FinMin sends Rajan report to PlanCom for 'necessary action'

Rajan Committee suggests new formula for providing assistance to states on basis of Multi-Dimentional Index evoking divergent reactions from states

Finance Ministry has forwarded to the Planning Commission for "necessary action" the report of Raghuram Rajan Committee on states which seeks to do away with the special category status for poorer states, evoking sharp reactions.

"Following the recommendations of the Finance Minister and pursuant to the directions of the Prime Minister, I am enclosing a copy of the report of the (Rajan) Committee for necessary action," said an official communication from the Finance Ministry to the Planning Commission.

Sources said the letter has been received from the Finance Ministry and the Commission will take a view on the recommendations of the Rajan Committee.

The Rajan Committee, which suggested a new formula for providing assistance to the states on the basis of a Multi-Dimentional Index (MDI), evoked divergent reactions from the states.

"The Prime Minister has also directed that the recommendations of the Committee may be examined and necessary action in this behalf may be taken," said the Ministry.

The report is likely to be implemented from the next financial year, Finance Minister P Chidambaram had said.

While Bihar Chief Minister Nitish Kumar welcomed the recommendations of the Rajan Committee, Tamil Nadu Chief Minister J Jayalalithaa rejected the report saying it was 'skewed'.

According to Jayalalithaa, the report was a "thinly disguised attempt to provide an intellectual justification to deliver resources to a potential political ally".

The committee was set up earlier this year under Rajan, the Chief Economic Advisor in the ministry at that time and now the Reserve Bank Governor, amid demand from various states for a special category status for grant of additional assistance from the central pool.

The committee has recommended that each state may get a fixed basic allocation of 0.3% of overall funds, to which will be added its share stemming from need and performance to get its overall share. It also suggests splitting states into three categories -- least developed, less developed and relatively developed.


The committee has categorised 10 states -- Arunachal Pradesh, Assam, Bihar, Chhattisgarh, Jharkhand, Madhya Pradesh, Meghalaya, Odisha, Rajasthan and Uttar Pradesh -- as least developed.

Goa, Kerala, Punjab, Tamil Nadu, Maharashtra, Uttarakhand and Haryana have been categorised as relatively developed states. While Manipur, West Bengal, Andhra Pradesh, Gujarat, Karnataka are amongst the less developed states.

Currently, the Planning Commission allocates plan assistance among states under a set of criteria called the Gadgil-Mukherjee Formula.