Friday, October 4, 2013

Index of Backwardness - Raghuram Rajan Panel

India is one of the fastest growing economies of the world. But, it does not mean that all States and all regions in India are growing equally fast or that all States are at an equal stage of development.

Why is there such a regional imbalance?
Regional Imbalances can be both natural and man-made. Natural imbalances are due to differences in resource endowments of different areas. Man-made imbalances are, however, created over a long period of time due to several reasons such as wrong policies of the State government, inappropriate infrastructure development, low focus on human development etc.

In India, what has emerged after five decades of Independence is that Eastern and Northern States form a separate category of States that lag in levels of development than the western and southern states. These differences have accentuated in the post-reforms period.

What are the consequences of such regional disparities?
Regional Disparities present host of problems. Some of them are -
a) The most common and visible problem is the demand for separate Statehood by different groups in several States.
b) There are demands of greater fund devolution by the Union to the States that are backward.
c) There are problems of migration, and resultant crowding in developed regions and causes several problems like shortage of housing, water, rise in crimes etc.

How to deal with this?
In India, the government is conscious of the rising disparities among States and regions among States. The condition of backwardness is taken into account when devolution of taxes takes place on the recommendation of Finance Commission by the Union to the States. The Government also has a separate Backward Grants Fund which is used to fund projects in backward areas. It also provides various subsidies to companies undertaking development projects in backward regions.

The voices for giving more funds to backward States by the Union has come to the center-stage of national politics. Some States want that the whole methodology of fund devolution should be comprehensively changed and a new indicator should be created that reflects the reality of backwardness. In view of such demands, the government constituted a panel headed by Raghuram Rajan to chalk out an indicator of relative backwardness of States.

After few months of deliberation, the panel suggested an index of backwardness based on equal weightage to ten different parameters. On this index, Goa came out to be the most developed State while Odisha and Bihar occupying the bottom two positions.

Should government implement the recommendations?
It would not be easy for the government to push through them because they will require enormous political will to get implemented.
However, the index of backwardness is important. It is the duty of the Union to ensure that all States grow equally and have sufficient opportunities for development. In the post-reforms era, the States that have earlier been better-off in terms of infrastructure and human development have been able to attract investment easily while the backward States could not attract much investment. In such a scenario, recognizing backwardness holistically and correctly is very important so that greater funds can be given to States that lag behind and enable them to come up to the level of other developed States. Failing to do so will only give rise to other socio-economic problems.

Tuesday, October 1, 2013

Rural Development

Around 70 percent of India's population lives in rural areas. A rural area is often characterized by an agrarian society, conservative mindset, heavy population pressure on land etc.

Rural Development refers to improving the quality of life of people living in rural areas. This means a holistic development in terms of social and economic parameters.

Why is rural development important?
a) It will lead to an overall development of the economy - Since rural areas are inhabited by millions of people, their prosperity will generate greater demand for manufactured goods and services.

b) It will generate jobs in rural areas - Disguised Unemployment seems to be a major constraint in the development of rural areas. With rural development, enough jobs are expected to be generated which will tackle this problem.

c) It will lead to reduction of poverty - Rural areas are home to a large number of poor of India. Rural Development will of course lead to reduction in poverty by generation of greater employment opportunities.

d) It will solve the problem of haphazard rural to urban migration - If sufficient jobs are created in the rural areas, then the migration of people from rural to urban areas will also be contained. This will indirectly tackle the problems emerging out of rapid urbanization in India.

Various schemes are in place to encourage the development of rural areas. Some of the most important ones are the MGNREGA, IAY, etc.

The fund allocation for rural development has seen a tremendous increase with every subsequent Five-Year Plan. Despite this, the conditions have not improved significantly.

How to achieve rural development?
a) Improving Infrastructure - Both physical and social infrastructure are lacking in rural areas. Improvement in infrastructure will lead to greater agricultural productivity as well as encourage manufacturers to establish industries there.

b) Human Development - Education and Healthcare are the key to human development. This will make them more employable as well as unleash their entrepreneurial potential.

c) Greater thrust on food processing - Food Processing industries are particularly suitable for rural areas and have great employment potential. Besides, the source of raw material is also available close-by.

d) Proper Implementation of Centrally-Sponsored Schemes - Implementation of schemes has been lackadaisical which has resulted in wastage of enormous funds without making the desired impact. Schemes need to be properly introduced and properly implemented.

With these measures, we can hope to see changes in the profile of our villages soon enough.