The hunt for the right kind of economic development model: Knowledge sharing among Indian states

 

India’s economic policy after independence was greatly influenced and impacted by its negative colonial experiences, which most Indian nationalist leaders justifiably considered imperialist and highly exploitative. Indian national leaders and economic planners therefore veered towards autarchic and inward-looking economic policies, and to a much lesser extent, towards the Leninist-Stalinist model pursued by the former and the erstwhile USSR. They also adopted  protectionism to a great extent and degree, with a strong emphasis on heavy industry, centralized planning, economic interventionism, a large government-run public sector, and heavy regulation of private Industry. This period also accorded the commanding heights of the Indian economy to the public sector and state run enterprises, relagting private enterprise to the baackburner.  The five-Year Plans of India adopted by the Indian government during this period were mostly on the lines of central planning models followed in the former Soviet Union. Core and important sectors such as steel, mining, machine tools, telecommunications, insurance, and power plants, among other industries, were effectively nationalised in the mid-1950s, and the private sector only had a minimal role to play.

Beginning in the late 1990, India faced a severe balance of payments stress, and its worst since independence in 1947.  This eventually snowballed into a full-fledged balance of payment crisis. The collapse of the Soviet Union in the third quarter of 1991, following the fall of the Eastern bloc that took place a few years earlier, both of which were among India's major trading partners, and the early 1991 Gulf War, which caused a spike in oil prices, exacerbated India’s economic crises further, and India ran the risk of defaulting on its loans. Inward remittances also slowed down during this period. India was not only running a huge fiscal deficit, but also had a critical balance of payments position, with foreign exchange reserves adequate to import only a few weeks worth of goods. India asked for a bailout from the International Monetary Fund (IMF), which in return demanded opening up of the Indian economy to international trade. At the time, India had also received extremely low ratings from international agencies such as Moody’s, and these ratings were downgraded even further in the next couple of months. The International Monetary fund and the World Bank suspended their assistance to India unless urgent structural reforms were initiated. The situation had become so dire and grim, that The Chandrashekar government was even forced to mortgage gold to finance imports.

In response to this severe and pressing crisis, the PV Narasimha Rao government which was elected in June 1991, with its erudite Finance Minister Manmohan Singh, initiated bold economic reforms in the second half of 1991 after realizing that the situation had become extremely grave. These economic reforms were path-breaking, and had far-reaching consequences. These reforms did away with the Licence Raj completely, reduced tariffs to competitive levels, and ended many public monopolies, even allowing automatic approval of foreign direct investment in most sectors, barring a few sensitive and critical ones. This paved the way for rapid economic growth in India in the ensuing decades, and saved India from imminent economic collapse. Concomitant to its bold and far reaching economic reforms, India also gradually began to decentralize its economic initiatives. In the 1980’s, India was known for its over-centralized approach to planning and political administration. This did not augur and bode well for India and there were a million mutinies and secessionist movements. Eventually, good common sense prevailed, and Indian states began to have a greater say in their own affairs. India’s federal machinery came of age. India’s competitive federalism was fairly successful, and was touted as a model for other nations and countries to emulate. So far, so good. Many Indian states also began to move in different trajectories. This was partly because India had many different political parties, and it stood to reason that each party could have a different economic philosophy and follow a different growth model. Some states have been successful it their endeavours, while some have not. An overarching economic framework is however lacking, and most states have failed to emulate each other’s best practices, and learn from each other’s mistakes. Let us now attempt to understand some developmental models in brief.

Gujarat development model

What is the Gujarat model? In simple terms, the Gujarat development model refers to a period of economic policy that was pursued from around the year 2000 onwards. This model is considered to be neoliberal and is associated by the rule of the BJP government in the state. This growth model emphasized a rapid improvement in infrastructure including, roads, ports, airports, and power, to facilitate inflow of industrial investment; better administrative governance, and a reduction of red tape to address the needs of corporate units; and a great increase in incentives and subsidies on investments to the corporate sector to attract investments. It also greatly emphasized exports. This mantra had for its inspiration the economic success of Asian tigers such as Taiwan and South Korea. These measures naturally paid off, and Gujarat witnessed a high growth rate, aided in no small measure by bumper agricultural harvests through good monsoons. However, some aspects of the Gujarat model have been questioned by experts. For example, some studies show that poverty alleviation was slow, and that the trickle down of wealth did not really work effectively. Therefore the fruits of development were not shared evenly, and some rural areas lagged behind urban areas. There was also no labour-intensive growth for the most part, and sectors such as the education sector were ignored with high drop-out rates being witnessed. Therefore, many human development indicators lagged behind very badly. Access to public services was poorer than expected, and on the whole, the development model was not environmentally-friendly.

