Chapter Annual Update on Competitiveness for 35 States and Union Territories of India: An Overview

Transcription

1 Chapter Annual Update on Competitiveness for 35 States and Union Territories of India: An Overview 1.1 INTRODUCTION This book is an update of the Asia Competitiveness Institute s (ACI) 2013 study on Annual Analysis of Competitiveness, Simulation Studies and Development Perspective for 35 States and Federal Territories of India, 1 now updated to The book for 2013 presented the competitiveness rankings for the 35 states and union territories based on ACI s framework for sub-national competitiveness. Each state s performance, official policies and challenges were analysed to suggest development strategies which were relevant at the sub-national level. Chapter 1 of this book extends the competitiveness rankings and simulation studies for the 35 states and union territories for 2014 based on updated data from Chapters 2 7 introduce ACI s proposed Master Plan for Strategic Regional Economic Development, incorporating the competitiveness methodology at the regional level across the five regions of India. The regions competitiveness and their comparative strengths and weaknesses are analysed for policy prescriptions to accelerate economic growth in a balanced, fair and sustainable way. Chapter 8 profiles the growth of the tourism industry in the state of Tamil Nadu and the economic development of Bihar between 2000 and It applies the Geweke 3 causality analysis to a subset of indicators used for the competitiveness analysis in Chapter 1. The results enable a deeper understanding of the relationship between these indicators, so as to facilitate the development of targeted policies for these states. The results also serve as inputs to the regional Master Plan as the basis for the selection of clusters. Chapter 9 concludes the study and gives a brief overview of potential future research agenda. 1 Tan Khee Giap et al., Annual Analysis of Competitiveness, Simulation Studies and Development Perspective for 35 States and Federal Territories of India: (Singapore: World Scientific Publishing Co Pte Ltd, 2013). See also other ACI studies, with the same competitiveness framework, including: Tan Khee Giap et al., Competitiveness Analysis and Development Strategies for 33 Indonesian Provinces (Singapore: World Scientific Publishing Co Pte Ltd, 2013). Tan Khee Giap et al., Annual Analysis of Competitiveness, Development Strategies and Public Policies on ASEAN-10: (Singapore: Pearson Education South Asia Pte Ltd, 2013). Tan Khee Giap et al., Annual Analysis of Competitiveness, Simulation Studies and Development Perspective for 34 Greater China Economies: (Singapore: World Scientific Publishing Co Pte Ltd, 2013). 2 Results of the 2013 study were based on data from Results of the 2014 competitiveness study include data from Conventionally, due to collection, compilation and publication of official data, such a lag of data before reaching end-users is acceptable. 3 John Geweke, Measurement of Linear Dependence and Feedback Between Multiple Time Series, Journal of the American Statistical Association 77, no. 378 (June 1982):

2 Regional Competitiveness Analysis and a Master Plan on Regional Development Strategies for India 1.2 THE EMERGING INDIAN ECONOMY Overall, the global economy has continued to deteriorate in 2011, ever since the global financial crisis in Despite signs of recovery by the United States economy, adverse effects brought about by negative developments in the Eurozone further exacerbated the challenges faced by Asian economies. As a large emerging economy, India also felt the shocks of these global conditions, which were compounded by domestic stresses driven by supply-side bottlenecks, resulting in a considerable slowdown. India s gross domestic product (GDP) annual growth rate dropped to 6.3% during 2011, 4 its current account (CA) deficit escalated to more than 4% of GDP and the rupee vis-à-vis the US dollar declined by as much as 19% between April and December Furthermore, the gross domestic savings dropped to 29% of GDP in 2011 from 33% in Household savings showed a slight improvement, but the savings of private corporations fell by 1.4% of GDP. The declining levels of savings and investment rates, along with lower gross capital formation, were some of the reasons highlighted by the India Economic Advisory Council to the then Prime Minister, Mr Manmohan Singh, as immediate challenges for the Indian economy. The primary sector performed particularly well in The production of food grains stood at million tonnes, surpassing all previous records in India. The output of rice, wheat, oilseed, cotton and sugar cane reached historically high levels. This was complemented by the horticulture sector which grew by 5.5% alongside a robust growth in animal husbandry. On the contrary, the secondary sector experienced a drop in performance in 2011 as compared to The mining and quarrying sector experienced a negative growth for most of the year, declining at a rate of 2.2%. Similarly, the manufacturing and construction sectors underperformed, delivering a lukewarm performance. In October, the index of industrial production growth declined as much as 5.7%. The tertiary sector in India experienced a comparatively steady growth in Its contribution to GDP increased from 57.5% in 2010 to 59% in 2011, with a growth rate of 9.4%. This growth was due to the development of trade, hotels and restaurants in India which offset the lower growth 5 in community, social and personal services. The performance of the tertiary sector and its increasing contribution to the national GDP underlines the growing significance of the services sector to the national economy. The remainder of this chapter presents and analyses the results of the rankings based on data updated to The methodology for ACI s competitiveness framework, indicators used, standardised score approach and the What-if Competitiveness Simulation studies are introduced in the following section. These are followed by the empirical findings for the competitiveness ranking of the 35 states and union territories, updated with the 2011 data. 1.3 RESEARCH METHODOLOGY The competitiveness framework employed by ACI for sub-national competitiveness ranks the 35 states and union territories of India with respect to several socio-economic development 4 The World Bank, GDP Growth. < Retrieved on 26 June Ishu Garg and Suraj Walia, An Analysis of Services Sector in Indian Economy, International Journal of Research in Economics and Social Sciences 3, no. 3 (April 2013): 8 19.

