The Raghuram Rajan panel report has made a case for ending the 'special category' criteria for providing additional assistance to poorer states, as it ranked Goa and Kerala as the most advanced state and Odisha and Bihar the least.
The committee, headed by the then Chief Economic Advisor Raghuram Rajan who's now the Reserve Bank of India Governor was set up by the government amid demand for 'special category' status by Bihar, suggested a new methodology for devolving funds on states based on a 'Multi Dimensional Index (MDI)'.
Giving details of the report Finance Minister P Chidambaram today said the committee has suggested that the 28 states be split into three categories -- least developed, less developed and relatively developed -- depending upon their MDI scores.
On the allocation of funds, the report suggested that each state should get a basic fixed allocation and an additional allocation depending on its development needs and development performance.
The demand for funds and special attention to different states, Mr Chidambaram said, "would be more than adequately met by the twin recommendations of the basic allocation of 0.3 per cent of overall funds to each state and the categorisation of states that scores 0.6 and above as least developed states."
According to the committee, these two recommendations, along with the allocation methodology, will effectively subsume what is now "Special Category" status.
Bihar, along with some other states, has been demanding 'special category' status to get more funds from the centre.
Based on the MDI scores, the 10 least developed states are Odisha, Bihar, Madhya Pradesh, Chhattisgarh, Jharkhand, Arunachal Pradesh, Assam, Meghalaya, Uttar Pradesh and Rajasthan.
The seven most developed states are Goa, Kerala, Tamil Nadu, Punjab, Maharashtra, Uttrakhand and Haryana.
The report is likely to be implemented from the next financial year, Mr Chidambaram said, adding "Prime Minister Manmohan Singh has directed that the recommendations of the committee may be examined and necessary action in this behalf may be taken".
The Department of Economic Affairs, he added, will soon examine the report and take necessary action.
The Rajan Committee was asked 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.
The committee has proposed a general method for allocating funds from the Centre to the states based on both the state's development needs as well as its development performance.
Each state, as per the new criteria, will get a fixed basic allocation of 0.3 per cent of overall funds, to which will be added its share stemming from need and performance to get its overall share.
Multi Dimensional Index of backwardness, it said, is based on per capita consumption as measured by the NSSO or National Sample Survey Organisation, the poverty ratio, and a number of other measures which correspond to the multi dimensional approach to defining poverty outlined in the Twelfth Plan.
As per the report, the states with scores of 0.6 and above on the index have been classified as 'Least Developed'; states with scores below 0.6 and above 0.4 as 'Less Developed'; and states with scores below 0.4 as 'relatively developed'.