A Development Index with a missing Link
This article is in reference to the recent Development index formulated by the RBI Governor Raghuram Rajan committee. One aspirant asked us to explain this article at ‘Doubts Corner’. It’s just an effort to simplify the meaning of the article, not a commentary on it. It’s bit lengthy though.
The author criticizes the Development Index, as it is formulated based on mere technical understanding of the policy process and does not reflect the ground realities.
The aim of this index was to suggest a criteria based on which the Centre can allocate funds to the states in an equitable manner.
As per the index, the allocation of funds is based on three criteria: Needs of a State (approx 68%); Performance of a state(approx 24%); Fixed allocation (approx 8%). Here more emphasis is based on need of a State (based on 10 variables – Per Capita Expenditure, Health, Education, Connectivity etc) and Performance which would basically take into consideration effective governance and efficient use of resources.
Positives of this index:
It is multi-dimensional , this was not to be seen in the existing mechanism or index per se (based on which allocations were made), as the index is based on multiple output variables.
Emphasis is given on ‘performance’ of the state which holds the index in good stead and rewards the underdeveloped state based on its ‘needs’, so that more allocation is made to these states.
Apart from this the index has attracted more negative views:
While formulating the index, the committee has not considered the various dimensions(social, political dynamics) of the policy process rather it is based on linear and technocratic understanding of the process. This does not go well in a diverse country as ours.
Mainly the index is criticized on the relationship drawn between the two concepts – “absorption capacity” and “performance”.
To quote the article;
Absorption capacity is the presence administrative and taxation institutions to raise resources,and better governance capacity to use the resources.
This absorption capacity is reflected in better law and order conditions, business-friendly tax and labour laws, an effective legal and regulatory framework, transparent and well-enforced property rights, sound monetary and fiscal frameworks, etc.
Hence sufficient absorptive capacity is a prerequisite else the funds will be misutilised and states would eventually lose out on fund allocation due to low performance.
This parochial approach shown by the committee relating to the absorption capacity and performance is what has come under scrutiny.
Performance as the committee suggests is based on the outcome aspect alone(output variables mentioned above), but what is missing here is performance as a whole is a ‘process’. That is to say, various socio-economic-political dynamics play a major role in the policy outcomes.
The committee has failed to recognize these elements (socio-poloitical process )and quantify them. It rather relies entirely on the output variables. To illustrate this point, there are some examples mentioned:
The ‘need-based’ criteria is based the education, health among others. Education is seen interms of the drop-out ratio, access to it. But its inclusiveness and quality of education is not considered. The same problem exists with ‘health’. The report considers only statistical data of health(like MMR,IMR..), but does not consider the number of dalits and muslims actually using the public health centres. The index though it captures SC/ST population as one of the criteria it does not consider Muslims as the disadvantaged section, who ironically form the bulk of the poor.
Hence states with poor absorption capacity will not only be poor performers but also will not be in a position to utilize the fund allocated to it.
The absorption capacity as suggested by the committee takes into consideration only the economic aspects whereas the larger socio & political dimensions are given least importance.
Thus, it is desirable to construct an index of “State Capacity” rather than using the techno-managerial concept of ‘absorption capacity’ to assess performance. In simpler terms more emphasis should be given to the relationship between the ‘absorption capacity’ and the ‘performance’ and the criteria for assessing the performance which should be all inclusive since the policy making is not an isolated process depending only on the output variables, rather the entire process (socio-pol-eco) dynamics needs to be given due importance while formulating an index.
‘State Capacity’ implies its capacity to not only generate growth but also redistribute the growth (equity) by giving due considerations to the socio-economic interests of the poor and the marginalized (say, social security opportunities to the unorganized sector, promoting gender and caste equity etc). This would also ensure that the benefits are not captured only by the elites or the interest groups but rather it percolates to the real needy or the poor. This leads to better targeting of the beneficiary and result in Inclusiveness which is missing in the Index designed by the Raghuram Rajan committee.
This would lead to Good Governance and not just governance!!
(P.S: This a a good article for a Public Administration student )
by Mohan
