Lagging States, Sectors, and Segments of Population
India has been very successful on a number of fronts: the country has maintained electoral democracy, reduced absolute poverty by more than half, dramatically reduced illiteracy and vastly improved health conditions. Since the early 1990s, the country continues to be one of the fastest growing economies in the world. These achievements create new challenges:
Figure 3. Lagging States: While India’s prosperous states have poverty rates that are comparable with the richer Latin American countries, India’s poorest states are mired at Sub-Saharan African levels of poverty. And, the gap is growing.
Source: For Indian states Deaton and Dreze (2002), for comparisons, author’s calculations from World Bank Poverty Database.
Recommendation: Reform cumbersome regulatory procedures to attract more investment and upgrade rural infrastructure to enhance connectivity. Some states will need to improve law and order as a priority. Others will need to create a stable platform for natural resource investment that balances business interests with social concerns, while still others will need to improve provisions for rural finance.
Figure 4. Lagging Sectors - Agriculture: While the services sector booms, agricultural productivity is declining, constraining the growth of the rural economy. Average agricultural growth has decelerated from 3.2% in 1980-92, to 2.4% in 1992 -2003, falling to 1.3% over the past few years, against a tenth plan target of 4 percent a year. Agricultural subsidies tend to benefit only some farmers in a few states. And, agricultural markets are overregulated. This leads to high transaction costs, reduces competitiveness, and discourages private investments.
Notes:Agricultural subsidies include GOI foodgrain and fertilizer subsidies, state government power and irrigation subsidies.
Source: Ministry of Agriculture, Acharya and Jogi 2004.
Recommendation: Fundamentally change agricultural policies to reverse the slide in agricultural productivity. This includes returning to investments in agricultural technology and infrastructure, and shifting the government’s role from ‘command and control’ to one of a catalyst and facilitator in agricultural marketing, land policy and administration, agricultural research and extension, and watershed management.
Figure 5. Large segments of the population left behind. Recent growth has generated very little formal sector employment. Existing labor regulations protect only a small elite of organized workers while hobbling the creation of jobs for millions unemployed. Of a total labor force of roughly 390 million in 2003, only 8 million were employed in organized private sector.
Source: GOI Planning commission 2005, tables 8.1 and 8.2
Recommendation: Redesign labor regulations to attract more investment and create jobs for India’s unemployed millions.
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