Polliicy For Regional Devlopment
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Transcript of Polliicy For Regional Devlopment
Policy for Regional Policy for Regional
DevelopmentDevelopment
V. J. RavishankarV. J. Ravishankar
Indian Institute of Public AdministrationIndian Institute of Public Administration
1414thth November, 2005November, 2005
Why is regional equity an issue?Why is regional equity an issue?
““Large regional disparities represent Large regional disparities represent
serious threats as the inability of the state serious threats as the inability of the state
to deal with such inequities creates to deal with such inequities creates
potential for disunity and, in extreme potential for disunity and, in extreme
cases, for disintegrationcases, for disintegration””
–– Raja Shankar and Anwar ShahRaja Shankar and Anwar Shah (2003)(2003)
Table 1: Regional Disparities in Table 1: Regional Disparities in
Selected Countries, 1997Selected Countries, 1997
0.2500.2500.6920.69211.62511.625ChinaChina
0.2800.2800.6250.62521.30721.307RussiaRussia
0.2670.2670.5630.5637.5677.567BrazilBrazil
0.3010.3010.4730.4735.7935.793MexicoMexico
0.2270.2270.3870.3873.8113.811IndiaIndia
0.0670.0670.2010.2011.8381.838CanadaCanada
0.0390.0390.1620.1621.9271.927United StatesUnited States
Wt. Gini Wt. Gini
IndexIndexSimple Simple
C.VC.VMax / Max /
MinMin
Trends in Disparities Trends in Disparities ---- HighlightsHighlights
US has seen declining regional inequality during 1990US has seen declining regional inequality during 1990--9494
CanadaCanada’’s inequality more or less constant during 1994s inequality more or less constant during 1994--9898
India saw rise in inequality during 1980India saw rise in inequality during 1980--96, with dramatic 96, with dramatic
increase in 1992 post liberalizationincrease in 1992 post liberalization
Russia saw dramatic rise in inequality during 1994Russia saw dramatic rise in inequality during 1994--9797
Brazil saw rising inequality in 1980s, slight fall in early 1990Brazil saw rising inequality in 1980s, slight fall in early 1990s s
and a slight rise during 1995and a slight rise during 1995--9797
MexicoMexico’’s regional inequality has remained at around 5 times s regional inequality has remained at around 5 times
that of the United Statesthat of the United States
Divergence among Indian StatesDivergence among Indian States
Researchers have found a persistent divergence Researchers have found a persistent divergence
in perin per--capita income growth rates among two capita income growth rates among two
subsets or clubs of Indian states over the 1965subsets or clubs of Indian states over the 1965--
1997 period 1997 period ---- one at roughly 50% and the other one at roughly 50% and the other
at 125% of the national averageat 125% of the national average
Can India achieve its development goals if the Can India achieve its development goals if the
lagging states are left behindlagging states are left behind??
Divergence and Conditional Divergence and Conditional
ConvergenceConvergence
NirvikarNirvikar Singh and T. N. Singh and T. N. SrinivasanSrinivasan (2002) conclude: (2002) conclude: ““The evidence weakly supports the idea of absolute The evidence weakly supports the idea of absolute divergence divergence …… with the rate increasing in the 1990s. with the rate increasing in the 1990s. The evidence on conditional convergence is less The evidence on conditional convergence is less decisive decisive …… they may be converging to very different they may be converging to very different steady states. The differences in infrastructure and steady states. The differences in infrastructure and institutions that seem to explain interstate differences institutions that seem to explain interstate differences have been persistent have been persistent …… and neither Finance and neither Finance Commission transfers, Planning Commission Commission transfers, Planning Commission transfers, nor centrally sponsored schemes have made transfers, nor centrally sponsored schemes have made a substantial dent in regional inequalities in India.a substantial dent in regional inequalities in India.””
Types of Regional Dev PoliciesTypes of Regional Dev Policies
Central intervention for regional balanceCentral intervention for regional balance
Common market (economic union)Common market (economic union)
Fiscal equalizationFiscal equalization
““Regional development policies have failed in Regional development policies have failed in almost all countries almost all countries …… to reduce regional to reduce regional inequalitiesinequalities”” –– Raja Shankar & Anwar Shah (2003)Raja Shankar & Anwar Shah (2003)
What is to be equalized?What is to be equalized?
