Waiting for Godot? What are states doing to drive growth?

Shankkar aiyAr Author of Aadhaar: A  Biometric History of India’s 12 Digit Revolution, and Accidental India

Published: 01st October 2017 04:00 AM  |   Last Updated: 01st October 2017 08:08 AM   |  A+A-

PM Narendra Modi with Chief Ministers

It doesn’t quite matter which side of the aisle of political affiliation or affinity politicos are. One fact is indisputable: the economy needs attention and action. The genesis of the slide is located in unresolved structural issues. The discourse, however, is stranded around what the Central government has done or not done—and it has much to answer for. The unstated question is about the role of state governments—surely duly elected regimes must share onus for the spectre of low growth and poor job creation. Conceptually India is a Union of States. Operationally every square mile of India, bar Union Territories, is ruled by state governments. Critical for comprehension is the arithmetic of government expenditure. Between them, the Centre and the States spent over `47 lakh crore in 2016-17—a fifth of which is funded by borrowed money—of which `27 lakh crore is spent by the states. How much of that is geared for growth? 

India votes at multiple levels. The vote that elects members of the state Assembly is just as sacrosanct as the vote that elects MPs.  So chief ministers—BJP and non-BJP—have an obligation; they owe it to their voters to enable transformation. The predictable response of regimes and supporters is that there are states that are doing better. That is missing the point. The higher pace of growth or ability to attract investment has more to do with legacy and location. It doesn’t obviate need for substantial structural reforms. 

The undeniable reality is that the responsibility for next generation of reforms and creating the impulse for growth squarely rest with the states. The need for this has been known and the precept was articulated by Prime Minister Narendra Modi when he coined the phraseology of ‘Team India’ and said that “for federalism to work well, states must also fulfill their role in promoting the shared national objectives”.  Unlike the past when the landscape was in the grip of regional satraps, the BJP-led NDA is in power in 18 states—in 10 states the alliance has been in power for at least 24 months. These states account for the most populated states, the largest states, the most industrialised states. They are also in power in the poorest states, poorly ranked in human development indicators. 

The harsh fact is the state governments are yet to show up. Indeed, most of the big tag policy planks have emanated from Delhi. Take, for instance, the new scheme for electrification of rural homes. Why was this not on the agenda of states? Make in India, Ease of Doing Business, Smart Cities, Skill India, Swachh Bharat, Start-Up India et al are grand articulations that states have failed to actualise. It is not for lack of experience—some of the BJP chief ministers are in their third term. It is not lack of political muscularity either.  

Growth thrives at the intersection of public need and economic returns. Construction and housing deliver a multiplier effect. Affordable housing that enchanting idea is back in currency. How many states have a plan? How difficult is it to create pre-cleared opportunities—using, for instance, land repossessed from failed SEZs or sick PSUs—for private sector to invest in? Must rebuilding of crumbling infrastructure—the foot over-bridge at Elphinstone Road Station —await tragedies? 
Rural distress is at the core of the slowdown—shrinking size of land-holdings renders farming unviable for most and this is aggravated by poor alternate avenues for wage-earning livelihood. This requires substantive measures. Viability of farming could be enabled through consolidation of holdings via initiatives like group farming and/or by introduction of contract farming to enable forward and backward linkages—for credit, inputs and market access.  

Take manufacturing. Success requires enabling provisions for factors of productivity—land, labour and capital. Of the three factors, land and labour are largely under state governments. Land acquisition has been left to the states—use of Article 254 (2) to overcome hurdles.  The leeway is yet to be leveraged. Rigidities in labour laws have daunted expansion of enterprises. V Anantha Nageswaran and Gulzar Natarajan show in their study, ‘Can India Grow’, that over 73 per cent of enterprises employed less than 50 persons. 


Yes, Budget 2017-18 promised a modern law for contract farming, a code for labour regulations. The promises await delivery. Must states wait? Is it not important enough for states to take the lead? Nothing stops states from designing their own policies. Yet they prefer to wait for Godot or in this case GoI.  
Lack of investments or what RBI Governor Urijit Patel describes as “retrenchment of investment demand” is a worrying factor. Make in India was to be the umbrella under which the issues of investment were to be addressed, critically improving Ease of Doing Business. Is it easy? Easier? It would be worth doing a flow chart of number of permissions needed and days taken—say for putting up a factory or a hotel or a housing project.

Cluster development drives investment and employment. Coastal economic zones are another opportunity—and India has over 7,000 km of coastline. Yes, the Centre has proposed 14 coastal economic zones, but must states await enlightenment in Delhi? Nothing prevents states from collaborating to design special development zones —Mumbai-Pune-Nashik or Chennai-Nellore-Tirupati. The idea is to aggregate physical, material and human resources to create an ecosystem for agricultural, industrial and services enterprises and leverage it with port connectivity.

Urbanisation is a proven accelerator of growth. The saga of Smart Cities is too sordid to be repeated —the landfills in Delhi and Mumbai, the overflowing lakes and annual trauma of flooding say it all. In May 2016, the Union Urban Development Ministry asked 28 states to convert 3,784 Census Towns into urban local bodies. This would have been an opportunity for states to design their own smart cities—trigger investment and create employment. The moot question is how many states complied.
India’s GDP is essentially the sum of how well or poorly its states do. For India to grow and for Indians to prosper, it is critical that states be roused out of their torpid state.
 shankkar.aiyar@gmail.com

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