Rajan Committee: Composite Development Index for

States
The Committee for Evolving a Composite Development
Index for States (Chairperson: Raghuram Rajan) was
setup in May 2013, and submitted its report to the
Ministry of Finance on September 26, 2013. The
Committee was asked to suggest methods to identify
backward states, and how the criteria may translate into
transfer of funds from centre to states.1

The Committee suggested that every state be given a

fixed basic allocation of 0.3% of overall funds, and
additional funds based on its needs and performance.
Thus, with 28 states, 8.4% of funds will be given to the
states as fixed basic allocation. Of the balance amount,
75% will be allocated on the basis of need and 25% on
performance.

Methodology

The index is so designed that states scoring higher on

the (under)development index get disproportionately
more. Allocation based on needs of states is calculated
by multiplying the (under)development index with the
population of the state and its area, with 80% and 20%
of weights assigned to each respectively.

The Committee suggested a multi-dimensional index of

backwardness, which is an average of the following subcomponents: (i) monthly per-capita consumption
expenditure, (ii) education, (iii) health (infant mortality
rate), (iv) household amenities (drinking water,
sanitation, etc), (v) poverty rate, (vi) female literacy,
(vii) percent of Scheduled Castes and Scheduled Tribes
population, (viii) urbanisation rate, (ix) financial
inclusion (percentage of households with banking
facility), and (x) connectivity (highways, roads, etc).
The index varies between 0 and 1, with 1 indicating
highest degree of underdevelopment.
The Committee recommended a general method of
allocation of funds from centre to states based on both a
states development need as well as its development
performance. The value of the (under)development
index for a state represents the needs of a state. An
additional index called the performance index, which is
derived from the (under) development index, is to be
calculated to determine the development performance of
states.1 The performance index will track the
improvements to a states (under)development index.

Proposed allocation
The Committee did not recommend a quantum of funds
to be allocated, but instead recommended that some
funds can be allocated using proposed method of
allocation

Recommendations
Some of the recommendations of the Committee are:
 The Committee recommended that the index be
updated every five years, and the index and formula
be re-examined every ten years.
 It recommended that states with a score of 0.6 or
above be deemed least developed states, and may
be provided additional forms of assistance by the
central government.
 The Committee stated that its twin recommendations
of 0.3% of total funds as allocation to each state and
categorisation of states with scores above 0.6 as
least developed ensures that the needs of special
category states are met, and effectively subsumes
special category. However, the Committee also
stated in its recommendations that allocation
schemes based on existing categorisations such as
those for Special Category states2 can continue in
parallel to the proposed allocations.
 It also stated in its recommendations that the
approach recommended is not to replace all existing
2

Three variables, which are included in the (under) development

index, are dropped from performance index. These are: share of SC &
ST in total population, length of surfaced national highways, and
railways.
Saumya Vaishnava
saumya@prsindia.org

The National Development Council (NDC) has accorded the status of

Special Category States to 11 out of 28 states of India, which have
certain characteristics that need special consideration, such as hilly and
difficult terrain, low population density and/or sizeable share of tribal
population, etc. The current 11 Special Category States are Arunachal
Pradesh, Assam, Himachal Pradesh, Jammu and Kashmir, Manipur,
Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, and Uttarakhand.
October 17, 2013

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methodologies, but to channel some funds based on

needs and performance. Other methodologies may
serve different purposes and maybe used in parallel
to allocate other funds.
Table 1: Comparison of percentage allocation to states
(Under)
develo
pment
Index

Rajan
Committee

Planning
Commission

Finance
Commission

0.52

6.85

7.34

6.61

0.73

0.97

1.56

0.5

0.71

3.05

4.93

3.31

Bihar

0.76

12.04

7.42

10.06

Chhattisgarh

0.75

3.7

3.14

2.43

Goa

0.05

0.3

0.15

0.23

Gujarat

0.49

3.69

3.05

3.12

Haryana
Himachal
Pradesh
Jammu and
Kashmir
Jharkhand

0.4

1.33

1.36

1.11

0.4

0.67

2.04

1.54

0.5

1.83

4.92

2.51

0.75

3.88

2.96

2.77

Karnataka

0.45

3.73

4.13

4.39

Kerala
Madhya
Pradesh
Maharashtra

0.09

0.38

1.95

2.45

0.76

9.56

6.91

6.72

0.35

3.94

6.64

5.28

Manipur

0.57

0.5

1.39

0.8

Meghalaya

0.69

0.65

1.11

0.51

Mizoram

0.49

0.4

1.09

0.5

Nagaland

0.55

0.45

1.39

0.84

Odisha

0.8

6.53

4.62

4.83

Punjab

0.35

1.07

1.26

1.45

State
Andhra
Pradesh
Arunachal
Pradesh
Assam

Rajasthan

0.63

8.42

4.79

5.84

Sikkim

0.43

0.35

0.67

0.35

Tamil Nadu

0.34

2.51

4.46

5.01

Tripura
Uttar
Pradesh
Uttarakhand

0.47

0.52

1.78

0.81

0.64

16.41

10.09

18.16

0.38

0.79

1.9

1.15

West Bengal

0.55

5.5

6.93

6.72

Total
100
100
100
Sources: Committee for Evolving a Composite Development Index of
States report; PRS.
Note: The column Rajan Committee gives the allocation proposed by
the Committee in its report. Planning Commission assistance
includes Central Assistance to state plans, including Normal Central
Assistance, as determined by the Planning Commission and Centrally
Sponsored Schemes (CSS) funds given to states. Finance
Commission is states share in central tax revenues and grants-in-aid
as determined by the Finance Commission.

Reading the table

Table 1 gives the index for each state, as well as the
allocation proposed by the Committee. In addition, it
provides a comparison with existing percentage
allocation of funds to states used by the Planning
Commission and the Finance Commission.
For example, Andhra Pradesh currently gets 7.34% of
the total funds at the disposal of planning commission to
transfer to states. In addition, it receives 6.61% of the
total states share of shareable central tax revenues plus
the total grants-in-aid from the Finance Commission.
As per the Committees recommendations, it will get
6.85% of the total funds that will be distributed using
this method.
It can be seen from the table that on average each state
gets 3.6% of allocation of funds, with shares ranging
from lowest of 0.30% and highest of 16.41%. The
Committee deems states with a score of 0.6 and above
as least developed, states with a score below 0.6 and
above 0.4 as less developed, and states with score
below 0.4 as relatively developed. Thus, the index is
a relative measure.
1

Report of the Committee on for Evolving a Composite

Development Index of States, Ministry of Finance, September 26,
2013 http://finmin.nic.in/reports/Report_CompDevState.pdf

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