Outcomes? They will never be equalOutcomes? They will never be equal
Opportunity? Yes, a level playing fieldOpportunity? Yes, a level playing field
Capacity? This is the aim of fiscal equalization Capacity? This is the aim of fiscal equalization
(Finance Commission in India)(Finance Commission in India)
Paradigm Shift in IndiaParadigm Shift in India
Old paradigm relied heavily on direct central Old paradigm relied heavily on direct central intervention in the name of equal outcomes, intervention in the name of equal outcomes, curbing opportunities in the processcurbing opportunities in the process
New paradigm is to foster a common market by New paradigm is to foster a common market by reducing barriers to interreducing barriers to inter--state trade and state trade and investment flows, along with more effective investment flows, along with more effective fiscal capacity equalizationfiscal capacity equalization
Growth Strategy Growth Strategy & Regional Equity& Regional Equity
““Most developing countries adopted Most developing countries adopted
Comparative Advantage Defying (CAD) Comparative Advantage Defying (CAD)
strategies, which caused distortions and did not strategies, which caused distortions and did not
bring about convergence bring about convergence …… replacing the old replacing the old
CAD strategy with a new Comparative CAD strategy with a new Comparative
Advantage Following (CAF) strategy is Advantage Following (CAF) strategy is
essentialessential””–– Justin Lin & Mingxing Liu (2004)Justin Lin & Mingxing Liu (2004)
New Environment for Indian StatesNew Environment for Indian States
Two phases of significant changeTwo phases of significant change::
over the 1970s and 1980s over the 1970s and 1980s –– growth of growth of
regional political partiesregional political parties
since 1991 since 1991 –– liberalization of external trade liberalization of external trade
and investment policy by the Government of and investment policy by the Government of
IndiaIndia
States now have a larger role in States now have a larger role in determining their development pathsdetermining their development paths
Poorer states attracted less Poorer states attracted less Investment in the 1990sInvestment in the 1990s
Poor and less developed states lagging behind: Poor and less developed states lagging behind: Bihar, Bihar, JharkhandJharkhand, Madhya Pradesh, , Madhya Pradesh, ChhatisgarhChhatisgarh, ,
Orissa, Rajasthan, Uttar Pradesh (UP)Orissa, Rajasthan, Uttar Pradesh (UP)–– account for 50% of Indiaaccount for 50% of India’’s poor; 23% of investment in 2003; 13% of s poor; 23% of investment in 2003; 13% of
FDI during the 1990s; 25% of AllFDI during the 1990s; 25% of All--India GDP & per capita income; India GDP & per capita income; 54% of the average per capita income of other major states.54% of the average per capita income of other major states.
More developed states racing ahead: More developed states racing ahead: Andhra Pradesh, Gujarat, Karnataka, Maharashtra, Andhra Pradesh, Gujarat, Karnataka, Maharashtra,
Punjab, Tamil Nadu Punjab, Tamil Nadu –– attracted over 66% of the total investment in 2003; 72% of FDI attracted over 66% of the total investment in 2003; 72% of FDI
during the 1990sduring the 1990s
State fiscal management and State fiscal management and
governance do make a differencegovernance do make a difference
Through a 3Through a 3--sector growth model of the Uttar sector growth model of the Uttar
Pradesh economy, Buffie (1998) concluded that Pradesh economy, Buffie (1998) concluded that
statestate--financed infrastructure in power, roads financed infrastructure in power, roads
and irrigation can have a very important and irrigation can have a very important
lockinglocking--in or in or ““crowdingcrowding--inin”” effect on private effect on private
investment in agriculture, industry and servicesinvestment in agriculture, industry and services
State Ranking by State Ranking by
InfrastructureInfrastructure
HighHigh: : GoaGoa, Maharashtra, Punjab, Maharashtra, Punjab
High middle: High middle: GujaratGujarat, , HaryanaHaryana, , KeralaKerala, Tamil , Tamil NaduNadu
Middle:Middle: Andhra Pradesh, KarnatakaAndhra Pradesh, Karnataka
Lower middle: Lower middle: HimachalHimachal Pradesh, Madhya Pradesh, Pradesh, Madhya Pradesh, OrissaOrissa,, Uttar Pradesh, Uttar Pradesh, UttaranchalUttaranchal, West Bengal, West Bengal
Low:Low: ArunachalArunachal Pradesh, Manipur, Pradesh, Manipur, MeghalayaMeghalaya, , JharkhandJharkhand, , MizoramMizoram, , NagalandNagaland, Assam, , Assam, ChhattisgarhChhattisgarh, , SikkimSikkim, , TripuraTripura, J&K, Bihar, Rajasthan, J&K, Bihar, RajasthanSource: Report of the Twelfth Finance Commission, 2005Source: Report of the Twelfth Finance Commission, 2005..
