Sunday, January 3, 2010

Case for more states : New miracle economies: Bihar, poor states

SA Iyer of Swaminomics says:

ndia achieved record annual GDP growth, averaging 8.45%, in the five years, 2004-05 to 2008-09. But was this inclusive, and did it benefit the poor masses?

We have no data on poverty beyond 2004-05. But the CSO has current data on the economic growth of the states. Historically, the chronically poor states were Orissa plus the BIMARU quartet (Bihar, Madhya Pradesh, Rajasthan, Uttar Pradesh), of which three have been sub-divided. Have these eight poor states participated in India’s boom?

Yes, absolutely. Indeed, five of India’s eight ultra-poor states have become miracle economies, defined internationally as those with over 7% growth. The best news comes from Bihar, historically the biggest failure. From 2004-05 to2008-09, Bihar averaged 11.03% growth annually. It was virtually India’s fastest growing state, on par with Gujarat (11.05%). That represents a sensational turnaround. Nitish Kumar deserves an award for the most inclusive revolution of the decade.

Other poor states have done very well too. Uttrakhand (9.31%), Orissa (8.74%), Jharkhand (8.45%) and Chhattisgarh (7.35%), have all grown faster than the standard miracle benchmark of 7%.

India today has 28 states. Assuming 20% population growth since the last census, Uttar Pradesh has 198 million people, more than Brazil, Russia or Pakistan. Maharashtra has 106 million, West Bengal 96 million and Andhra Pradesh 90 million. All are much bigger than France or Britain. At the other end of the scale, Sikkim has just 0.6 million people, Mizoram 1.1 million and Arunachal Pradesh 1.3 million. Clearly, statehood has been determined by political expediency, not logic.

Is there an economic case for carving smaller states out of large ones? Some analysts say small states won’t be economically viable. Others believe small states will fare better, since ordinary people will have better access to power elites. Consider the record of three states carved out of larger ones in 2000 - Jharkhand, Chhattisgarh and Uttarakhand. Ignore data for the first few transitional years. Instead, focus on the average growth rate of gross state domestic product for the last five years, from 2004-05 to 2008-09.

Amazingly, all three new states have grown fabulously fast. Uttarakhand has averaged 9.31% growth annually, Jharkhand 8.45%, and Chattisgarh 7.35%. All three states belong to what was historically called the BIMARU zone, a slough of despond where humans and economies stagnated. Out of this stagnant pool have now emerged highly dynamic states.

I am supporter for smaller states, especially in South India/Tamil Nadu.

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