Backward states surge even as India slows down

The UPA government\’s theme song for eight years has been that we have achieved record GDP growth but not been inclusive enough-poor people and backward states have not benefited enough. The very opposite is now evident. Backward states are advancing fast, poverty is declining precipitously, and fast growth has disappeared!

After exceeding 8% for a decade, GDP growth crashed to 6.5% last year, will fall to perhaps 5.5% this year, and may not exceed 6% next year. We seem back to the 6% norm of the 1990s.

Meanwhile, something revolutionary has happened in backward regions. For decades, the so-called BIMARU states of north and central India were seen to be a slough of despond, pulling down the national growth average. But not anymore. Many are now growing faster than the national average. Instead of pulling India down, they are pulling India up.

Look at the three years (2009 to 2012) after the great recession. National GDP growth averaged 7.7%. The fastest states were Uttarakhand and Bihar (12.5%). Next came Gujarat (10.3%), Madhya Pradesh (9.9%), Goa (9.8%) Maharashtra (9.7%), Haryana (9.6%) and Jharkhand (9.2%). So, there were four backward states in the fastest eight states. Chhattisgarh and Odisha slowed in 2009-12 to 7.5%, after averaging almost 10% in the previous five years. Rajasthan averaged 7.3% and Uttar Pradesh 6.8%. These states have grown slower than the national average, but not by much. They have almost doubled their growth rate in the 1990s.

Their hugely improved performance owes very little to New Delhi and a lot to dynamic chief ministers keen on development and improved governance. These CMs-almost all non-Congress-have drawn on the new opportunities and improved infrastructure created by two decades of economic reform. They remain far behind Gujarat and Maharashtra, but are finally catching up. Poverty has plummeted. Before 2004-5, poverty reduction averaged 0.7%/year. But between 2004 and 2009 poverty reduction doubled to 1.5%/year.

In past decades, the poverty ratio declined steadily, but rising population meant the absolute number of poor remained unchanged. But between 2004-05 and 2009-10 the absolute number of poor fell by a huge 52 million. Even this was a gross underestimate, since the survey year 2009-10 was a terrible drought year. Another survey has been conducted in 2011-12, and we await the results. Preliminary data, crunched by the Economic Times, suggests that the poverty ratio may be down another 7 %. If so, the absolute number of poor will be down 90-100 million in seven years, a historic feat second only to China\’s.

Literacy improved 9.7% in the decade ending 2011. But it improved faster in key backward states-Bihar (16.8%), UP (11.5%) and Odisha (10.4%). Female literacy skyrocketed 20.2% in Bihar, 17.1% in UP, 15.9% in Jharkhand and 13.9% in Odisha.

Health outcomes improved too. Uttar Pradesh and Bihar have historically been the worst areas for polio in the world. Now the whole of India, including these two states, has been polio-free for 22 months.

Child malnutrition and anaemia remain very high. But these affect a quarter to a third of the richest households too, so the cause seems genetic more than economic.

Record poverty reduction has occurred simultaneously with record GDP growth. This shows dramatically how fast growth is the best antidote for poverty. Fast growth provides a revenue bonanza for anti-poverty programmes. More important, it creates new economic opportunities that absorb the reserve army of labour. This creates labour shortages, pushing up real wages. This has happened dramatically in recent years.

There is a widespread illusion that fast growth just happens and then the government should redistribute the bonanza. No, 8% growth is rare globally because it cannot be achieved just by the fast growth of a few regions or businesses. It can be achieved only when the productivity of a large chunk of the population goes up. Inclusion is not something that comes later. Rather, only when the bulk of states and people are prospering will fast growth happen. That\’s the big India story.

Let nobody think that fast growth occurred just in advanced states, and was then redistributed by the government to backward states. No, the spurt of productivity and growth in backward states was created by dynamic CMs harnessing opportunities created by economic reform. Fast growth did not trickle down to the backward states. Rather, accelerated growth in backward states trickled up to create fast national growth.

The bad news is that the national growth rate is slackening, thanks to bad policy and gross misgovernance. The good news is that the backward states continue to forge ahead, pulling up India.

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