India and China are acting as engines of growth in a world hit by slowdown. The Asian giants’ pace might have slackened, but they are still notching a decent 6-7 % growth. Some experts even feel that the two countries may pull the developed world out of the quagmire of recession. The two nations have charted different growth paths. Focus on exports of goods has helped China emerge as the manufacturing hub of the world. India’s growth, on the other hand, is driven by domestic demand. Which makes it all the more imperative that the government intensify its inclusive growth efforts to make rural India a more prosperous and, for that very reason, a greater driver of domestic demand and overall economic growth.
While a large part of the public spending by governments in developed economies has gone to shore up a broken banking system, in India and China, fiscal policies have targeted the real economy. This is all to the good. However, in India’s case, much more needs to be done.
The growing gap among states in terms of per capita income, poverty, availability of infrastructure and socio-economic development is a big blot on and challenge for the India growth story. The seven low-income states of Bihar, Chhatisgarh, Jharkhand, Madhya Pradesh, Orissa, Rajasthan and Uttar Pradesh are home to more than half of India’s population.
Between 1999 and 2008, the fast-growing states like Gujarat (8.8%), Haryana (8.7%), or Delhi (7.4%) far outpaced Bihar (5.1%), Uttar Pradesh (4.4%) and Madhya Pradesh (3.5%). Poverty rates in rural Orissa (43%) and rural Bihar (40%) are among the worst in the world. Illiteracy, socio-economic backwardness and, inadequate and inefficient finance and marketing services for farm produce are hindering increase in productivity. Poor governance at state level has been a major factor.
Tackling this will need intervention by the central government. What kind is the real question? One good example can be found in how China has tackled economic backwardness in its interior regions. In recent months, following the global economic meltdown, Chinese state planners have shifted their focus to boosting industrial and infrastructure growth inwards from the coastal region where they allowed unrestricted capitalism in the past 30 years. As a result, eight of the 10 fastest growing regions of China in the second quarter of 2009 have been inland. According to The Economist, state directed improvements in transport infrastructure, especially railway networks, should encourage companies to move westwards from the coastal districts where they are concentrated at present.
In India, too, investment must be designed to link rural areas to urban centres and to create physical and market infrastructure in rural areas.
Finance minister Pranab Mukherjee has done the right thing in his budget by stepping up the allocation for rural development. But what all rightthinking Indians need to debate is whether it is sufficient to keep raising budget allocations without due thought to how the money is spent.
The late Rajiv Gandhi had said that just 15 paise out of every rupee the Centre sends to states reached the common man. Corruption and misuse of funds at state level have only worsened. State governments have money to spend on everything except the welfare of the poor and downtrodden. Just to give an example, the Bahujan Samaj Party government in Uttar Pradesh allocated a huge sum of Rs 553 crore of the total state budget for construction of parks and statues of chief minister Mayawati but a pittance of Rs 6.15 crore was given for development of Bundelkhand and Poorvanchal. Nearly 200 farmers have reportedly committed suicide in the Bundelkhand region alone during Mayawati’s tenure. Such mishaps could have been avoided if the UP government had utilised money given by the central government.
It’s here that the Centre can innovate. It can set up a public sector authority which is independent of the state government. This authority will not tread into the state government’s territory but will rather supplement and complement the developmental efforts of the state government. Such an authority will be specially effective in unwieldy states like UP and MP, or stragglers like Bihar, Orissa, Jharkhand and Chhatisgarh.
Finance minister Pranab Mukherjee can make history by grabbing the opportunity to bring Bharat and especially the agriculture sector, which still employs majority of our countrymen, on a par with India. This will need massive diversion of funds to countryside.
We have tried routing or funds through the state government, and direct transfers from the Centre to district administrations. Perhaps we should try setting up regional development authorities and transferring money to them, to find a balance between neglect of a poor region by the capital of a large state and the lack of region-wide coherence and coordination at the district level.
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