Policy for Regional
Development
V. J. Ravishankar
Indian Institute of Public Administration
14th...
Why is regional equity an issue?
“Large regional disparities represent
serious threats as the inability of the state
t...
Table 1: Regional Disparities in
Selected Countries, 1997
Max / Simple Wt. Gini
...
Trends in Disparities -- Highlights
US has seen declining regional inequality during 1990-94
Canada’s inequality more or l...
Divergence among Indian States
Researchers have found a persistent divergence
in per-capita income growth rates among two
...
Divergence and Conditional
Convergence
Nirvikar Singh and T. N. Srinivasan (2002) conclude:
“The evidence weak...
Types of Regional Dev Policies
Central intervention for regional balance
Common market (economic union)
Fiscal equal...
What is to be equalized?
Outcomes? They will never be equal
Opportunity? Yes, a level playing field
Capacity? This is t...
Paradigm Shift in India
Old paradigm relied heavily on direct central
intervention in the name of equal outcomes,
curbing ...
Growth Strategy & Regional Equity
“Most developing countries adopted
Comparative Advantage Defying (CAD)
strategies, wh...
New Environment for Indian States
Two phases of significant change:
over the 1970s and 1980s – growth of
regional po...
Poorer states attracted less
Investment in the 1990s
Poor and less developed states lagging behind:
Bihar, Jharkhand...
State fiscal management and
governance do make a difference
Through a 3-sector growth model of the Uttar
Pradesh econom...
State Ranking by
Infrastructure
High: Goa, Maharashtra, Punjab
High middle: Gujarat, Haryana, Kerala, Tamil Nad...
Differences in Business Climate
Time to start a business is longer in poorer states – 79 days
in Orissa compared to 57 in ...
Laggards need to leap forward
“While all Indian states need to focus
on improving their investment
climate, efforts in t...
Infant Mortality Rates, 1980-2000
1980 1990 2000 2015 (target)
Kerala 37 ...
Developmental Role of State
Governments
Instrument Outcome
Fiscal Policy, Public Sector Publ...
Role of Central Policy
Fiscal Capacity Equalization
(Twelfth Finance Commission)
Fostering a common Indian market
Address...
Partial Fiscal Equalization
Per capita revenues (normalized to Punjab=1), 2000/01
1
0.9
0.8
0.7
0.6
0.5
0....
Further Steps to Level the Field
Phase out Central Sales Tax
Rationalize and restructure public food
procurement
Improve ...
To sum up …lesson for
Government of India
“Countries experiencing convergence have had a
hands-off approach to ...
To sum up …lessons for
State Governments
Need to evolve a state specific development strategy
based on one’s com...
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Polliicy For Regional Devlopment

Polliicy For Regional Devlopment
Published on: Mar 4, 2016
Published in: Business      
Source: www.slideshare.net


