T C A Srinivasa-Raghavan: How to remove inter-state disparities

OKONOMOS

Jairam Ramesh hasn't lost his sense of humour. He wants the government to invest more.

As we can see from the title of his lecture, Jairam Ramesh, the minister of state for commerce, has always had a way with words. Having missed his true calling as a chief-sub on a major newspaper, he has taken a step down to become a politician and a minister. But, as the content of his lecture shows, that has not dulled his mind.

Ramesh says "growth in itself is no guarantee of welfare" and in support, cites the examples of Kerala and Gujarat. "At lower rates of economic growth and in a visibly less-dynamic economic environment, Kerala has achieved significantly higher female literacy, lower total fertility, higher life expectancy and lower infant mortality than Gujarat." But he also says that it has a higher suicide rate.

Ramesh goes into the usual statistics about state-level growth between 1960 and 2000, Gini coefficients, coefficients of variation and so on, between states. Then he says, "In my view, the burdens of both history and geography are also powerful factors that explain persistence of disparities." That is, it is not just the usual reasons "" poor governance et al "" but initial conditions also matter. Unfortunately he doesn't amplify on this.

Ramesh points out that "over 60 per cent of private industrial investment during the period 1960-1990 went to just five states "" Maharashtra, Gujarat, Tamil Nadu, Andhra Pradesh and Karnataka," in part because faulty policies like freight equalisation, which ended in 1991. He might have also pointed out that, for the most part, these were Congress-ruled states but doubtless modesty prevented him.

He then goes on to say that reforms have sharpened the disparities. Thus, "of the 172 SEZs that have been notified so far, 75 per cent are in just five states ""Andhra Pradesh (48), Maharashtra (24), Tamil Nadu (24), Karnataka (19) and Gujarat (12)." A similar skew can be seen in the case of IT.

His analysis of public sector investment is also interesting because the laggard states, especially in the east, did receive a lot of it. But for reasons that are well-known, they failed to capitalise on it.

He then deals, at length, with the Finance Commission's awards and the Planning Commission's formulae. Overall, he concludes that there really isn't much room for manouevre and that we are more-or-less stuck. The best that can be done is to fiddle at the margin.

In the context of the slowcoaches of central and eastern India, he points out that competitive politics is not why they are in such a mess. "That you can have an intensely competitive and combative political culture without having too much of a deleterious impact on economic performance is borne out by the example of Tamil Nadu particularly." He fails to point out that West Bengal, even without an "an intensely competitive and combative political culture", has done horribly.

What it all boils down to in the end is that there are huge inter-state imbalances in economic performances, that some of these are because of historical and geographical reasons, that competitive politics doesn't matter but governance does and that we have to do something about it.

This brings Ramesh to the main point of his lecture: "I am one of those who still believe that the central government just cannot abandon its responsibility for ensuring balanced growth across states, in keeping with their resource endowments and available skills." Has anyone suggested that it should?

And then, after all this admirable analysis, he delivers what one might call the kiss of death: "What is more urgent now is to step up the absolute levels of public investment in infrastructure and connectivity. The present pattern of growth is increasing gaps between those states that 'have it' and those that, for complex reasons, 'don't.'"

The point, dear Jairam, is of competence. The government consists, by and large, of otherwise unemployable people, especially at the levels where things get done. That is why if you leave it to public investment, nothing will ever get done. The government is the problem today, not the solution. It only gets in the way.

*Regional Growth in India: Disparities or Dispairities? Foundation Day Lecture. National Institute of Rural Development Hyderabad. Available from the Ministry of Commerce or IRD