Regional Growth, Regional Policy and Inclusive Development: Some observations on India s Experience

Transcription

1 Regional Growth, Regional Policy and Inclusive Development: Some observations on India s Experience Ravi Srivastava Professor & Chairperson, Centre for the Study of Regional Development Jawaharlal Nehru University, New Delhi

2 This paper analyses: Trends in regional disparities and regional development policy in the pre-liberalization and postliberalization phases. It focuses on the industrial sector which principally accounts for the increasing regional inequalities. It brings three general phases in regional policy: Pre-reform, characterized by interventions. Post-reform: till about 2002, with reliance principally on markets. Post reform: after 2002, and increasingly after 2004, with stress on filling critical gaps through public programmes focusing on poor areas.

3 Theoretical background Extensive literature in economic geography on why economic activities concentrate in space. Economic geography explores role of markets, favourable natural factors, location costs. NEG focuses on economies of scale esp. pecuniary economies & transport costs. Ignores historical processes & actual structures of production. Ambivalent role of regional policy. World Bank calls for limited role.

4 General trends in disparity The gap between the highest and the lowest per capita income in the states has steadily widened over this period from a multiple of 2.6 in to 2.8 in and a further 4.6 in States that have lost rank are those with poor agricultural performance. These include the two agriculturally developed states with highest per capita incomes (Punjab and Haryana)

5 Trends in CV of PCY (unweighted at prices) Agriculture Industry Services Total

6 Trends in CV of PCY (weighted, at prices) Agriculture Industry Services Total

7 Growth rates (%) Post-Liberalisation Growth Performance Trend growth rate of PCY between & ,00 7,00 6,00 5,00 4,00 3,00 2,00 1,00 0,00 States

8 State level & Sectoral growth Some middle income states have shown better performance and some high income states have lost ground due to poor agricultural performance. Tertiary sector growth (includes ICT and ITES) has been higher in a number of developed states. Secondary sector growth has been higher than the pre-reform period only in a few states.

9 Tests of convergence (estimated β coefficients) Year Total Agriculture Industry Services to to to

10 Impact of colonial heritage Enclave type growth around port cities (Bombay-Ahmedabad, Calcutta, Madras accounting for 77% of industrial workers). Disjuncture between agriculture & industry. Greater public investment and possibilities of agricultural growth in areas with proprietary agriculture.

11 Agriculture in the Pre-reform Period Phase 1 extensive agriculture, no noticeable increase in disparities. Phase 2 intensive agriculture green revolution increase in inter-crop, interregional and inter-class disparities. Phase 3 extension of growth to other areas, crops and smaller cultivators.

12 Pre-reform policies for agriculture Number of policies and programmes introduced to redress imbalances. Programmes for small/marginal cultivators. Programmes for rainfed and dryland areas. Research focus on crops produced in these areas. These were reasonably successful in spreading growth to several areas.

13 Post liberalization agricultural performance Liberalization assumed that bias against agriculture would be corrected. Policies introduced to deregulate agricultural marketing. Reduced public support in the form of investment, extension services, research etc. Initially favourable terms of trade led to overall growth but with signs of emerging imbalances. Sharp collapse after with greater integration with world prices and fall in the latter. Signs of an acute crisis in several regions accompanied by farmer suicides. Agricultural crisis spread across a number of areas with varying endowments.

14 Policy Response No specific regional policy package. Continuation of thrust on rain-fed/semi-arid areas through watershed approach. Renewed emphasis (since 2002) on public investment in agriculture Agrarian crisis has precipitated (i) a specific package for crisis districts; (ii) a credit package. Move towards district agricultural plans in 11 th Plan

15 Fiscal transfers/investment Indian fiscal federalism needs correction to vertical and horizontal fiscal gaps for states. In the reform period, main transfers (through Finance Commission and Planning Commission) have been progressive. Transfers through Central schemes also progressive. But these transfers reflect bargaining outcomes and favour middle income states and in the 90s, the quantums transferred are lower. Disparities in per capita state spending persist (but not only due to external constraints). However, the share of public investment has shrunk (only 20% now). Transfers through financial institutions continue to be regressive.

16 Regional Policy in the first phase of Liberalization As shown in the sectoral analysis, regional policy based on fiscal incentives or locational decisions was dismantled in the first phase of reforms. Some area based programmes continued. Major thrust was on market based incentives and regional disparities were not high on policy agenda. Since , increased (regional) disparities became quite centre-stage in policy discourses.

17 Revival of Regional Policy Since 2002, policy aim is to bring poor regions up to a minimum level of social and physical infrastructure through large flag-ship programmes. Simultaneously a programme has been launched which aims to provide resources to build capacity of local bodies to plan locally and to provide resources to plug critical gaps. Thus the new strategy is built on the premise that once these critical gaps can be filled and minimum infrastructure created, the states will be better equipped to integrate with the markets and take advantage of globalization. The role of the state is seen as facilitating the creation of a market friendly environment. It remains to be seen this strategy can offset the cumulative advantage conferred by the market on the already developed regions.