The northern fault line

An excellent compilation of data in the World Bank’s latest annual report on India, for instance, shows very clearly that those states whose fiscal situation is a mess are those that have grown the slowest over the decade, are those whose literacy levels are the poorest, and are those whose poverty levels have fallen the least — by a sad coincidence, most of these states are located in north India.

And, in the context of what bothers industrialists the most, these are the states whose infrastructure is the worst — why would anyone want to set up a factory in Punjab, Haryana or Uttar Pradesh when their power outages are the highest in the country?

Conversely, any industrialist who has factories in these regions has every reason to feel unconfident, with power shortages rising along with the rates charged to industry the broke state electricity boards are not allowed to charge more from domestic or agricultural users, and have no will to cut theft, so they simply up the rates that the Maruti Udyogs and Hero Motors of the north have to pay since they’ve located their units in these states.

Ironically, while the Bank is seen as the bastion of capitalism, on a surface view, its conclusions appear quite Marxist the rich (states) have got richer and the poor (states) poorer! Seriously though, in a nutshell, the richer states are those whose fiscal situation has been quite healthy, and this has allowed them to spend more on growth-inducing expenditure such as that on new power plants or better roads this, naturally, attracts industry to these states.

Conversely, the poorer states have been those whose fiscal situation is a mess, and who cannot spend more to set up new power plants for instance. Naturally, then, the-ir power situation remains poor as a result of which new industry doesn’t go to these states. According to the Bank’s analysis, while all states saw an increased growth in their per capita incomes in the nineties as compared to the eighties, only the northern states saw their growth rates fall. The four low-income northern states of Uttar Pradesh, Orissa, Rajasthan and Bihar together saw their per capita income growth fall from 2.8 per cent in the ’80s to 1.8 per cent in the ’90s. Even the relatively richer Punjab and Haryana saw their growth decline Punjab’s per capita income growth rates fell from 3.3 per cent to 2.8, and Haryana’s from 3.9 to 2.6.

Unsurprisingly, the fiscal situation in all these states is a mess. Bihar’s fiscal deficit as a proportion of its GDP went up from 3.8 per cent in the mid-’80s to 8.2 per cent in 1998-99, Rajasthan’s from 4.7 to 6.2, Orissa from 5.5 to 9.4, Uttar Pradesh from 4.5 to 7.2, and Haryana from 3 to 5.8. Punjab appears the exception to this deteriorating deficit, but if you look at it closely, you see that Punjab’s fiscal situation improved till the mid-’90s and then deteriorated dramatically.

In contrast, all the states which had a healthy fiscal situation saw their growth rates rise sharply. Maharashtra which saw its growth rates double in the nineties did so because its fiscal deficit remained moderate and unchanged at 3.2 per cent of GDP. Similarly, the fact that Gujarat was able to halve its fiscal deficit from 4.8 per cent of GDP in the mid-’80s to 2.4 per cent in 1998-99 helped it increase its per capita income growth dramatically from 3.3 per cent to 8.6 per cent. Similar statistics hold true for all other states whose incomes have grown. Given this, it’s hardly surprising that poverty levels have remained relatively unchanged in most northern states.

This is the northern fault line — for those not too hot on seismology, a fault line is a stretch of area along which earthquakes usually occur. With few north Indian politicians learning their lessons, it’s just a matter of time before the next major earthquake happens.