3 2014 Annual Update on Competitiveness for 35 States and Union Territories of India: An Overview 3 indicators to provide a strategic dimension to the competitiveness. Drilling data and analysis down to the state and union territory level, ACI s unique methodology draws conclusions and suggests development strategies which are more relevant to stimulate productive discussion between industry, administration and policy makers at the sub-national level in the first instance, before engaging them at the national level. While the notion of competitiveness has been defined in various ways, such as those by the World Economic Forum and International Institute for Management Development, ACI s approach to competitiveness is holistic, integrated and systematic, taking into account the different factors that collectively shape the ability of a nation or region to achieve substantial and inclusive economic development over a sustained period of time Four Environments, 11 Sub-environments and 75 Indicators Using ACI s comprehensive approach (see Figure 1.1), the Overall Competitiveness is defined through four different environments: (1) Macroeconomic Stability, (2) Government and Institutional Setting, (3) Financial, Businesses and Manpower Conditions and (4) Quality of Life and Infrastructure Development. These four environments can be effectively visualised as quadrants, each contributing the same weight (25%) to the Overall Competitiveness index. Moreover, ACI s competitiveness framework uses a nested approach, wherein each of the four environments is further divided into sub-environments (alternatively, we can say that each subenvironment is nested within a specific environment). There are 11 sub-environments altogether. In aggregating sub-environments into environments, and the latter into an overall ranking, ACI assigns equal weight to the sub-environments and environments. While assigning weight according to the level of importance seems more appropriate, the practical difficulties are as controversial. Thus, a balanced view towards the different factors that make up the overall notion of competitiveness means equal weight has to be assigned. The four quadrants of ACI s competitiveness framework represent a holistic, integrated and systemic view of competitiveness. Two environments are specifically related to the economy: Figure 1.1. ACI s Competitiveness Framework Source: ACI

4 Regional Competitiveness Analysis and a Master Plan on Regional Development Strategies for India (1) Macroeconomic Stability, which encompasses aggregated economic conditions, and (3) Financial, Businesses and Manpower Conditions, which represents conditions related to the micro-economy. They include an analysis on the performance of firms as well as challenges that the firms face in running their companies. The other two environments are more political, institutional and social in character. (2) Government and Institutional Setting covers efficacy of government institutions and includes analyses on expectations of progress, while (4) Quality of Life and Infrastructure Development combines an analysis on infrastructure as well as basic services and an overall sense of quality of life. For ease of reference, the four environments and their corresponding sub-environments are: 1. Macroeconomic Stability a. Regional Economic Vibrancy b. Openness to Trade and Services c. Attractiveness to Foreign Investors 2. Government and Institutional Setting a. Government Policies and Fiscal Sustainability b. Institutions, Governance and Leadership 3. Financial, Businesses and Manpower Conditions a. Financial Deepening and Business Efficiency b. Labour Market Flexibility c. Productivity Performance 4. Quality of Life and Infrastructure Development a. Physical Infrastructure b. Technological Infrastructure c. Standard of Living, Education and Social Stability For this study, ACI makes use of 75 indicators. Although the weight assigned to the four environments is equal (25% each), the weight of each indicator depends on the number of indicators present in each sub-environment. Depending on the availability of data, some environments and sub-environments have more indicators than others. To a certain extent, having more indicators ensures a more robust interpretation of the aggregate sub-environment score. The uneven distribution of indicators across sub-environments due to data availability is, however, not an issue. Regardless of the number of indicators in a sub-environment, they will simply average out. This allows us to include a reasonable number of indicators that will comprehensively define the sub-environment, yet at the same time retaining equal weight for the four environments in the calculation of the Overall Competitiveness. This also allows a certain amount of flexibility in adding or removing indicators when updating the index in ACI s annual exercises, as long as the overall structure of the 11 sub-environments and four environments does not change. The 75 indicators used for the competitiveness study include both determinant and outcome indicators. A comprehensive view encompassing both determinant and outcome indicators

