It takes two to tango
To promote inclusive growth, the Centre must help laggard states to industrialise faster.india Updated: Jun 04, 2012 21:33 IST
Bihar ended last year with an economy bigger than Punjab's and less than a fifth smaller than Haryana's. With this, chief minister Nitish Kumar has bootstrapped his state into the front line of India's farm economy. The three states are predominantly agrarian and Bihar catching up with the country's erstwhile grain baskets shows that pragmatic policymaking can deliver inclusive growth in the poorest provinces. Bihar owes its scorching 13% plus growth rate to newly laid village roads, improvements in law-keeping and crop yields, and imaginatively crafted social welfare schemes like gifting cycles to school-going girls. None of these costs a bomb. Mr Kumar's focus on welfare comes through in the 25% jump in this year's spending on health and education. His government has projected a 2.87% fiscal deficit for the current year and its debts are a mere 22.64% of the state's domestic product. The UPA, in contrast, is staring at a 5.1% fiscal deficit, half of which goes into subsidies for fuel, fertiliser and food.
To be fair, New Delhi's social welfare obligations are far more onerous than Patna's. A part of the Centre's handouts ends up in Bihar, which has a long climb ahead to reach national metrics of income and human development. Bihar's per capita income in 2010-11 at Rs. 20,069 was a fourth that of Maharashtra, India's richest state. But the average income in Bihar is rising by 6% a year, while Maharashtra's is climbing by 7.2%. If it can sustain its current pace, Bihar will reach Maharashtra's present standard of living in 2032, Delhi's in 2043 and Chandigarh's in 2047. The last would be around the time India becomes the world's third largest economy, after the US and China. Thirty-five years is a long transition from a predominantly farm economy to a services-driven one.
This process can be shortened if the Centre creates a facilitating environment for laggard states to industrialise faster. This involves a nationwide scaling up of infrastructure, a common market and prudent economic management. Resource allocation needs to be thought through beyond the principle of winner takes all. A state's share of central taxes is today governed by a formula that encourages fiscal rectitude. Similar incentives need to be provided in grants and centrally-sponsored schemes for innovative governance and administrative efficiency. Inclusive growth must transform into a policy that arrests India's geographically lopsided growth. The Centre is as responsible as the states for pockets of backwardness. Given right governance, adequate infrastructure and an occasional helping hand from the Centre, there is no reason why Bihar cannot walk in step with the rest of the economy.