Principles of Allocating Development Grant at the Sub-National Level in India: A Suggested Methodology

One of the major objectives of our national planning process is to reduce inequality in various dimensions of level of living of the people scattered around different geographical regions. States and districts are considered as administrative units at sub-national and sub-state levels, respectively. The national as well as state governments sometimes provide special grants to specific states as well as specific districts based on certain development indicators in order to ensure social justice or to attain inclusive growth. But, the principle of allocating fund does suffer from various grounds like arbitrary selection of the indicators, equal weights assigned to the indicators, unclear objectives, etc. Keeping in mind, the regional backwardness as multidimensional in nature, we propose here a methodology of a rational allocation rule of development grants which is based on principal component techniques. This principle can be applied at the disaggregate level if the disaggregate data on different dimensions of development vis-à-vis deprivations are available. This allocating rule simultaneously addresses two issues: the amount of fund to be released to each geographical unit as well as the necessity of including each development parameter considered so far in the above-mentioned devolution methodology. Our proposed methodology tries to capture inclusivity, and it is expected to be helpful to the development practitioners at both policy levels and academics.