5 2014 Annual Update on Competitiveness for 35 States and Union Territories of India: An Overview 5 allows us to simply answer the question What are the most and least competitive states and union territories in the country?. Inclusion of both determinant and outcome indicators further facilitates the drawing of a sharper contrast between the high-performing and the low-performing states. The analysis employs both size-dependent and size-independent indicators for the competitiveness study. The size-independent indicators are measured as indicators normalised for population or land area. The use of size-dependent indicators raises the question of results being skewed in favour of larger states. However, using a comprehensive set of indicators to measure overall competitiveness ensures that such size-dependent indicators do not affect the rankings significantly and that the smaller states and union territories are not penalised. While performing the competitiveness analysis, three different sets of indicators were created to identify the impact of size on the rankings. The first data set was the original list of indicators which included a mix of size-dependent and size-independent indicators. For the second data set, all sizedependent indicators were normalised by population or land area. The third data set included both the size-dependent indicators and their corresponding normalised indicators. The competitiveness ranking results for all three sets revealed only minor differences in rankings on comparison, indicating that the original set of indicators did not skew the results in favour of the larger states. The full list of indicators used in this study is provided in Appendix The Standardised Score The next question is how to aggregate the different types of data in one coherent way of analysis. Given that the 75 indicators have different units of measurement, such as gross state domestic product (GSDP) in millions of rupees, and length of paved roads in kilometres, how do we resolve these differences? To resolve this, ACI uses the statistical methodology of standardised score. The standardised score is a relative comparison of the performance of a certain state or union territory to the average. Therefore, the unit of measurement is no longer relevant. The standardised score has no unit of measurement because it measures relative performance among states and union territories, whatever the indicator may be. In statistical terms, it measures the number of standard deviations each state or union territory is from the average. See Appendix 2 for a technical explanation. If a state or union territory has a standardised score of zero, it is an average performer in terms of that particular indicator. Having a negative score means the performance is below average. Having a positive score, on the other hand, means the performance is above average. The further away the score is from zero, the further away the performance of the state or union territory is from the national average. The standardised scores for each indicator are then aggregated at the sub-environment level, re-aggregated at the environment level, and finally aggregated at the overall level. This allows a comparison of performance of the states and union territories at different levels, from the specific indicators to Overall Competitiveness. With each aggregation, the scores are re-standardised as detailed earlier to calculate the standardised score at the sub-environment, environment and overall levels.

6 Regional Competitiveness Analysis and a Master Plan on Regional Development Strategies for India What-if Competitiveness Simulation Studies A competitiveness ranking in itself is like a beauty contest it merely identifies states and union territories which are doing well and those which are facing challenges, but stops short of giving more constructive advice on improving the rankings. Thus, ACI takes it one step further by tackling the So what? question. What is the policy implication of a competitiveness ranking result for a particular Indian state? The data available allows us to do an in-depth analysis of the performance of each state and union territory according to the indicators, sub-environments and environments. By analysing the said data, we are able to identify not just the Overall Competitiveness ranking, but also specific indicators for which the state is doing well or otherwise. This allows us to come up with policy recommendations for each state and union territory. As ACI s What-if Competitiveness Simulation is based on an improvement of each state s top 20% weakest indicators by policy to attain the average, the re-calculation of the standardised score is also based on such an improvement. To do this, we first look at each state and union territory, and sort the different indicators from the highest to the lowest score. This allows us to identify the 15 weakest indicators for each of the states and union territories. The 15 weakest indicators are chosen because we want to examine the bottom 20% of the 75 indicators identified. Next, by policy simulation, we raise the scores of these 15 weakest indicators moderately to match the average score. This means that if the score was previously negative, it would be raised to zero. For other states and union territories which were already competitive with a positive score, we leave their scores as they are. The scores are not discounted if they are already competitive. Once these scores are raised, we then re-calculate the ranking, assuming that the scores of other states and union territories stay constant. This simulation is performed one by one for each of the states and union territories. Each state and union territory would then have a new, improved standardised score. This allows us to answer the question: if a particular state or union territory improves on its 15 weakest indicators, and assuming the others remain constant, how would its competitiveness ranking improve? 1.4 EMPIRICAL FINDINGS Review of Rank and Score: Overall Competitiveness Using the methodology introduced in Section 1.3 for India in 2014, the rankings are derived by sorting the scores of each state and union territory as shown in Table 1.1. The scores range from a maximum of for top-ranked Maharashtra, to a minimum of for bottom-ranked Assam. A score of 0, which indicates an average performance, lies between the 15 th position (Arunachal Pradesh, score: ) and the 16 th position (Rajasthan, score: ). The 18 th -ranked economy, Punjab, is the median-performing state with a score of We can see that the average score (0, between positions 15 and 16) is higher than

