Why some states fare better

Exactly 30 years ago, soon after I returned from Harvard, I undertook a long journey through Bihar and eastern Uttar Pradesh to understand what the situation there was and why? This was “The Children of the Ganga: An Enquiry into the Poverty of the Gangetic Plains”. The study examined the distance of Bihar and Uttar Pradesh on most major parameters from the average and the best. On all indices, Bihar was way behind. How did the state, which the University of California Professor of Public Administration, Dr John Appleby, had determined as the best-administered state in 1952, turn into a bureaucratic and administrative nightmare?
The answer, it seemed, was not difficult to seek for those who believed that economic growth in India, then as it is now, is state driven. The money the Central government spent had a direct bearing on the economic outcomes of states and on the wellbeing of their people. The evidence was very clear. Right from the First Plan Bihar has suffered underinvestment by the Centre. If there was per capita development expenditure for each plan, Bihar was always furthest from it. When I computed the investment foregone, by getting so much less in every consecutive Plan, Bihar has shortchanged by as much as '270,000 crore. Bihar is still last in terms of per capita development expenditure, and industrial and infrastructure investment. The highest-ranking states in terms of government investment get as much as six times more than Bihar in per capita terms.
The human development index of Kerala is India’s highest 0.790, which would place it ahead of China, while the other end of the spectrum is Chhattisgarh with 0.358, which would place it just alongside Chad, one of the world’s most backward countries. At 0.790, Kerala would find a place in the high HDI list.
While in 2011-12 India grew at 6.88%, large states like Uttar Pradesh (6.23%) and Andhra Pradesh (6.44%) grew at less than the national rate. States like Gujarat excelled with 20.79%, while India’s most prosperous state, Punjab, languished with 5.79%.
The incidence of poverty is always a contentious matter in India. While the government tries to downplay the numbers by having a somewhat self-serving index (now 22%), other measures such as the UN Development Programme’s $1.25 a day suggests that almost 37.5% of Indians live in dire poverty. At $2 a day as much as 70% of India is below an internationally determined basic standard of living index. Others indices are just as damning. India’s abysmal track record at ensuring basic levels of nutrition is the greatest contributor to its poverty as measured by the new international MPI. About 645 million people or 55 per cent of India’s population is poor as measured by this composite indicator made up of 10 markers of education, health and standard of living achievement levels. The new data also shows that even in states generally perceived as prosperous such as Haryana, Gujarat and Karnataka, more than 40 per cent of the population is poor by the new composite measure, while Kerala is the only state in which the poor constitute less than 20 per cent. The MPI measures both the incidence of poverty and its intensity. A person is defined as poor if he or she is deprived on at least three of the 10 indicators. By this definition, 55 per cent of India was poor, close to double India’s much-criticised official poverty figure. Almost 20 per cent of Indians are deprived on six of the 10 indicators.
This form of analysis gives us a set of measures that try to objectively lay a premise for performance. There are other evaluation yardsticks. The most popular one is the Index of Economic Freedom. But, what is economic freedom?
The notion of economic freedom traces its origins to a series of seminars between 1986-94 sponsored by the Fraser Institute of Canada and hosted by Milton and Rose Friedman. Milton Friedman is a Nobel Prize winner in economics and his brand of economics stands at the most rightward fringe of the spectrum. His policy preferences have been criticised by a galaxy of economists, including John Kenneth Galbraith and Amartya Sen, as insensitive to people. The annual Economic Freedom of the World Report, published by the Fraser Institute in conjunction with members of the Economic Freedom Network, ranks countries on their level of economic freedom. In 2012, annual report released by the Fraser Institute the rankings had India at 111 along with Bangladesh, Nepal, Iran and Pakistan, and way below countries with few real freedoms like UAE (11), Kuwait (19), Oman (20), Jordan (23) and El Salvador (56). Thus, while their index considers Saudi Arabia to be mostly free, it considers India to be mostly unfree, like China!
Economic freedom is not about good government. It is not even about economic achievements. It is about the least government and looking most business-friendly. It is as if a policeman is to be judged by how crisp and clean his uniform is and not by his professional achievements.
Clearly, there are high performers and laggards. But why are some this and others that is an answer that still eludes me. We seem condemned by our ways of comparison analysis to see things in terms of inputs and outputs, without ever really wondering if there are other processes at work which makes different states within one country, within one constitutional system, within one economic system and with a long and common ethno-cultural history which make a difference?
Now think of this, India is the third-largest economy in PPP (purchasing power parity) terms and it is predicted that by 2050 it will be a $30-55 trillion economy, depending on whose projections is music to your ears. 2050 is just 36 years from now and in a nations lifetime that is a mere blink. This is not daydreaming. In 1990-91, when P.V. Narasimha Rao initiated the first dismantling of the centrally planned state the gross domestic product of India at current US dollar was a little over $200 billion. Twenty-three years later it is 10 times that. Increasing 20-fold in 36 years is really not a tall order. But we must first reduce the inequality between states, lest they become even bigger and more contentious?

The writer held senior positions in government and industry, and is a policy analyst studying economic and security issues. He also specialises in the Chinese economy.