THE MAKING OF MIRACLES IN INDIAN STATES: ANDHRA PRADESH, BIHAR AND GUJARAT
Arvind Panagariya and M Govinda Rao (editors)
Oxford University Press;
360 pages; Rs 595
Federalism is quite the flavour of the month in Indian policy circles. Partly through political action and partly thanks to the technocrats at the Fourteenth Finance Commission, the devolution of power and funds to the states has accelerated sharply in recent years. One of the purposes behind the replacement of the Planning Commission with the National Institution for Transforming India, or NITI, is purportedly a more collegial - rather than supervisory - role for the Centre.
At this crucial moment arrives another in Oxford University Press' series on Indian economic policies. This volume - The Making of Miracles in Indian States: Andhra Pradesh, Bihar and Gujarat - is edited by M Govinda Rao, a member of the Fourteenth Finance Commission, and Arvind Panagariya, the head of NITI. Both the subject and the editors thus must command our attention.
The purpose of the three studies in the book, according to the editors, is to examine "the link between state-level policy reforms and the economic and social outcomes". The three states chosen for this examination are eminently defensible choices. Gujarat's growth, of course, has been much debated; and while the election of Narendra Modi as prime minister has rendered much of the political content of the discussion moot, it remains important to understand what the state achieved. Not just for the lessons for other states that lie in its successes, but because it provides a clue to what the PM might seek to implement in his new role.
The two other states chosen are (undivided) Andhra Pradesh and Bihar. The latter is considered to have begun an economic turnaround under Chief Minister Nitish Kumar - and if so, has lessons for other lagging states. Meanwhile, AP is an outstanding success story in terms of reducing poverty. The numbers are startling: the proportion of poor in AP was just 3.7 percentage points below that in Uttar Pradesh in the mid-1990s. By 2011-12, that diference was over 20 percentage points - and absolute poverty had dropped below 10 per cent. This qualifies as an economic miracle, certainly.
The editors' introduction is followed by the three deeper state-level studies. Overall, as a state-of-play introduction to three major Indian states, the studies are excellent, and well worth reading.
The real issue, however, is whether that add substantially to the store of knowledge in terms of three questions: First, are state-level policy choices the essential component of a state's success? Second, which policies make a difference to a state's chances of success? And third, is a particularly type of "strong" state leadership essential for those policies' implementation?
On the first question - which is, in many ways, the central assumption of the editors - the evidence is far from conclusive. For example, we are urged to interpret AP's success under Mr Naidu and YSR as a product of "policy experimentation". The state-enabled development of Hyderabad's IT sector is singled out as one such policy. Certainly, it seems clear that both named CMs worked hard to attract business, and that YSR used the revenue so created relatively effectively. But can we draw so straight a line between entrepreneur-friendliness and, say, the reduction of poverty? Certainly, the only real policy-based link the AP example seems to provide is the creation of funds through growth that can then be used in massively raising per capita development expenditure. This is not a particularly innovative policy choice; in fact, it could be called the standard Sonia Gandhi-Manmohan Singh model. YSR in particular may have implemented Gandhi-Singh model better than most others, but the question we are asking is about policy, and not administrative, choices. Where AP was innovative - in microfinance, for example - the authors show that the policy innovation had little effect on outcomes. With Bihar, the study suggests the crucial improvement was Mr Kumar's restoration of credibility to the state machinery through continual monitoring, and such mechanisms as the Right to Public Service Act. The evidence of policy innovation, as opposed to administrative improvements, is even weaker from Gujarat.
On the second issue - of which policies, at least in these three states, seem to have had an effect on their chances of success - some interesting answers are thrown up. Most of all: both AP and Gujarat saw one big change in more recent times from previous years: higher and less variable agricultural growth. The reasons for this are not made as clear as they should have been, by the authors, since this is in effect what actually seems to have set these states apart. My conclusion on reading the studies is that AP ended the state's role in agricultural marketing early, and enabled a shift to high-value agricultural commodities like vegetables and poultry. In Gujarat, the high agricultural growth coincided with the arrival of Narmada water, so I'd like to have seen a closer study of that - the authors merely assert in an appendix that the Sardar Sarovar doesn't really matter. In general, the sections outlining "policy changes" are not as tightly linked, analytically, to the listed positive outcomes as they should be. This reduces the book's persuasive power.
The third issue, of the salience of the political leadership, is perhaps most interesting of all. Both Gujarat and Bihar suggest that administrative accountability and responsiveness are crucial to improving state performance and economic outcomes. My question is this: does this need a specific type of leader? Will Bihar's accountability revolution count as a "reform" if it does not survive Mr Kumar? Is it not possible to have accountability without a "strong" CM?
Here is the narrative that I infer the book espouses: that states need market-friendly policy changes; that those impact socio-economic outcomes positively; and that such policy changes need specific types of political leaders. This narrative may well be true. But the case has not been conclusively made.
