TDuring the last decade, inter-state disparities in growth have widened as faster-growing, richer states have steadily pulled apart from the slower-growing, poorer states in the country. These disparities are likely to worsen in the future as some of these faster growing states are ruled by the BJP. With this party also in power at the national level, these states have an edge over others in attracting big-ticket investments, fuelling more rapid growth. Although this growing divergence has been observed during earlier decades as well, the factors responsible for it are not fully understood.
The recent state assembly elections brought the BJP to power for the first time in Maharashtra and Haryana. Mumbai, the capital of the former, is the nation’s finance powerhouse. Haryana is a prosperous agrarian region that has made rapid strides in industrialisation in recent decades. Besides these states, the BJP is already in power in Gujarat, Madhya Pradesh and Rajasthan. This vast geographically contiguous zone comprises the leading bastions of finance, commerce and industrialisation. This zone includes the fastest growing state, Madhya Pradesh.
Prime Minister Narendra Modi stated “$100 billion of foreign investments from Japan, China and America have applied for visas. Now, it is the turn of the states to capitalise on this opportunity. The roads are wide open. The states which are ready can walk away with major share”, while inaugurating the Global Investor Summit in Madhya Pradesh. There are no prizes for guessing that the states most ready would be the ones ruled by the business-friendly BJP. Foreign and domestic investors would also prefer them to set up factories as their policies would be more in sync with those at the Centre.
The tendency of investments to be attracted to faster-growing and richer states only reinforces the Biblical axiom, for whosoever hath, to him shall be given! These states are already attracting a disproportionate share of foreign direct investments. Maharashtra, Gujarat, Rajasthan, Madhya Pradesh and Haryana accounted for one-fifths of foreign equity inflows last year. Maharashtra alone attracted 30 per cent of such inflows from April 2000 to August 2014. With visas likely to be granted on arrival in these states, the growth sweepstakes would become more biased in their favour than before.
In its survey of mid-90s India, The Economist pointed to an emerging pattern, notably, that one had to draw a line from Kanpur in the state of Uttar Pradesh to the tip of the sub-continent: “On the western side are bits of India that work; on the east, the bits that don’t.” This west-east divide might only get reinforced over the near term as this geographically contiguous saffron zone rolls out a red carpet with less red tape to become more attractive destinations for infrastructural investments such as dedicated industrial and freight corridors and expressways.
Admittedly, positing a growing west-east divide is a simplification. Top performing states are not necessarily concentrated in one part of India. In the BJP-ruled states, for instance, Rajasthan is a laggard in growth. Contrary to the popular stereotype, neither are the slowly growing states concentrated in the east. The second and fourth fastest growing states in terms of income per head last year were Bihar and West Bengal respectively. The big question is whether these eastern states will continue to grow as fast in the future as their political regimes are not so business-friendly as the current BJP-run states.
The fact that growth has occurred in more than one part of the country also figures in the research of the newly appointed chief economic advisor in the union finance ministry, Arvind Subramanian. Along with Utsav Kumar, he wrote on these inter-state disparities in the Economic and Political Weekly. While growth in most states has substantially increased when compared with the nineties, this was observed in geographically diverse states such as Uttarakhand, Chhattisgarh, with Gujarat, Orissa and Bihar not too far behind. As noted earlier, the factors responsible for such a pattern have not been fully understood.
Even so, Gujarat and Maharashtra’s continued dominance at the top is less of a mystery since they attract the bulk of investment proposals from the private sector. Maharashtra had a head start in industrialisation. The popular narrative is that BJP’s achievement in Gujarat was double-digit growth. What this overlooks is the fact that this state has always been a frontrunner in industrialisation. The approach to growth by successive state administrations has remained the same irrespective of whichever party was in power. Gujarat has always been business-friendly, even during the licence-quota-permit era.
If faster growth in such states is triggered by attracting more investments, including FDI, Subramanian and Kumar are puzzled by the stellar success of Kerala. This southern state was the third fastest growing one between 2010-11 and 2013-14. It is termed “reform-resitant” as it has been a poster boy of social development despite a low per capita income. But the flip side of the Kerala model has been industrial decay and stagnation, the antithesis of the BJP-run fast-growing and rich states.
The upshot is that there are no hard and fast theories as to why certain states grow fast or why inter-state disparities continue to widen. But none of this detracts from the fact that the parts of India that work are in BJP-controlled states west of the line from Kanpur to Kanyakumari. They have an edge over other states in participating in an infrastructure-led growth process initiated by the Modi-run NDA government. Reforms can easily be implemented in such states. Such states, in turn, can also take the initiative in vital reforms such as labour – as Rajasthan and Madhya Pradesh are currently doing — and land acquisition. They are bound to pull apart from the rest.
(N Chandra Mohan is an economics and business commentator based in New Delhi)
N Chandra Mohan