Differences in Business ClimateDifferences in Business Climate
Time to start a business is longer in poorer states Time to start a business is longer in poorer states –– 79 days 79 days
in Orissa compared to 57 in Karnataka and Punjabin Orissa compared to 57 in Karnataka and Punjab
Time and cost to register a property are much higher in Time and cost to register a property are much higher in
IndiaIndia’’s poorer states s poorer states
It takes longer to enforce a contract It takes longer to enforce a contract –– 1165 days in Uttar 1165 days in Uttar
Pradesh versus 425 in MaharashtraPradesh versus 425 in Maharashtra
It takes 15 years to close a business in Uttar Pradesh; it It takes 15 years to close a business in Uttar Pradesh; it
takes 8 years in Karnatakatakes 8 years in Karnataka
( ( Doing Business Doing Business –– India Regional Profile, World Bank, 2004India Regional Profile, World Bank, 2004 ))
Laggards need to leap forwardLaggards need to leap forward
““While all Indian states need to focus While all Indian states need to focus on improving their investment on improving their investment climate, efforts in the lagging states climate, efforts in the lagging states will need to be twice as intensive as will need to be twice as intensive as the better statesthe better states””-- Development Policy Review, The World Bank Development Policy Review, The World Bank
(forthcoming)(forthcoming)
Infant Mortality Rates, 1980Infant Mortality Rates, 1980--2000200019801980 19901990 20002000 2015 (target)2015 (target)
KeralaKerala 3737 1717 1414 66
West Bengal West Bengal 9191 6363 5151 2121
Karnataka Karnataka 6969 7070 5757 2323
Bihar Bihar 118118 7575 6262 2525
Rajasthan Rajasthan 108108 8585 7979 2828
Uttar Pradesh Uttar Pradesh 150150 9999 8383 3333
Madhya Pradesh Madhya Pradesh 142142 111111 8888 3737
Orissa Orissa 135135 122122 9696 4141
All IndiaAll India 110110 8080 6868 2727
Sources: Sources: 1980 and 1990 Sample Registration System;1980 and 1990 Sample Registration System;
2000 National Family Health Survey2000 National Family Health Survey
Developmental Role of State Developmental Role of State
GovernmentsGovernments
Accountable Government Accountable Government
& Empowered Citizens& Empowered CitizensMechanisms for civil Mechanisms for civil
society interface & society interface &
oversightoversight
Private Capital Investment Private Capital Investment
& Employment Growth& Employment GrowthInvestment Policy & Investment Policy &
Regulatory RegimeRegulatory Regime
Public Investment in Public Investment in
Quality Infrastructure & Quality Infrastructure &
Human CapitalHuman Capital
Fiscal Policy, Public Sector Fiscal Policy, Public Sector
Mgt & Service DeliveryMgt & Service Delivery
OutcomeOutcomeInstrumentInstrument
Role of Central PolicyRole of Central Policy
Fiscal Capacity Equalization Fiscal Capacity Equalization (Twelfth Finance Commission)(Twelfth Finance Commission)
Fostering a common Indian marketFostering a common Indian market
Addressing particular disadvantages Addressing particular disadvantages (Finance Commission, Planning Commission, (Finance Commission, Planning Commission,
Line Ministries, External Donors)Line Ministries, External Donors)
Partial Fiscal EqualizationPartial Fiscal Equalization
Per capita revenues (normalized to Punjab=1), 2000/01
00.10.20.30.40.50.60.70.80.9
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Own revenues Transfers
Further Steps to Level the FieldFurther Steps to Level the Field
Phase out Central Sales TaxPhase out Central Sales Tax
Rationalize and restructure public food Rationalize and restructure public food
procurement procurement
Improve rural credit accessImprove rural credit access
To sum up To sum up ……lesson for lesson for
Government of IndiaGovernment of India
““Countries experiencing convergence have had a Countries experiencing convergence have had a handshands--off approach to regional development off approach to regional development policies and instead focused on policies to policies and instead focused on policies to promote a common economic union promote a common economic union …… and and ensuring minimum standards of basic services ensuring minimum standards of basic services across the countryacross the country””
---- Shankar & Shah (2003)Shankar & Shah (2003)
To sum up To sum up ……lessons for lessons for
State GovernmentsState Governments
Need to evolve a state specific development strategy Need to evolve a state specific development strategy
based on onebased on one’’s comparative advantages and specific s comparative advantages and specific
binding constraints binding constraints –– notnot the old planning paradigm the old planning paradigm
of spreading resources too thinly of spreading resources too thinly
All states need to strengthenAll states need to strengthen
–– Fiscal policy, public administration and service deliveryFiscal policy, public administration and service delivery
–– Investment policy & regulatory regimeInvestment policy & regulatory regime
–– Role of civil societyRole of civil society
Laggards need a great leap forwardLaggards need a great leap forward