Gadgil-Mukherjee Formula: Explanation and Use

 

By: Parveen Kaswan ( Add on Facebook for more updates)

 

The economy of India is based in part on planning through its five-year plans, which are developed, executed and monitored by the Planning Commission of India. The eleventh plan completed its term in March 2012 and the twelfth plan is currently underway. Prior to the fourth plan, the allocation of state resources was based on schematic patterns rather than a transparent and objective mechanism, which led to the adoption of the Gadgil formula in 1969. Revised versions of the formula have been used since then to determine the allocation of central assistance for state plans.

It was named after the then deputy chairman of the Planning Commission Dr. D R Gadgil. The central assistance provided for in the first three plans and annual plans of 1966-1969 lacked objectivity in its formulation and did not lead to equal and balanced growth in the states.

 The Gadgil Formula comprising

(i) Population [60%]

(ii) Per Capita Income (PCI)[10%]

(iii) Tax Effort [10%]

(iv) On-going Irrigation & Power Projects [10%]

(v) Special Problems [10%] was used during 4th FYP (1969-74) and 5th FYP (1974-78).

Revised Gadgil Formula

However, since item (iv) was perceived as being weighted in favour of rich states, the formula was modified by raising the weightage of PCI to 20%. The National Development Council (NDC) approved the modified Gadgil formula in August 1980. It formed the basis of allocation during 6th FYP (1980-85), 7th FYP (1985-90) and Annual Plan (AP) 1990-91. Following suggestions from State Governments, the modified Gadgil Formula was revised to Population (55%), PCI [25% {20% by deviation method and 5% by distance method}], Fiscal Management (5%) and Special Development Problems (15%). However, it was used only during AP 1991-92.

Gadgil-Mukherjee Formula

Due to reservations of State Governments on revision, a Committee under Shri Pranab Mukherjee, then Deputy Chairman, Planning Commission was constituted to evolve a suitable formula. The suggestions made by the Committee were considered by NDC in December 1991, where following a consensus, the Gadgil-Mukherjee Formula was adopted. It was made the basis for allocation during 8th FYP (1992-97) and it has since been in use. After setting apart funds required for (a) Externally Aided Projects and (b) Special Area Programme, 30% of the balance of Central Assistance for State Plans is provided to the Special Category States. The remaining amount is distributed among the non-Special Category States, as per Gadgil-Mukherjee Formula.

So current pattern of formula is:

gadgil formula

 

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