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The growth rate riddle

Manas Chakravarty | August 05, 2004

The conventional wisdom has always been that the country's high rates of growth since liberalisation have been the result of reforms.

States with impeccably reformist credentials, like cyber-friendly Andhra Pradesh and Karnataka, should, therefore, have performed the best in the past decade, while the BIMARU states (Bihar, Madhya Pradesh, Rajasthan and Uttar Pradesh) stagnated.

The numbers game
CAGR of ste GDP at 1993-94 prices, for 1993-94 to 2003-04
State/UTPercent  growth
West Bengal7.0
Himachal Pradesh6.5
Meghalaya 6.4
Tamil Nadu5.5
Andhra Pradesh5.4
State/UTPercent  growth
Uttar Pradesh4.5
Arunachal Pradesh 3.6*
Madhya Pradesh3.5
* For these states the period is 1993-94 to 2001-02
Source: Central Statistical Organisation

Communist-ruled West Bengal and Tripura should have been near the bottom of the heap. A state like Tamil Nadu, which lured away many industries by promising fiscal sops, should also have done well.

Yet another theory said that the littoral states' performance would be boosted, as the Indian economy opened out to the rest of the world and exports picked up. And, of course, there was the governance issue -- states such as Bihar, Jharkhand and Uttar Pradesh should have trailed the field.

But reality has a nasty way of giving short shrift to even the most plausible theories. Fancy theoretical castles in the air often come crashing down when faced by brute facts. India's GDP growth story is no different. The table alongside gives the compound annual growth rates of states' GDP in the past nine years, between 1994 and 2003.

(Why 1994? Because the data is taken from the Central Statistical Organisation's, or CSO's, computations of gross state domestic products at 1993-94 prices. Data for most of the states is available till 2002-03, although some states have data only till 2001-02.)

The growth rates are a minor revelation. Among the larger states, Leftist-ruled West Bengal tops the list, with a CAGR of 7 per cent. Among the smaller ones, another CPI(M)-ruled state, Tripura, is near the top of the heap, with a CAGR of 9.1 per cent. Crime-ridden Bihar notched up a CAGR of 5.8 per cent, while Maharashtra's CAGR was a mere 4.9 per cent.

Dynamic Gujarat ranks below, of all places, Himachal Pradesh, while Naxalite-infested Jharkhand has a higher rate of growth than Punjab. If the figures put out by the CSO are to be believed, the communist-ruled states have been the chief beneficiaries of liberalisation.

There could be several explanations for the surprising results. The most tempting one is to say that there's something wrong with the data, with some states inflating their figures, while others are more sober. States do compute their GDP figures differently, but would that account for a difference in their growth rates as well? The second line of defence will be to point out that states such as West Bengal have a much smaller base compared to, say, a state like Maharashtra.

That would be true, but it doesn't explain how West Bengal does better than states such as Gujarat or Punjab. The base effect could also explain Himachal Pradesh's stellar CAGR, but it doesn't account for Tripura's beating comparable Chandigarh or the other north-eastern states in the growth sweepstakes.

The high growth rates of areas such as Delhi, Pondicherry and Chandigarh may be attributed to increasing urbanisation. But how on earth do Bihar and Haryana end up with the same growth rate, despite all the impressive developments in the latter, including all those BPO outfits and malls in Gurgaon?

There could, however, be a plausible explanation, one linked to the well-known fact that West Bengal's growth rate in agriculture has been exceptionally good. Could it be possible that a similar story has happened in Tripura as well? If so, why hasn't Punjab done well? Also, this theory doesn't explain Bihar's good performance.

The startling nature of the data throws up a huge question mark over the received wisdom, and it is upto economists to piece together an adequate explanation for the facts. The riddle of the CSO's figures may very well hold the key to the secrets of the country's growth.

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