A file photo of Nitish Kumar with Prime Minister Manmohan Singh. Centre's proposed new Composite Development Index may set the stage for political realignment in Bihar.
NEW DELHI: An expert committee under chief economic advisor Raghuram Rajan has identified 10 parameters for a new Composite Development Index, whose adoption by the Centre will change the way thousands of crores are transferred annually and can potentially set the stage for realignment of political forces in Bihar before the 2014 polls.
The new index seeks to rate states on the basis of their distance from the national average on parameters including poverty rate, consumption, education, health, female literacy, urbanization, household amenities, connectivity, financial inclusion and share of SCs/STs in total population.
Although the finance ministry's terms of reference for the panel had talked about parameters such as per capita income and social indicators, the committee seems inclined to stay away from looking at the average annual income of individuals across states, which many see as a key measure of backwardness and equity.
Some states like Bihar have insisted on the inclusion also of per capita energy consumption among the measures of development. Although no decision has been taken, the new index meets Bihar CM Nitish Kumar's demand for a new criteria for determining additional central assistance to states like his.
In the current scheme of things, Bihar and many other Bimaru states (a club of underdeveloped north Indian states) don't qualify to be treated as backward and, hence, deserving of special assistance that accrues to the seven north-eastern states, Sikkim, J&K, Himachal and Uttarakhand.
Nitish, who recently broke away from BJP on the issue of Gujarat CM Narendra Modi's PM candidature, campaigned for a change in the definition of backwardness saying that he would pledge support to whoever helped Bihar's case for more financial assistance.
He has since been seen as moving in tandem with finance minister P Chidambaram who considered the existing formula for classifying special states outdated. With the committee set to submit its report next week before Rajan moves to Mumbai as RBI governor, the focus is going to be on whether Nitish and the Centre turn their understanding into a political alliance ahead of Lok Sabha polls next summer.
Politics apart, the proposed index will be the basis for the new system of special assistance running into thousands of crores to certain states and will replace the existing method based on geographical factors and terrain. Sources familiar with the discussions told TOI that once the report is ready, the Centre may opt for the new index but could insist on performance-linked assistance to ensure that there is an incentive for the states to improve their rankings.
In 1969, the Centre, based on the Gadgil formula, had initially designated Assam, Jammu & Kashmir and Nagaland as special category states to provide preference for central assistance. Now there are 11 such states.
Over the past few years, several of the Bimaru states including Bihar, Uttar Pradesh, West Bengal and Odisha have demanded special assistance from the Centre to improve the quality of living and also deal with high debt. West Bengal, which has been leading the charge to get debt relief may have to wait till the Finance Commission's report is implemented in April 2015. But Bihar and Odisha that rank low on several parameters are in for a larger share of central assistance.
The new index will come handy for the Congress party ahead of the general elections next summer when it will have to hunt for allies and will use greater funding support along with its "secular" credentials to garner support from JD(U) and Biju Janta Dal
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