The Government had constituted a committee for evolving a composite development index of States, under the Chairmanship of Dr. Raghuram G. Rajan. The terms of the committee included:

i)     To suggest methods for identifying backward States on the basis of measures such as the distance of the State from the national average on a variety of criteria such as per capita income and other indicators of human development;

ii)   To suggest any other method or criteria to determine the backwardness of States;

iii)   To suggest weightage to be given to each criterion;

iv)   To recommend how the suggested criteria may be reflected in future planning and devolution of funds from the Central Government to the States;

v)   To suggest ways in which the absorptive capacity of States for funds and their ability to use the funds to improve well-being can be assessed and used to influence devolution to incentivize performance.

The Committee submitted its Report in September, 2013.

• The Recommendations of the Committee are the following:
• The framework outlined in the Report be used to allocate some of the development funds that are allocated by the Centre to the States.
• The proposed underdevelopment index be updated on a quinquennial basis and performance be measured relative to the last update.
• The index and the allocation formula be re-examined after 10 years and revisions proposed based on experience.
• “Least developed” States, as identified by the index, be eligible for other forms of Central support that the Central Government may deem necessary to enhance the process of development.
• The approach recommended in the Report is not intended to replace all existing methodologies, but should be thought of as one that will channel some fund allocations based on the need and performance. Other methodologies may serve different purposes and should be used in parallel to allocate other funds.

The recommendations of the Report are being examined by the Government.

This was stated by Minister of State for Finance, Shri Namo Narain Meena, in written reply to a question in the Lok Sabha today.

Composite development index directs central development allocations to states by need and performance, with periodic updates and incentives. A composite development index will rank States by underdevelopment using measures like per capita income and human development indicators to identify least developed States for additional Central support and to channel a portion of development funding based on need and measurable performance, with assigned weightages, periodic updates, performance measurement relative to the prior update, review of the allocation formula after experience, and assessment of States' absorptive capacity to incentivize effective use of funds.