The End of Special Status States?

All of us like to feel special. If you are in India and if you happen to one of the states in the union, being marked out as 'special' brings not only warm fuzzy feelings, but also a bigger dollop of funds from the central pool.

Until now 'special status' states meant that you were either one of the seven sisters from the North East, or one of the northern Himalayan states of J&K, Himachal Pradesh or Uttarakhand. It meant that your state fulfilled each of the five conditions required to earn the title: (i) hilly and difficult terrain; (ii) low population density or sizable share of tribal population; (iii) strategic location along borders with neighboring countries; (iv) economic and infrastructural backwardness; and (v) non-viable nature of state finances.

The special states are able to give corporate tax and excise duty waivers. It gets them 100% central funding for infra schemes like PMGSY. But the cherry on the cake is the larger chunk of central funds - Normal Central Assistance (30% shared by 11 special states; 90% of this is grant), and Special Central Assistance.

The game changed a few months ago when Bihar demanded special status. Not to be left behind, Orissa and Rajasthan too joined the chorus. The reigning czar of planning, Montek,  then took out the checklist and showing them that they fulfill only the last two of the five-point criteria. The states continue to grumble anyway.

All is this is likely to end with today's announcement that "special status" is going to disappear completely. According to a PIB press release, the Report of the Dr. Raghuram Rajan Committee for Evolving a Composite Development Index of States (another of those titles!) submitted its recommendations to the government today.

RaRa's committee has come up with a new index for measuring backwardness based on per-capita consumption (NSSO data). It simply divides all states into three categories - Relatively Developed, Less Developed and Least Developed.

All the special category states would now be placed in the decidedly less endearing category, Least Developed.

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LINKS

* PIB Press Release -- http://pib.nic.in/newsite/erelease.aspx?relid=99675

* Bhattarharjee, Subhomoy (2013): WHAT IT MEANS FOR A STATE TO BE COUNTED AS SPECIAL, Indian Express, 14 Jun 2013-- http://www.indianexpress.com/news/what-it-means-for-a-state-to-be-counted-as-special/1128832/0

* Indian Express editorial (30 Sep) on Rajan's new Index: HOW CONVENIENT -- http://www.indianexpress.com/news/how-convenient/1176217/

Going Gaga over RaRa

"Let us remember", said the new RBI governor, in his maiden speech, "that the goal is having greater financial access in all parts of the country, rather than meeting bureaucratic norms."

Music to our ears!

In Raghuram Rajan, we may finally see a leader who not only has a clear vision but also the ability to communicate it and the gumption to see it through. Almost immediately after the speech was telecast yesterday, the Rupee stopped sliding, and the markets which had been down in the dumps for weeks, perked up.

While it was pleasure to read his speech, carefully crafted like a fine motor engine, I found in it many unfamiliar terms. Since I am likely to be following RaRa very closely hereon, I need to find out more about --

* Electronic Bill Factoring Exchanges: For electronically receiving and auctioning MSME bills - what does that mean?
* Inflation Indexed Savings Certificates linked to the CPI New Index
* National giro-based Indian Bill Payment System: What is "giro-based"? And I thought electronic bill payments were already quite popular..
* “White” POS device: How is this different from the usual point-of-sale device


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LINKS

* RBI Press Release - Statement by Dr. Raghuram Rajan on 4 Sep., 2013 -- http://rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=29479

* First Post - R. Jagannathan -- http://www.firstpost.com/business/raghuram-rajan-hits-first-ball-sixer-set-to-bowl-markets-over-1084247.html

* Mint-WSJ: The Morning After -- http://www.livemint.com/Opinion/3gbcDl2HYGQtANET2HXRyM/Raghuram-Rajan-The-morning-after.html

* Takshashila - Beginning with an A+ -- http://tgs.nationalinterest.in/2013/09/04/well-begun-with-a/