Transcripts - Polliicy For Regional Devlopment

  • 1. Policy for Regional Development V. J. Ravishankar Indian Institute of Public Administration 14th November, 2005
  • 2. Why is regional equity an issue? “Large regional disparities represent serious threats as the inability of the state to deal with such inequities creates potential for disunity and, in extreme cases, for disintegration” – Raja Shankar and Anwar Shah (2003)
  • 3. Table 1: Regional Disparities in Selected Countries, 1997 Max / Simple Wt. Gini Min C.V Index United States 1.927 0.162 0.039 Canada 1.838 0.201 0.067 India 3.811 0.387 0.227 China 11.625 0.692 0.250 Russia 21.307 0.625 0.280 Brazil 7.567 0.563 0.267 Mexico 5.793 0.473 0.301
  • 4. Trends in Disparities -- Highlights US has seen declining regional inequality during 1990-94 Canada’s inequality more or less constant during 1994-98 India saw rise in inequality during 1980-96, with dramatic increase in 1992 post liberalization Russia saw dramatic rise in inequality during 1994-97 Brazil saw rising inequality in 1980s, slight fall in early 1990s and a slight rise during 1995-97 Mexico’s regional inequality has remained at around 5 times that of the United States
  • 5. Divergence among Indian States Researchers have found a persistent divergence in per-capita income growth rates among two subsets or clubs of Indian states over the 1965- 1997 period -- one at roughly 50% and the other at 125% of the national average Can India achieve its development goals if the lagging states are left behind?
  • 6. Divergence and Conditional Convergence Nirvikar Singh and T. N. Srinivasan (2002) conclude: “The evidence weakly supports the idea of absolute divergence … with the rate increasing in the 1990s. The evidence on conditional convergence is less decisive … they may be converging to very different steady states. The differences in infrastructure and institutions that seem to explain interstate differences have been persistent … and neither Finance Commission transfers, Planning Commission transfers, nor centrally sponsored schemes have made a substantial dent in regional inequalities in India.”
  • 7. Types of Regional Dev Policies Central intervention for regional balance Common market (economic union) Fiscal equalization “Regional development policies have failed in almost all countries … to reduce regional inequalities” – Raja Shankar & Anwar Shah (2003)
  • 8. What is to be equalized? Outcomes? They will never be equal Opportunity? Yes, a level playing field Capacity? This is the aim of fiscal equalization (Finance Commission in India)
  • 9. Paradigm Shift in India Old paradigm relied heavily on direct central intervention in the name of equal outcomes, curbing opportunities in the process New paradigm is to foster a common market by reducing barriers to inter-state trade and investment flows, along with more effective fiscal capacity equalization
  • 10. Growth Strategy & Regional Equity “Most developing countries adopted Comparative Advantage Defying (CAD) strategies, which caused distortions and did not bring about convergence … replacing the old CAD strategy with a new Comparative Advantage Following (CAF) strategy is essential” – Justin Lin & Mingxing Liu (2004)
  • 11. New Environment for Indian States Two phases of significant change: over the 1970s and 1980s – growth of regional political parties since 1991 – liberalization of external trade and investment policy by the Government of India States now have a larger role in determining their development paths
  • 12. Poorer states attracted less Investment in the 1990s Poor and less developed states lagging behind: Bihar, Jharkhand, Madhya Pradesh, Chhatisgarh, Orissa, Rajasthan, Uttar Pradesh (UP) – account for 50% of India’s poor; 23% of investment in 2003; 13% of FDI during the 1990s; 25% of All-India GDP & per capita income; 54% of the average per capita income of other major states. More developed states racing ahead: Andhra Pradesh, Gujarat, Karnataka, Maharashtra, Punjab, Tamil Nadu – attracted over 66% of the total investment in 2003; 72% of FDI during the 1990s
  • 13. State fiscal management and governance do make a difference Through a 3-sector growth model of the Uttar Pradesh economy, Buffie (1998) concluded that state-financed infrastructure in power, roads and irrigation can have a very important locking-in or “crowding-in” effect on private investment in agriculture, industry and services
  • 14. State Ranking by Infrastructure High: Goa, Maharashtra, Punjab High middle: Gujarat, Haryana, Kerala, Tamil Nadu Middle: Andhra Pradesh, Karnataka Lower middle: Himachal Pradesh, Madhya Pradesh, Orissa, Uttar Pradesh, Uttaranchal, West Bengal Low: Arunachal Pradesh, Manipur, Meghalaya, Jharkhand, Mizoram, Nagaland, Assam, Chhattisgarh, Sikkim, Tripura, J&K, Bihar, Rajasthan Source: Report of the Twelfth Finance Commission, 2005.
  • 15. Differences in Business Climate Time to start a business is longer in poorer states – 79 days in Orissa compared to 57 in Karnataka and Punjab Time and cost to register a property are much higher in India’s poorer states It takes longer to enforce a contract – 1165 days in Uttar Pradesh versus 425 in Maharashtra It takes 15 years to close a business in Uttar Pradesh; it takes 8 years in Karnataka ( Doing Business – India Regional Profile, World Bank, 2004 )
  • 16. Laggards need to leap forward “While all Indian states need to focus on improving their investment climate, efforts in the lagging states will need to be twice as intensive as the better states” - Development Policy Review, The World Bank (forthcoming)
  • 17. Infant Mortality Rates, 1980-2000 1980 1990 2000 2015 (target) Kerala 37 17 14 6 West Bengal 91 63 51 21 Karnataka 69 70 57 23 Bihar 118 75 62 25 Rajasthan 108 85 79 28 Uttar Pradesh 150 99 83 33 Madhya Pradesh 142 111 88 37 Orissa 135 122 96 41 All India 110 80 68 27 Sources: 1980 and 1990 Sample Registration System; 2000 National Family Health Survey
  • 18. Developmental Role of State Governments Instrument Outcome Fiscal Policy, Public Sector Public Investment in Quality Infrastructure & Mgt & Service Delivery Human Capital Investment Policy & Private Capital Investment Regulatory Regime & Employment Growth Mechanisms for civil Accountable Government society interface & & Empowered Citizens oversight
  • 19. Role of Central Policy Fiscal Capacity Equalization (Twelfth Finance Commission) Fostering a common Indian market Addressing particular disadvantages (Finance Commission, Planning Commission, Line Ministries, External Donors)
  • 20. Partial Fiscal Equalization Per capita revenues (normalized to Punjab=1), 2000/01 1 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 h h sh l u ra an ka na ab ga sa es at a ar es ad al de ht ar th ta ad ya ih ris en nj ad N er as uj ra na B as Pu tB Pr O ar K Pr G ar il rP aj H ar am a ah es a R K hy tta hr W M T nd ad U M A Own revenues Transfers
  • 21. Further Steps to Level the Field Phase out Central Sales Tax Rationalize and restructure public food procurement Improve rural credit access
  • 22. To sum up …lesson for Government of India “Countries experiencing convergence have had a hands-off approach to regional development policies and instead focused on policies to promote a common economic union … and ensuring minimum standards of basic services across the country” -- Shankar & Shah (2003)
  • 23. To sum up …lessons for State Governments Need to evolve a state specific development strategy based on one’s comparative advantages and specific binding constraints – not the old planning paradigm of spreading resources too thinly All states need to strengthen – Fiscal policy, public administration and service delivery – Investment policy & regulatory regime – Role of civil society Laggards need a great leap forward

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