Rajan Committee’s new methodology to replace ‘special category’ status for devolution of funds to States

The panel set up by the government under the chairmanship of the then Chief Economic Advisor Raghuram Rajan (now RBI governor) has suggested ending the ‘special category’ criteria for providing additional assistance to poorer states.

 Rajan Committee:

The Union Government set up Raghuram Rajan Committee amid demands for “special category” status by Bihar and some other status to get additional financial assistance from the Centre. The Committee was tasked 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 central government to the states.

Key recommendations of the Rajan Committee:

The Rajan Committee has made two key recommendations for devolution of funds to states. They are:

a) A new methodology based on a ‘Multi Dimensional Index (MDI)’.

Depending on the scores of the 28 states on the MDI, they will be split into 3 categories:

1. Least developed
2. Less developed
3. Relatively developed

b) Each state should get a basic fixed allocation and an additional allocation depending on its development needs and development performance. 

As per the Committee, these two recommendations, along with the allocation methodology, will effectively subsume what is now “Special Category” status.

According to the MDI scores: 

• Least Developed states: Odisha, Bihar, Madhya Pradesh, Chhattisgarh, Jharkhand, Arunachal Pradesh, Assam, Meghalaya, Uttar Pradesh and Rajasthan.
• Less Developed states: Manipur, West Bengal, Nagaland, Andhra Pradesh, Jammu and Kashmir, Mizoram, Gujarat, Tripura, Karnataka, Sikkim and Himachal Pradesh.
  
• Relatively Developed states: Goa, Kerala, Tamil Nadu, Punjab, Maharashtra, Uttrakhand and Haryana.