Kerala developmental model

What is Kerala Model Development? The Kerala model of development is a much touted model of development, and is a concerted effort and set of practices adopted by various governments in Kerala to achieve better productivity, low infant mortality rates, significantly lower population growth rates, increased life expectancy, and better healthcare facilities. This model of development is in stark contrast with the developmental models pursued in Gujarat and elsewhere, and has led to a rapid increase in human development, and an impressive improvement in human development indicators. This model of development traces its roots to the 1950’s; However, it shot into widespread prominence only in the 1970’s through the practices advocated by KN Raj. Kerala’s birth rates also fell rapidly even as most other Indian states were struggling with high birth rates, and it attained replacement level fertility as early as in 1988 when birth rates in many other states were five children per woman or higher. Its literacy rates, infant mortality rates and other socioeconomic indicators were also impressively high, and its poverty levels low. In spite of all these stellar and impressive achievements and accomplishments, the per capita income of the state remained relatively low, and the state lagged behind industrially. This was due in large part due to its notorious labour unions, and the left front’s anti-industry stance. The state also faced fiscal challenges at many points in its history.

Dravidian model of development

Tamil Nadu prides itself in a more inclusive economic development model, and greater redistribution of wealth through better governance and superior administrative machinery. It has however, not missed the liberalization and globalization bandwagon, and the state ranks as one of India’s most industrialized. Its manufacturing prowess is often widely showcased, though it has not lagged behind in IT, agriculture, and other sectors. It also leads in imaginative, though sometimes populist welfare schemes. It was among the first states to implement a mid day meal scheme for school children in the 1970’s to boost school attendance, a scheme that was eventually adopted by many other Indian states. This development model also has its roots in its Dravidian political ideology, and it the ideals of social reformer Periyar EVR and others; critics of this development model however sometimes claim that this economic development model has some decidedly political overtones. However, the state has many impressive achievements to its credit; the state was only average in terms of most economic indicators at the time of independence; it has since catapulted ahead of most other states in terms of most indicators. For example, its per capita income is now one and a half times the all-India average. Poverty rates have also declined substantively.

Odisha model of development

Odisha is generally seen as one of the underdeveloped States in India and is a laggard in terms of many if not most human development indicators. It was also one of India’s poorest states, and some regions such as Kalahandi were even associated with starvation deaths a couple of decades ago. The winds of change are now however blowing. Its performance in the last two decades has been impressive in some sectors such as bottom up development, women’s empowerment and women’s development which were represented by the Mission Shakti program. For example, half the seats in Panchayati Raj institutions have been reserved for women, and women’s self help groups have been set up. Many public utilities such as power and coal have also been privatized to improve the state’s overall fiscal performance. The size of the bureaucracy has now been reduced, and subsidized food grains are being provided to the poor to reduce hunger. Impressive strides have been made in education, health, and irrigation. Efforts are also being made to reduce the impact of cyclones, particularly on agriculture.

Other states have followed other economic development models. For example, Sikkim has invested heavily in organic farming and other environmentally friendly policies, and has reaped rich rewards as a result. Chandrababu Naidu in Andhra Pradesh was said to have been enamored by the Singapore model of development, and focused excessively on Hyderabad. It is however said, that he neglected rural regions, and did not take local considerations into account. 

In the early years of India’s independence, India had the planning commission which was responsible for formulating its five year plans. It has now been replaced by the NITI Aayog which was launched by the union government in 2015. The NITI Aayog or the National Institution for Transforming India, is the apex public policy think tank of the Government of India, and the nodal agency tasked with catalyzing economic development, and fostering cooperative and competitive federalism in India. It has also come up with several schemes such as AMRUT, Digital India, Atal Innovation Mission, etc. In spite of all of its impressive work, the NITI Aayog think tank must facilitate a much sharing of ideas among states, by assessing each state’s achievements, failures and weaknesses at a great level of detail without political prejudice and other political considerations– particularly with respect to economic development models. Development models from other countries may also be taken into consideration, particularly from countries with conditions similar to India. Most of these countries would naturally be located in Asia and parts of Africa. NITI Aayog must therefore play more of an advisory role, and must not impose its models and writ on states. Either states can be encouraged to share their experiences and ideas with the central government for implementation in other states, or the central government can actively seek them. Of course, no one size fits all approach is possible. Local considerations must always be taken into account and consideration, even variations across or within states. This is an important factor that must always be borne in mind at all times, and under any circumstances.