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Rajan panel wasn't unanimous in framing underdevelopment index
-The Business Standard


Panel member questioned the choice of sub-components

There is some consolation for Bharatiya Janata Party's prime ministerial candidate and Gujarat Chief Minister Narendra Modi: Not everyone in a panel headed by Reserve Bank of India Governor and former chief economic advisor Raghuram Rajan had favoured the inclusion of Gujarat in the list of less developed states.

Economist and social scientist Shaibal Gupta, a member of the panel, had dissented and questioned the inclusion. "Gujarat, one of the most economically prosperous states of India, appears in the list as a less developed state, with an underdevelopment index of 0.49," Gupta said in his dissent note.

The index was based on the averages of ten sub-components - monthly per-capita consumption expenditure, education, health, household amenities, poverty rate, female literacy, share of scheduled castes and scheduled tribes in the total population, urbanisation, financial inclusion and connectivity. A report on the index, released by Finance Minister P Chidambaram on Wednesday, was placed in the public domain for comments.

Gupta took a different view of the index, disagreeing to monthly per capita consumption expenditure, instead of per capita income, as suggested by the finance minister in his Budget 2013-14 speech, being a component.

To buttress his point, Gupta cited the finance minister's Budget speech - "it may be more relevant to use a measure like the distance of the state from the national average under criteria such as per capita income (emphasis added), literacy and other human development indicators to determine their backwardness."

The importance of PCI was also reiterated in the committee's first terms of reference, Gupta said. "Unfortunately, the committee has proposed to replace PCI with MPCE and, therefore, has not only gone against the spirit of the finance minister's Budget speech, but also against our terms of reference."

He claimed as a measure of under-development of an area, PCI was superior to the MPCE. "I have argued this during our discussions."

Gupta said if both the PCI and the MPCE were measured accurately, the difference between the two would be the per capita savings and remittance income. Typically, the more developed an area, the higher is the per capita savings as percentage of the total income. Therefore, a more developed area would have a proportionately lower MPCE compared to its income, in relation to a less developed area.

On remittance income, Gupta said usually, less developed areas had higher distress out-migration due to insufficient jobs there. Therefore, a less developed area would tend to have a proportionately higher MPCE than a more developed area. As such, MPCE would always under-measure the difference between rich and poor areas compared to PCI, he said.

One of the reasons mentioned for choosing MPCE over PCI was some members felt the estimates of the former were more reliable, he added.

All gross state domestic product estimates, though prepared by the state governments concerned, are based on the methodological guidelines issued by the national accounts division of the Central Statistical Organisation, which carries out comparability checks before releasing the final figures. Therefore, GSDPs had no conceptual problems, he said, adding it wasn't true MPCE estimates derived from National Sample Survey surveys were free of errors.

Gupta claimed a combination of PCI and the poverty ratio was superior to a combination of MPCE and poverty ratio in the index.

"Odisha, the most backward state according to the index, has double the per capita income of Bihar, which has the lowest per capita income; as many as five states in between have ranks varying from second to 11th," he said.

The index ranked Gujarat 12th in terms of development and clubbed it in a list of less developed states. Odisha was the least developed state, followed by Bihar, while Goa was the most developed, followed by Kerala.