C3S Paper No. 0207/2015
Courtesy: The Hindu
The Making of Miracles in Indian States; ed Arvind Panagariya & M. Govinda Rao, OUP, Rs.595.
At a time when even the World Bank is advocating inclusive growth, this book oddly extols the market in its analysis of three Indian states.
In 1993, the World Bank brought out a report titled The East Asian Miracle,which excited global opinion. Very soon, economists faulted the bank for having misread the causes behind rapid growth and for over-emphasising the role of the market. Within the next four years, the ‘miracles’ were in deep crisis. Since then, the world has witnessed many more crises and the mother of them all happened in 2007 in the U.S., the richest economy.
These developments have questioned the assumptions and growth models of economic theorists. The market-oriented Washington Consensus has run aground. Investment and/or export-oriented models are seen to be unsustainable, as seen in China recently.
Given the nature of the ongoing debates, it is somewhat odd that these two economists would venture to write a book on The Making of Miracles in Indian States. Three States identified are Andhra Pradesh, Bihar and Gujarat. The editors are economists of repute and known for their ideological predisposition. Arvind Panagariya has since taken over as the Deputy Chairman of NITI Aayog.
As to how these three States were identified, the introductory chapter offers explanation by saying that the study “demonstrates that every one of these states has improved the outcomes with respect to growth, poverty alleviation, urbanisation and other social indicators following the economic reforms.” They are said to have introduced and sustained reforms.
The study repeatedly refers to the “leadership” provided by the Chief Ministers that led to good governance and improvement in service deliveries. While making such claims, they fail to emphasise the need for longer term political stability and for consensus on reforms as the sine qua non for their success.
Though the criteria for selection of states have a bearing on economic parameters, one cannot help but observe a hidden agenda behind it. It appears only those States that show preference for private sector (including privatisation, liberalisation, private-public partnerships etc) have been chosen.
The book contains data assiduously collected and classified under various categories such as ‘Growth’, ‘Poverty and employment’, “Governance and Reforms’, and so on. Data have been worked out at the micro level. However, they do not add up to a big picture.
On Andhra Pradesh, the authors repeatedly refer to the ‘transformation’ brought about in agriculture as a result of reforms. Agriculture is said to have been moved from low end produce to high value added items like vegetables, horticulture and poultry. Indeed, the government facilitated this process by abolishing state’s role in agricultural marketing. These may have helped the rich farmers. But there is hardly any mention of the rising suicide rates among marginal and poor farmers reported in national media. Micro credit institutions are part of the problem. By any test, it is not a sign of agricultural transformation that is ‘inclusive.’
Similarly, the efforts made by N. Chandrababu Naidu and Y.S.Rajasekhara Reddy to promote the IT sector in the state through their ‘entrepreneur-friendly’ policies are given high marks. The cost to the State in terms of land/tax concessions was high. The IT sector did not result in poverty reduction; on the contrary, it created greater inequality among people. The strength of A.P. State was the massive development expenditure met out of state coffers under the UPA guidance. This is not mentioned in this study. The other side of the coin is that the business friendly policies breed a culture of “crony capitalism’ in sectors like mining and massive corruption.A part of high growth during those years was due to this nexus which is since broken.
On Bihar, the authors blame the colonial legacy called Permanent Settlement. They also blame the systematic neglect of the state in terms of provision of public goods by the centre and policies in the post-Independence years working against the interests of the state. Indeed, the state leadership also failed. It is against this backdrop of decadence that they paint the rise of Lalu Prasad in the initial years and of Nitish Kumar in later years.
Chapter 10 titled ‘What changed?’ is a panegyric on the achievements of Nitish Kumar. They include: improving service deliveries, fiscal reforms and restructure of public expenditures, especially conformity to FRBM Act, improvement in law and order, social sectors like education and health. All these flowed from the leadership provided by Nitish. In fact, they are all monitored by the C.M.’s office! Unfortunately, as the authors themselves point out elsewhere, Bihar needs structural transformation and its vast agricultural expanse with natural advantages awaits better utilisation. Further, productivity is low with low levels of skilled labour and absence of vocational training. As the authors concede, these cannot be changed in the short run. No wonder, there is large-scale migration out of Bihar. NSSO estimated that Bihar has the highest rate of migration. “Migration is almost universal in Bihar and excludes only the poorest of the poor or the very rich.” As the authors add, “Lack of remunerative employment options within Bihar has often driven migrants out.” Bihar seems to depend much on remittances from such migrants. Given these weaknesses and infirmities, how does one describe it as a miracle?
The last part of the book is on Gujarat. There is an analysis of the structural transformation of its economy and repeatedly attempts are made to compare it with China’s. While the transition of workforce in agriculture to non-agricultural sectors is in line with India’s, the shift was largely to industry and manufacturing in Gujarat the country as a whole which towards services and construction. Gujarat is also marked by higher level of urbanization which is also compared with China’s!
When the Gujarat Model became a subject of national debate with the rise of Narendra Modi, there were several studies and reports which suggested low performance by Gujarat. One report of UNICEF (The Rapid Survey on Children or RSOC) showed the state in poor light. The report was not allowed to be published. This book glosses over this serious issue. As it says, “The performance of Gujarat in social sectors has been more controversial in the media. Our review shows, however, that while there are specific areas in which Gujarat has not done as well as it could, its performance overall in terms of other development indicators is consistent with its economic performance.” It is not clear what the authors mean.
The reason for its failure to meet HDI imperatives may be seen in the efforts to maintain fiscal restraint or responsibility. It is explained, “The state has been comfortably achieving almost all FRL (Fiscal Responsibility Legislation) targets.” The effort has been to reduce state expenditures on social sectors and shift them to private sector as PPPs. As the authors glowingly aver, “Philosophically, the government of Gujarat has adopted an enabling role and not predominantly controlling role.” The concluding chapter goes a step further. It adds that reduction in the size of the government and by cutting wasteful and unproductive public expenditure has made it possible to meet all targets under FRL without imposing additional tax burden. “This has created space for expanding the productive activities in the private sector.” One begins to wonder about the fate of the poorer sections who are left out and how it can be called a miracle.
This book provides some valuable data on the three States studied. However, it fails in objective analysis due to the authors’ predisposition towards the market. It is strange that they should be adopting this line at a time when even the World Bank has moved away from its earlier market-orientation and advocates an “inclusive growth.”