The Gadgil Formula: A Framework for Central Assistance Allocation

The Gadgil Formula, named after Dhananjay Ramchandra Gadgil, was introduced in 1969 to determine the allocation of central assistance for state plans in India. It was used during the Fourth and Fifth Five Year Plans and aimed to create a more objective and equitable distribution of resources.

Population as a Key Criterion

The formula heavily emphasized the importance of population in representing the needs of the people, particularly considering a significant portion of the Indian population lives below the poverty line. This was supported by empirical data that showed a negative correlation between state population and per capita income.

Other Factors Considered in the Formula

Besides population, the Gadgil Formula also took into account other factors like tax effort, per capita state income, and special problems faced by individual states.

• Tax effort: This measured the state's ability to generate its own resources through taxation.
• Per capita state income: To address disparities in development, states with per capita incomes below the national average received additional resources.
• Special problems: This category aimed to support states facing challenges like droughts, famines, or other specific issues.

Addressing Issues of Inter-State Disparities

The Gadgil Formula was introduced to address the imbalance between the responsibilities assigned to states and their revenue resources. The Indian planning process, which involved five year plans, relied heavily on central assistance for implementation. This created a situation where larger states with more resources could secure a larger share of central assistance, further widening the gap between developed and underdeveloped states.

The Importance of Tax Effort in the Formula

The inclusion of tax effort as a criterion aimed to incentivize states to improve their own revenue mobilization through various tax measures. This was crucial for creating a more sustainable and self-reliant system of state finances.

The Modified Gadgil Formula

The Gadgil Formula was modified in the lead up to the Sixth Five Year Plan to address shortcomings in the original formula. The major changes included increasing the weightage of per capita income, promoting more progressive distribution of resources, and addressing the needs of poorer states.

The Gadgil-Mukherjee Formula: A Further Revision

The Gadgil-Mukherjee Formula, approved in 1990, represented another major revision to the original formula. It introduced fiscal management as a new criterion, replacing tax effort, and modified the weightage of various factors.

• Fiscal management: This criterion aimed to assess the efficiency of states in managing their finances and mobilizing resources for their state plans.
• Special problems: The weightage for special problems increased to 15%, addressing various issues like coastal areas, flood-prone areas, and environmental concerns.

The Gadgil Formula in the 21st Century

The Gadgil Formula continued to evolve in the 21st century, with further revisions incorporating performance-based allocations. This included factors like tax efforts, fiscal management, population control, female literacy, and timely completion of projects. However, with the dismantling of the Planning Commission in 2015, the Gadgil Formula-based grants have been discontinued.

Impact of the Gadgil Formula

Despite its aims to promote equity in resource allocation, the Gadgil Formula faced criticisms for its limitations. While it did contribute to a more progressive distribution of central assistance, particularly in favor of poorer states, it still failed to completely bridge the gap in inter-state disparities. The formula's reliance on specific criteria and its tendency to focus on short-term goals often neglected the long-term needs and specific challenges of individual states.

Conclusion

The Gadgil Formula has been a significant part of the Indian planning process for decades, playing a crucial role in the allocation of central assistance to state plans. Its emphasis on population, per capita income, and other factors aimed to create a more equitable system for resource distribution. However, the formula's limitations and the changing context of Indian federalism led to its eventual discontinuation. The experience of the Gadgil Formula offers valuable insights into the complexities of inter-state resource allocation in a diverse and rapidly developing country like India.