The report on a composite development indicator for states prepared by a committee chaired by Raghuram Rajan was released by the ministry of finance last week. The committee used a set of indicators to score states and, based on these scores, categorised them into three groups: least developed, less developed and relatively developed.
Although one of the members of the committee dissented on the use of a specific variable - he preferred per capita income to per capita monthly expenditure, which was eventually used - there can be little quibble over the indicators used and, consequently, over the ranking of states, which broadly conform to those generated by several other exercises.
What makes this effort particularly significant, though, is that it will become the basis of resource allocation across states, finding its way into both the strategic aspect of this process, as reflected in the Finance Commission's recommendations (due in 2015), and the annual budgetary provisions to support development activities.
Notwithstanding the technical merits of the approach, its categorisation of states has been viewed by many as being essentially driven by political compulsions.
In particular, by creating the category "least developed" and putting Bihar into it, the government seems to have conceded the Bihar government's demand to be given special treatment. Of course, other states will also benefit from this, which would help deflect the criticism that this was merely pandering to Bihar Chief Minister Nitish Kumar.
But the enthusiasm with which the report was greeted in Patna clearly indicates a potential political dividend to the Congress party in its efforts to put together a majority coalition after the 2014 general elections.
One might, of course, wonder at the joy that being classified in the most backward category evokes, but this has become commonplace in an entitlement-driven polity. But, the irony of that apart, if these classifications and the resource allocations that they induce are to mean anything from a development viewpoint, they must be backed by a strategy.
In other words, every state that will get immediate benefits from being characterised as "least developed" must be provided those benefits only with the strictest of conditionality.
There must be a clear sunset to special privileges and each state must be required to have a concrete plan of action (as opposed to the formalistic ritual of five-year plans) to raise its score based on tangible improvements on all the indicators included in the index. The last thing that this new approach should incentivise is a perpetuation of backwardness as a result of the unconditional promise of permanent entitlements - a phenomenon that plagues even the most well-intentioned of welfare programmes.
Since the finance ministry has taken this initiative, it should also take the responsibility to put in place a governance framework that will ensure that the least developed states are actually developing by putting the enhanced resources to productive use.
From the states' side, since Nitish Kumar has been at the forefront of this issue, it would behove him to set an example for the other states by formulating a plan for his state and entering into an agreement with the Centre on development activities and targets. Otherwise, this exercise will, quite legitimately, be seen as little more than political expediency.