Sunil Jain: Reforms leader, growth laggard

Sunil Jain reviews Chandrababu Naidu's nine years in office

Recently defeated Chief Minister N Chandrababu Naidu must be ruing his decision to woo India Inc, who feted him as CEO, instead of concentrating his energies on the people who voted him to power not once but twice.

CEO-ship might have sounded impressive, but as Naidu's patchy track record "" or balance sheet "" shows political governance and business require very different skills and abilities.

To start with, for all the focus on business and investment, India Inc never really voted for Naidu. True, the state consistently improved its investment-destination ranking under him "" Business Today, ranked Andhra 22nd in 1995, upped this to fifth in 1997, third in 1999 and second in September 2003.

But little money flowed into the state. Of the Rs 1,24,000 crore of planned investment in the state in 2003, more than 60 per cent came from central and state government-owned public sector units (PSUs).

The situation in Karnataka, interestingly, is just the opposite, with over 60 per cent of investments from the private sector. And some of the most high-profile investments in recent years, Hyundai and Toyota Motors, for instance, have bypassed Naidu in favour of Jayalalithaa and Krishna.

In January 2001, the Naidu government signed memorandums of understanding (MoUs) worth Rs 38,700 crore during the CII Partnership Summit. At the next summit two years later, projects worth just Rs 3,000 crore were nearing completion. And at the summit of 2004, MoUs worth only Rs 17,000 crore were signed.

Though it had become fashionable over the last year to joke about Naidu's IT-obsession, the state has made impressive strides here. True, Hyderabad's software exports last year were under a third those of Bangalore.

But a measure of just how fast the city was running under Naidu is the fact that its software park has 1,165 units compared to Bangalore's 1,154. And while it is true that the Hyderabad development centres of Microsoft, Oracle and GE do not compare with their Bangalore counterparts in terms of size, the fact that they are located in Hyderabad is testimony to Naidu's efforts.

Even in terms of public services, Naidu's record has not been as bad as his critics make out. An all-India survey by the Bangalore-based Public Affairs Centre (PAC), an authoritative non-governmental sources on the subject, shows that in 1995, when Naidu came to power, Andhra's track record was extremely poor. For instance, one primary health centre serviced 37,896 citizens, one of the worst records in the country.

In 2003, the PAC survey showed this remained largely true with the state ranked 22nd in terms of satisfaction reported through the sample. Yet, the state was eighth when it came to drinking water, third in the quality of the Public Distribution System (PDS), fourth in terms of education, and fifth in aggregate terms.

(Of course, a higher all-India ranking is relative and does not mean the population is satisfied. For instance, just 16 per cent of Andhraites using public schools were satisfied with the quality of education they received.)

Naidu also inherited a state with a militant workforce, which restricted his ability to attract investments, among other things. The state, for instance, accounts for only 6 per cent of the country's industrial output but is home to 13 per cent of the country's industrial labour force and accounted for around a fifth of the industrial strikes in the country in the late 1990s.

Not surprisingly, for all Naidu's efforts, the state has remained a poor performer "" it may have been higher by the standards of Uttar Pradesh (UP) or Bihar, but not within its peer group.

In the 1990s, Andhra's per capita income grew by 4 per cent compared to Bihar's 0.5 and UP's 2.2. Set against Tamil Nadu's 5.7 per cent and Karnataka's 5.4 per cent, however, this is not a great performance.

As a result, while poverty levels in Andhra fell by 29 per cent between 1993-94 and 1999-00, Tamil Nadu and Karnataka saw a 40 per cent fall in the same period. The state's industrial performance has also been the poorest among its peer group.

But it is agriculture that many consider his weakest point. With Andhra crop yields 50 to 60 per cent lower than in states like Tamil Nadu, the state's 3.3 per cent agricultural growth during the 1990s just about matched the country's average. But it was lower than Tamil Nadu's 3.7 and Karnataka's 4.2 per cent.

It didn't help that, when the monsoons failed for three years in row, Naidu reduced the outlay on irrigation. In the 1980s, 29 per cent of plan funds were invested in irrigation in the state. Over the past four or five years, this fell to under 10 per cent.

Under Naidu, the state also continued to impose a 1 per cent market fee, 4 per cent sales tax and a 5 per cent rural development cess on all paddy sales.

Ironically, Naidu's rout has been linked to his image as a bold reformer, but there are several instances of retrograde steps too. To be sure, Naidu made many pro-reforms moves like increasing tax collections and power tariffs (as part of the reforms-for-concessional loans deal he signed with the World Bank).

He also slashed government staffing "" compared to a 3.4 per cent annual growth in the pre-1997 decade, this fell to under 1 per cent in the past few years. As a result, the salary component of government expenses fell from 43 per cent in 1994-95 to 35 per cent in 2000-01.

Yet, Naidu combined such progress with extreme populism, like extending the pension scheme to employees of local bodies and government-aided institutions. This increased the state's pension bill from 9 per cent of its expenses in 1994-95 to 30 per cent in 2000-01.

The former chief minister was an aggressive privatiser, having sold 12 of the state's 128 PSUs, closed another 12, and begun the privatising process for another 79 units. Yet, this was combined with massive expansion plans for existing PSUs (40 per cent of Andhra's planned investments are from state PSUs), as well as massive borrowing programmes.

The result: the state's debt has shot up from 24 per cent of Gross State Domestic Product in 1997-98 to around 33 per cent in 2003-04, and interest payments from 12.4 per cent of revenue receipts in 1993-94 to 25.1 per cent in 2002-03.

Naidu was the recipient of central largesse courtesy his BJP allies at the Centre. Central transfers to the state rose from 4.4 per cent of GSDP in 1999-00 to 6 per cent in 2003-04, a feat not achieved by any other southern cousin. Yet even this could not prevent the state's fisc from sliding back to, in many ways, what Naidu inherited from his late father-in-law.

(Additional reporting by Sanjay Pillai in Hyderabad)