Has the Rajan panel betrayed Bihar?

While the rest of India marches towards the promised destiny of ‘progress’, Bihar – the heart of India– is doomed to poverty and the injustices of a caste-based society.

Bihar is indeed the “heart of India”, as Sir John Houlton said, but ironically the Raghuram Rajan Committee considers it the second-most backward, the poorest and among “the least developed states” in India.

At a time when Bihar’s unique development model has dimmed Gujarat’s much-hyped model of spurious growth, the Committee not only rejects Bihar’s demand for special status but also dismisses the fact that in independent India the state has suffered from the debilitating historical disadvantages of permanent settlement, de-industrialisation, exploitation of resources and cheap Bihari labour.

Though Chief Minister Nitish Kumar has hailed it an “ideological victory”, the report of the Committee has exposed the chinks in the evolving “development federalism” in the country. 

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Of course, there is some hope for the 10 “least developed states” such as Bihar, Odisha, Madhya Pradesh, Chhattisgarh, Jharkhand etc.

If Narendra Modi, the so-called “demigod” of development, is upset at being given a seat in the category of “less developed states”, the Congress government in Rajasthan must be a worried lot for being in the list of “least developed states”.

Several states, including the so-called “developed” ones such as Kerala and Goa have slammed the report for being discriminatory, biased and unrealistic. 

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Also, in a game theory sense, there are losers and gainers. If Bihar is set to receive higher allocations - from the existing share of 7.2 per cent to the projected 12.04 per cent - in the devolution of central funds, West Bengal’s share in the central funds has allegedly been reduced from 6.93 per cent to 5.50 per cent resulting in a loss of more than Rs 4,000 crore (Rs 40 billion).

In contrast to the Wanchoo Committee in 1986, the Sukhamoy Chakravorty headed Committee on Backward Areas in 1982, the National Committee on Development of Backward Areas headed by Sivaraman in 1978, the E A S Sarma committee for the identification of 100 most backward districts in 1997, and the Inter-Ministry Task Group on Redressing Growing Regional Imbalances in 2005, the Raghuram Rajan Committee has tried to bring an objective, scientific and secular criteria into the distorted  architecture of “asymmetrical federalism” in India.

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On the basis of the twin-principles of a state’s development needs as well as its development performance, the Rajan Committee has junked the resource-endowment and socio-economic disparity models in the literature on regional development. 

A multi-dimensional human development index defined in terms of (i) monthly per capita consumption expenditure, (ii) education, (iii) health, (iv) household amenities, (v) poverty rate, (vi) female literacy, (vii) per cent of scheduled castes-scheduled tribes population, (viii) urbanisation rate, (viii) financial inclusion, and (x) connectivity, the Rajan Committee promises to end the practices of discretionary and arbitrary allocations under the Gadgil-Mukherjee formula and various Finance Commissions, the Planning Commission of India and the individual ministries.

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With no focus on “equity, justice and politics of recognition” in regional development, the report has rejected the Gadgil-Mukherjee formula for devolution of central funds and recommended categorisation of the states in three groups — least developed, less developed and relatively developed, with no provision for “special category states”. 

With each state getting a fixed basic allocation of 0.3 per cent of the overall funds, and of the remaining 91.6 per cent, three-fourths to be devolved on the basis of need and the one-four based on the “development performance”, Bihar is indeed grateful to the Rajan Committee for appreciating its need for development.

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Though he calls it “technical critique”, Shaibal Gupta, a member of the committee, submitted a 10-page official dissenting note on the methodology and flawed economic thinking of the committee. 

Challenging an opaque and distorted multi-dimensional index and raising the demand of “special status”, Gupta says, “for historically disadvantaged landlocked states, ‘special category status’ is a necessary pre-condition for development.

It seems there is a concerted strategy not only to deny Bihar the ‘special category status’, but to also deny its legitimate demand by putting it on a higher rank in the underdevelopment index.”

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Criticising the effort to replace per capita gross state domestic product (per capita income) by the criteria of monthly per capita consumption expenditure and neglect of specific disadvantages of Bihar such as flood and the spread of Naxalism, Shaibal’s dissenting note will go a long way in uniting the “least developed states” in a collective struggle for justice. 

In this sense, he is right that the recommendations of the committee are a “historic and positive development”.

Indeed, the denial of special status has given a big jolt to Bihar’s plan for rapid modernisation.

Gupta’s dissenting note makes it clear that Bihar won’t get the benefit of a liberal fiscal policy regime by way of breaks on direct and indirect taxes, namely income tax, corporate tax, excise and customs duties with a sunset clause of 10 years.

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With the approval of 939 proposals by the State Investment Promotion Bureau for setting up industrial units involving an investment of Rs 3.19 lakh crore with employment potential of 227,000 people up to September 2012, Bihar would have moved much faster on the road to inclusive growth.

Second, the Committee’s report is silent on the shares of states in the centrally sponsored schemes, a major chunk of investment in the social sector. We all know that states in the special category bear only 10 per cent of the cost while the balance 90 per cent is borne by the central government.

Third, 30 per cent of the Plan expenditure of the central Budget goes to the special category states and finally the unspent money does not lapse but can be carried forward.

In effect, this helps enhance resources, increases the headroom for access to market funds and incentivises private investments through a favourable tax policy.

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In other words, while the rest of India, especially the “less developed states” and the “relatively developed states” march to the promised destiny of “progress”, Bihar is doomed to poverty and the injustices of a caste-based society.

It is not surprising that eminent economists including Nobel laureate Amartya Sen favoured a “special status” for Bihar.

In short, the Raghuram Rajan Committee effectively negates the “right to development”, which requires a Rawlsian framework of “differential treatment” (or “special status”) to realise both vertical and horizontal equity in a genuinely federal system.

The author is Professor & Chairperson, Center for Public Policy, Habitat & Human Development, Tata Institute of Social Sciences.