The report of the committee for evolving a composite development index of states, chaired by Raghuram Rajan, has thrown up quite a few surprises. Some of the states in the top half of the list, such as Uttarakhand, Himachal Pradesh, Sikkim and Tripura, are special category states, which get extra funds from the centre. The reason they have been able to perform well in the development rankings is because of these central funds.

Take Jammu and Kashmir (J&K). It ranks 14th out of the 28 states, starting from the most developed. It’s classified as a less developed state, under the Rajan formula, which means it is in the middle rung. But consider the state’s finances. If we take the revised budget estimates for 2011-12 from the Reserve Bank of India study on state budgets, the state received Rs.15,220 crore as grants from the centre.

The state’s population was 1.25 crore, according to the 2011 census. That means, on a per capita basis, grants from the central government worked out to Rs.12,176 in 2011-12. In that year, the per capita income at current prices for J&K was Rs.45,380, according to data from the Central Statistics Office. This means that more than a quarter of per capita income in the state is on account of grants from the centre. These grants accounted for 60% of the J&K government’s total revenue in 2011-12. Read More