The following simplified graphic explains the virtuous cycle of growth in a country like India that is the second most populated country on earth having the largest number of potential workers.
The key to sustained economic growth for India therefore lies in providing gainful employment to its young workforce. Any development endeavour that overlooks this dimension is bound to fail.
Any debate about reforms in the prevalent Indian socio-economic structure must focus on this aspect. Remember, to achieve a sustainable and faster growth we need to ensure that at least 50 percent of our population is earning, consuming, saving and investing. If we keep more than 50 percent of the population just at the sustenance level, we cannot create enough demand to grow our economy faster and higher.
The economic model adopted post-independence era, which was mostly an extension of the exploitive colonial model used by the British Empire, has promoted inequalities, injustice and unsustainability. This is the economic paradigm we need to change by instituting fundamental reforms. Improving efficiency of the extant system, by say GST, PSB consolidation, etc. may not be sufficient.
Consider the following basic data points, to appreciate this point better:
(a) The four largest populated states, viz., UP, Bihar, MP and West Bengal are amongst the poorest ones. These four states account for almost 40 percent of the total population of India; whereas their contribution to India's total GDP is just about 20 percent. The annual revenue gap for these states is much higher than the national averages. Bihar earns just 31 percent of its revenue expenditure requirement; UP 51 percent; MP 46 percent and West Bengal 45 percent.
(b) The four richest states in India, viz., Maharashtra, Tamil Nadu, Gujarat and Karnataka account for less than 25 percent the total population; whereas their contribution to national GDP is over 40 percent. Maharashtra (72 percent), Tamil Nadu (79 percent), and Gujarat (75 percent) are able to cover their revenue expenditure much better.
(c) Five top states Maharashtra, Tamil Nadu, Gujarat, Karnataka and Andhra Pradesh account for close to 70 percent of total exports from India. Whereas the resource rich states like Jharkhand, Chhattisgarh, West Bengal, Odisha and Punjab lag much behind.
Historically, this undesirable regional skew in the economic development could be traced back to the Mughal and British periods. The coastal Indian cities and important cantonment towns witnessed maximum concentration of strategic and economic power during these regimes due to obvious reasons. The hinterlands witnessed significantly lower investment in industrial and social infrastructure during these regimes. The investment in hinterlands was mostly to serve the colonial designs, i.e., transportation infrastructure (road and rail network).
The skew in industrial development got permeated to the social constitution of these regions as well. The commercially developed regions have experienced better development in areas like higher education, financial inclusion, water, sanitation and healthcare.
Due to better education facilities, these areas naturally got most of the engineering and scientific talent and thus got lead in developing as important centres of modern technology and ITeS services. For obvious reasons these are the centres that attracted most of the foreign business interest as well.
Post-independence, these industrially developed areas accounted for most of the tax collections, and therefore development resource allocation. The skew therefore kept worsening over the years. Even the historically superior agricultural states like UP and Punjab lost to Gujarat, Tamil Nadu, Maharashtra and Andhra in terms of growth in agriculture GDP.
The states and areas like Jharkhand and Chhattisgarh that produced maximum raw material and labour were exploited by industrially developed states, as the colonial economic model of British continued even in independent India.
Consequently, though India became an independent political union 72 years ago, it continues to remain far from becoming a strong independent economic union till date. In past two decades, some notable efforts have been initiated to make India a strong economic union. The most pertinent among them being development of national highways, development of dedicated freight corridors, a uniform goods and services tax, and more recently a national market for agriculture produce.
Many efforts have been made to promote cross-state investments through tax concessions, e.g., tax holidays for setting up new industry in industrially backward areas, subsidies for new units in SEZ, agro processing zones, software technology parks, etc., to reduce regional inequalities.
The changes in policy relating to exploitation of minerals, formula for allocation of revenue to states, land acquisition laws etc., seek to diminish the skew by empowering the resource owning states. Part of the faster growth in erstwhile backward states in recent past could be attributed to these changes. It still remains to be seen whether GST will bridge the inequalities or further widen and deepen the regional divide.
Of course, given that maximum youth population is located in these states only, we shall see the economic changes translating into qualitative social changes also in due course. However, so far these initiatives have brought only some incremental changes in the direction and trajectory of economic growth of poor states. Mostly these measures have been found to be inadequate in bringing any structural change in the economy, something we desperately need at this point in time.
The policy makers must assimilate the fact that the historical anomalies in the structure of growth and development cannot be corrected by incremental efforts. It would take an overhaul of the system and redefining the entire growth paradigm. Passing off the administrative corrections and improvements for reforms will not help much.
Read his columns
Vijay Kumar Gaba explores the treasure you know as India, and shares his experiences and observations about social, economic and cultural events and conditions. He contributes his pennies to the society as Director, Equal India Foundation. here.