favour will get more money? Would you believe there is any strength in that criticism? Gupta: That point is not important. The main question is that the devolution which has been worked out based on need and performance is good; there is no quarrel on that issue. The issue was about the variables and on the basis of the variable the ranking which was worked out is the main problem. Q: How much money does the centre transfer on the basis of this index? I thought it was a finance commission’s prerogative to transfer money? Drabu: We are not sure whether any money will be transferred on this. This is a surreptitious way of replacing the Gadgil formula. There are three ways you transfer money into states; one is through finance commission, second is through Planning Commission and other is through ministries.
Ministry is totally discretionary. Planning Commission is done through Gadgil formula and finance commission is based on formula. This is an attempt to replace Gadgil formula.
The Raghuram Rajan report can be seen as one of the mini indices, the problem is will you make this index into a devolution formula then it is a hugely contentious issue. This is because it is completely historic, doesn’t understand how money will be transferred, most of the qualified criteria like 80 percent weightage to population 22 area are arbitrary, 0.3 percent fixed to states on what basis.
It’s a report that I find will be a huge disaster if any money is transferred from the state and for this index I am not sure what the intent was whether it was to give Bihar some money but it has shown that Gujarat -- I think there is an issue there, it is not about Gujarat not getting enough money but Gujarat under this classification index come as a less delivered state which comes as a shocker to its larger projections.