And Bihar still doesn8217;t get it

Every quarter, the Centre for Monitoring Indian Economy tracks all investment projects presently under implementation.

Every quarter, the Centre for Monitoring Indian Economy tracks all investment projects presently under implementation. This is a useful resource for measuring inter-state variation in investment. Investment is the foundation of future income growth, so this data shows a sense of how different states will fare in the future. In addition, changes in the performance of states in this regard measure the success or failure of the political leadership in creating a business environment that is supportive of investment.

Measured in nominal rupees, the per capita investment under implementation in India rose from Rs 8,450 in December 1997 to Rs 22,669 in December 2007. This reflected a rise of 112 per cent over the last five years and 168 per cent over the last 10 years.

How have different states fared? We look at progress over the last five years as a proxy for the success of the current political leadership in creating an industry and growth-friendly environment.

The top five states by investment outstanding per capita in December 2007 were: Haryana, Orissa, Himachal Pradesh, Gujarat and Jharkhand. These five states are likely to get the fastest GDP growth in the coming two to three years. The bottom five states were: Madhya Pradesh, Rajasthan, Assam, Uttar Pradesh and Bihar. These are the states that are likely to get the slowest GDP growth in the coming two to three years.

The change in investment per capita over the last five years is roughly a measure of the capabilities of the administration and political leadership of the state. The top five states are: Haryana, Jharkhand, Orissa, West Bengal and Gujarat. The leadership of these five states has done a good job of attracting investment and facilitating the implementation of investment plans over the last five years. The bottom five states are: Chhattisgarh, Himachal Pradesh, Tamil Nadu, Bihar and Jammu 038; Kashmir. While the others are traditionally weak performers, the odd man out here is Tamil Nadu. Tamil Nadu8217;s rank fell sharply over the last five years. While all-India average investment per capita grew at 112 per cent, in Tamil Nadu it grew by only 15 per cent. This pushed Tamil Nadu down below the all-India average.

Other big surprises are Andhra Pradesh and Maharashtra. While these states have tremendous opportunities, they have failed to utilise them. Like Tamil Nadu, these states now have per capita investment below the national average.

Both Kerala and West Bengal have suffered from a pro-trade union environment. Both states are doing badly in absolute terms: Kerala is at rank 11 and West Bengal is at rank 12. However, Kerala has actually lost ground compared with the past while West Bengal has improved its rank in the last 5 years.

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In 2007, the top state, Haryana, had Rs 78,709 of per capita investment under implementation while the bottom state, Bihar, was at Rs 3,080. The top state was 25 times bigger than the bottom state. This suggests that inequalities will widen. At the same time, traditionally successful states like Karnataka, Andhra Pradesh, Tamil Nadu and Maharashtra are scoring weak ranks. Perhaps, history is not destiny: states with a strong economy are not getting a free ride in attracting investment.

The unfortunate story is Bihar. Despite high hopes of an improved Bihar under Nitish Kumar, the state did not see much improvement in 2007 compared to 2002. Per capita investment rose to Rs 3,145 from Rs 3,080. The surprise is that it had done much better in the previous five years under an RJD government that seemed to be floundering on all fronts. Per capita investment had risen from Rs 959 in 1997 to Rs 3,145 in 2002. The Nitish government clearly needs to do a lot more in terms of actual improvement in the state to attract the investment necessary to propel growth.

The writer is senior fellow, National Institute of Public Finance and Policy