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.

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