Land of the Pseudo-Tigers

FIRST, the good news. Environmentalists may tell us that the Indian tiger is getting extinct, but economic data tell us that some Indian states may be emerging as the latest Asian tigers.

Take a look at the accompanying table. It shows that per capita income growth in Gujarat (8.6 per cent) and Maharashtra (7.4) in 1992-97 has been distinctly higher than the average recorded in the period 1965-98 by China (6.8 per cent), Korea (6.6 per cent), Singapore (6.4 per cent) or Hong Kong (5.5per cent). And income per capita growth in Tamil Nadu (5.2 per cent) has been higher than in Thailand (5.0 per cent) or Indonesia (4.7 per cent) in 1965-98.

Many readers may be surprised by the figures. Aren’t poverty, corruption and crime widespread in these Indian states? Yes they are, but that was also true of the Asian tigers in their fast-growth period. Remember that Korea was once as poor as India, and Indonesia and China were poorer. It takes decades of fast growth to reduce poverty in a big way.

Many Indians were utterly sceptical of the future of Korea and Singapore when these countries started booming in the 1960s, and predicted that these neo-colonial puppets would ultimately suffer a sorry fate. That scepticism proved totally unwarranted. So, do not be sceptical of the future of Gujarat, Maharashtra and Tamil Nadu.

At the same time, don’t get carried away by the good news. The data for the Indian states are for a relatively short period of five years, whereas the data for the Asian tigers are spread over 23 years. It is easier to grow fast for five years than 23.

Some Asian tigers (Singapore, Hong Kong) have become rich, mature economies, and mature economies automatically slow down at high levels of prosperity. Note also that overall Indian GDP growth has slowed down since 1997, so the rates for individual states may have slowed too. Even with these caveats, the performance of the top Indian states remains impressive. They deserve applause.

Note also that per capita growth in Karnataka (4.2 per cent) and Andhra Pradesh (3.8 per cent) is a long way below the leading Indian states. So do not overestimate the impact of computer software and the knowledge era on economic growth. It matters, but the more humdrum parts of the economy like agriculture and industry matter a great deal too. Indeed, West Bengal is a relatively high growth state (4.9 per cent) thanks to dynamic agriculture.

Now for the bad news. The leading Indian states are pseudo-tigers, not genuine economic tigers. Their spurt of fast growth is commendable, yet it looks unsustainable. First, many of them suffer from widening fiscal deficits, and this is a major problem. Second, they have much higher levels of illiteracy and infant mortality than the Asian tigers. The recipe for Asian success included fiscal prudence, near-universal schooling and rapidly improving health.

The Indian pseudo-tigers exhibit none of these three characteristics. That does not mean their rapid growth in the 1990s is about to collapse. It does suggest that they find will it difficult to keep up the pace. In the short run, the fiscal deficit is the most worrying of the three.

The Asian tigers ran extremely low deficits despite their gargantuan appetite for money to develop infrastructure and basic services to sustain their high growth rates. By contrast even states like Maharashtra and Tamil Nadu are suffering a rapid deterioration of their finances, and do not seem inclined to take the drastic remedial steps needed. Maharashtra’s fiscal deficit has gone from 2.1 per cent in 1993-94 to 3.3 per cent in 1998-99, Gujarat’s from 1.2 per cent to 2.4 per cent, Tamil Nadu from 2.6 per cent to 4.7 per cent.

Optimists will say this is a tempo ary result of the Pay Commission award. Pessimists will say that populism is the real culprit, and is not temporary. Tamil Nadu still continues to give free power to farmers, something Asian tigers never did (though their agriculture was generally far more dynamic than India’s).

The states’ deficits are not comparable with those of Asian tigers, which are entire countries. In India’s case, the combined deficit of the Centre and states is not far below 10 per cent, against close to zero in the Asian tigers in most of the last two decades. No wonder Indian states are struggling to improve infrastructure, whereas the Asian tigers did so by leaps and bounds.

Illiteracy and infant mortality were once at lower levels in India than in Indonesia. Today Indonesia has forged far ahead. The other tigers were always well ahead. Indian states are not catching up fast.

Laggard states like Uttar Pradesh and Bihar have outrageously bad social indicators. Per capita growth in Uttar Pradesh has been only 1.8 per cent in 1992-97, while it has been negative in Bihar (that is, incomes per head have fallen). These states are veritable tortoises, both in economic and social terms. It would be wrong to abandon hope for the future of the Gangetic basin. Rajasthan and Madhya Pradesh are no longer regarded as being in the same BIMARU class as UP and Bihar.

And literacy improved faster in UP and Bihar (14.4 percentage points and 10.5 percentage points respectively) than the national average of 9.8 percentage points in 1991-97, according to a recent NSS survey.

Nevertheless, it seems that the main hope for India’s future lies south of the Vindhyas. The Gangetic basin is the land of tortoises. South of the Vindhyas lies the land of the pseudo-tigers. They may not have quite the calibre of the Asian tigers, but are not too far behind.

What do you think?