Stated purpose

The Rajan committee played safe in its choice of development indicators

Published: October 6, 2013 12:04:01 am

The Rajan committee played safe in its choice of development indicators

The Raghuram Rajan committee report,which aims to evolve a composite index to rank states based on certain development indicators,is not just an academic exercise. It is also a political exercise. The genesis of this report lies in the clamour among various states,especially less developed ones,for special category status,which entails Central funds and other concessions. Nonetheless,despite its political overtones,the report needs to be judged primarily on its merits as an academic exercise.

The committee certainly needs to be congratulated for expanding the scope of the development index to include a substantial number of human development indicators (HDIs) instead of restricting it to economic indicators alone. The transparency of its dealings also needs to be appreciated — unlike previous committee reports,which remained the preserve of commissioning agencies.

But any such exercise is bound to yield many more questions than answers. Partly because of the nature of the development debate itself,where no indicator can be treated as the ultimate measure of development. That is why we have a myriad measures,from the most basic ones,such as per capita income or poverty rate,to more complex ones,such as HDIs or the multi-dimensional poverty index. The real issue in any such exercise boils down to the choice of indicators and the aggregation mechanism used to arrive at the composite index.

The committee seems to have taken a cautious route,emphasising on indicators that are generally acceptable. But a glaring omission in the set of 10 indicators used by the committee is an indicator related to employment or productivity. Incidentally,most of the earlier committees had some measure of per worker productivity,mostly in terms of agricultural productivity or wages. This committee’s overemphasis on consumption expenditure data is certainly questionable. Apart from the issue of prices and other questions that have been raised by the dissenting member of the committee,the focus on consumption expenditure indicators at the cost of employment and productivity indicators obscures the the developmental role played by the primary vehicle of inclusion — employment generation.

The appropriateness of indicators is crucial not only to quantifying the developmental needs of the state but also to evaluating the performance of states over time. The fact that three of the indicators need to be dropped when measuring the performance of states,either because the states have little control over movement of the variables over time or because changes in these do not reflect the performance of states,also questions the need to include these variables in the index of development.

However,a suitable modification of some of the variables,consistent with the committee’s terms of reference,would have added value to the index. Moreover,they could still have been retained as measures of performance. For example,the right approach to measuring the deprivation of SC/ST households would have been to use an indicator of relative deprivation of these households. This would also have created an incentive for state governments to channel resources towards the developmental needs of these groups.

While there are ways to make the composite index robust,there are limitations to any such exercise. No matter what variation of the index is used — the components of the index may be changed,or the method of aggregation — the list of states at the bottom remains unchanged. And these rankings have hardly changed over time. While this seems obvious for poorer states,the fact that economic powerhouses such as Gujarat lag behind in an overall composite index also raises questions on the priorities of the state governments.

But the perceived political undercurrents to the committee’s exercise have undermined the purpose for which it was formed. One committee member,who happens to be an advocate for special category status for Bihar,has dissented. Although Bihar has been recommended for special category status,the dissent note raises questions on the political factors underlying the exercise.

At one level,it is a manifestation of the “race to the bottom” syndrome,with more and more states vying to prove how poor they are. It also focuses attention on the states’ sovereignty to generate internal revenues and the nature of the Centre-state relationship. The last two decades have seen a shrinking of fiscal space for the state governments,largely as a result of economic policies which have seen them bending backwards to attract precious investment,even if it means giving large concessions to the private sector at the cost of developmental needs. The fact that the development index correlated very strongly with the number of districts affected by leftwing extremism in a state shows that developmental deficit and governance deficit are two sides of the same coin. While the academic rigour of a report like this can help highlight the developmental priorities and the financial needs of these states,the solution to this developmental deficit is ultimately political. And until it is not addressed politically,these exercises will have a limited impact.


The writer is with the Centre for the Study of Regional Development,Jawaharlal Nehru University,Delhi

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