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| M Govinda Rao: Regional development for inclusive growth | | A lasting solution to poverty and backwardness cannot avoid focussing on poorer regions |
| M Govinda Rao / New Delhi Oct 06, 2009, 00:21 IST |
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The shift in focus towards inclusive growth in the Tenth Plan and increased emphasis on the same in the Eleventh Plan are important to ensure that the poor participate in the market activity and the growth process in a meaningful manner. However, the strategy has been mainly to provide this section with some measure of consumption security through various employment programmes and/or writing off farm loans. While these are important in the short term, the inclusive growth strategy requires linking the poor rural population to the market and undertaking measures to increase their skill levels and productivity. Considering the fact that the poor are concentrated in less developed areas of the country, the growth strategy, to be inclusive, should shift the focus to less developed areas. Providing infrastructure and connectivity in these areas can go a long way not only in bringing these regions within the fold of market activity, but also in breaking their institutional impediments.
A lasting solution to poverty and backwardness in the country cannot avoid focussing on poorer regions. These regions—comprising Bihar, Chattisgarh, Madhya Pradesh, Orissa, Jharkhand, Rajasthan, Uttarakhand and Uttar Pradesh—with 45 per cent of the total population account for just about 22 per cent of income generated in the country. Almost 60 per cent of the poor reside in these states. The human development ratio in these states is substantially below the national average, and infrastructure like road and transportation facilities, agricultural marketing and cold storage as well as power supply is abysmal. Many of these states, Bihar and Orissa in particular, suffer from periodic floods, controlling of which is beyond their capacity or realm.
Curiously, these states are rich in natural resources. The states located in the Indo-Gangetic plain—undivided Uttar Pradesh and Bihar—are endowed with fertile alluvial soil, large parts of which are under perennial irrigation. The large river systems in Orissa and Madhya Pradesh, similarly, have provided livelihood to millions. What is needed there, besides controlling the fury of floods, is to provide them knowledge about better farm practices, use of improved seeds, marketing infrastructure and cold storage facilities. Orissa, Rajasthan and the undivided states of Bihar and Madhya Pradesh are rich in minerals. These states account for 78 per cent of coal, and the income from minerals constitutes almost 35 per cent of their Gross State Domestic Product (GSDP). Almost 25 per cent of iron ore is produced in Madhya Pradesh alone, and about 42 per cent of the estimated deposit of copper and bauxite is in Orissa. Yet, these are the poorest states.
Despite all the above advantages, these states have fallen into misfortune. The major problems—besides low levels of infrastructure, market environment and institutions—are seen in the continuation of exploitative institutions and poor governance systems. Surely, these regions have a huge developmental potential, and also the potential to trigger the next stage of productivity gain and growth acceleration. However, per capita development expenditure in these states in 2006-07 (Rs 2,706) was lower than the average of non-special category states (Rs, 3,606) by almost 25 per cent. It was lower than the average by 42 per cent in Bihar, 34 per cent in Uttar Pradesh and 26 per cent in Orissa. Over the years, the pattern has been similar and the cumulative impact of this has been to deny them the basic infrastructure. Thus, with poor market access, these states could not reap the benefits of economic liberalisation.
Of course, there are a variety of reasons for low levels of development expenditure in these states. Often, these states are blamed for their poor governance, which results not only in their low absorption capacity of Central assistance for various schemes, but also in low productivity. Even if this were to be true, it must be noted that an overwhelming proportion of assistance given through various schemes is to enhance the consumption entitlements rather than improve the infrastructure.
An analysis of inter-governmental transfers reveals that although the transfer system as a whole shows a progressive distribution with states having 1 per cent lower per capita income receiving per capita transfers higher by 0.4 per cent, it could not offset the fiscal disabilities of poorer states adequately to enable them to incur comparable expenditures even when they raise revenues from their own sources at comparable rates. Interestingly, the Finance Commission transfers are the most progressive with states receiving per capita transfers higher by 0.5 per cent for every 1 per cent lower per capita GSDP.
Infrastructure development in a state depends on spending by both the Centre and the state government. The distribution of the Centre’s own spending in states goes by the name of regional policy. A recent, empirical study by Pinaki Chakraborty, Anit Mukherjee and Amar Nath at NIPFP tracing the regional incidence of the Central government’s implicit and explicit subsidies, reveals that it is the more advanced states that get the bulk of it. In per capita terms, while the average for non-special category states in 2007-08 was Rs 900, the share of Bihar was Rs 458, Jharkhand Rs 544, Madhya Pradesh Rs 709 and Uttar Pradesh Rs 753. In contrast, it was Rs 1,687 in Punjab, Rs 1,618 in Haryana and Rs 1,262 in Tamil Nadu. In fact, the distribution of the Centre’s spending dents whatever positive impact the explicit central transfers have.
Thus, neither the Central direct transfers, nor the direct spending on implicit and explicit subsidies by the Centre enable the poorer states to create the necessary infrastructure levels and market environment to catch up with their more developed counterparts. To make the growth process inclusive, it is necessary to enable the poorer states to raise infrastructure levels to harness their rich resources and compete with their developed peers.
The author is Director, NIPFP.Email: mgr@nipfp.org.in
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