7 2014 Annual Update on Competitiveness for 35 States and Union Territories of India: An Overview 7 Table Overall Competitiveness Rank and Score for 35 States and Union Territories of India Rank Economy Score 1 Maharashtra Delhi # Tamil Nadu Gujarat Karnataka Andhra Pradesh Uttar Pradesh Kerala West Bengal Sikkim Chandigarh # Madhya Pradesh Goa Haryana Arunachal Pradesh Rajasthan Lakshadweep # Punjab Andaman & Nicobar Islands # Mizoram Daman & Diu # Puducherry # Odisha Himachal Pradesh Dadra & Nagar Haveli # Uttarakhand Nagaland Jammu & Kashmir Manipur Chhattisgarh Meghalaya Bihar Tripura Jharkhand Assam # denotes union territories Source: ACI

8 Regional Competitiveness Analysis and a Master Plan on Regional Development Strategies for India the median score ( , at position 18), which means that the average score is skewed upwards as a result of Maharashtra s high score. Great disparities are observed when the ranks (column 1) and scores (column 3) in Table 1.1 are compared, i.e., the scores of different states are distributed in a rather non-sequential pattern. For instance, significant gaps are observed between the scores of Maharashtra (score: ), Delhi (score: ) and Tamil Nadu (score: ). Similarly, the scores of eighth-ranked state Kerala (score: ) and ninth-ranked state West Bengal (score: ) are far apart. Although these states are ranked sequentially based on their scores, the dramatic separation between their scores indicates their gaps in terms of competitiveness are actually much larger than their positions suggest. Meanwhile, there are also certain states with fairly close scores, such as Madhya Pradesh (ranked 12 th, score: ) and Goa (ranked 13 th, score: ). Therefore, the scores are crucial when analysing the economies, as they depict competitiveness at a more detailed scale. Projecting the Overall Competitiveness rankings on a map of India in Figure 1.2, the states and union territories are colour-coded based on the traffic light scheme: the top 10 positions in green, the middle 15 positions in yellow, and the bottom 10 positions in red. Based on the relationship between the Overall Competitiveness and geographical location of the economies, the following inferences can be made. Firstly, economies with similar Overall Competitiveness are generally geographically connected with each other. For instance, in the south of India, neighbouring economies include Andhra Pradesh, Karnataka, Kerala and Tamil Nadu, which are all ranked in the top 10. The performance of these states across all four environments appears excellent. This will be further elaborated in the subsequent sections. Secondly, a strong private sector and a favourable environment for development, which can be fostered by the government, are critical for the overall competitiveness of an economy. In other words, political will and commitment to be pro-growth is the key. This comment is verified by the outstanding performance of Gujarat and Maharashtra, which are both ranked in the top 10. Thirdly, although the geographical factor is important to the Overall Competitiveness of an economy, it is not a determinative factor. The Overall Competitiveness rankings of northern economies are rather diverse. The national capital, Delhi, and the most populous state, Uttar Pradesh, are ranked within the top 10 positions. However, the rankings of Jammu & Kashmir, the northernmost state of India, and Uttarakhand fall within the bottom 10 positions. Fourthly, most of the economies in the east appear in the bottom 10 positions, including Bihar, Chhattisgarh and Jharkhand. These states are amongst the poorest economies in the country and they underperform in several indicators across all four environments. Among the eastern economies of India, West Bengal is the only state ranked within the top 10. Lastly, Assam, Manipur, Meghalaya, Nagaland and Tripura, all located in the northeast of the country, fall within the bottom 10 positions. These states are some of the most underdeveloped states in the country. The difficult terrain in the region has hindered their growth. However, Sikkim, which makes it into the top 10 positions despite having similar geographical conditions, can show the way forward to other states in the region.

9 2014 Annual Update on Competitiveness for 35 States and Union Territories of India: An Overview 9 Figure Map of Overall Competitiveness Ranking for 35 States and Union Territories of India Source: ACI Table 1.2 provides a comparison of the Overall Competitiveness rankings for the 35 states and union territories for 2013 and Among the larger states, West Bengal improved by five positions and Kerala by three positions. As a result, these states moved into the top 10 positions. Some smaller states and union territories, such as Lakshadweep, Daman & Diu, Sikkim, Chandigarh, Nagaland and Chhattisgarh, also improved their rankings as compared to On the other hand, states that dropped significantly in rankings as compared to 2013 include Bihar (nine positions), Arunachal Pradesh (seven positions), Jammu & Kashmir (six positions), Odisha (five positions) and Assam (five positions). Several other states in the top 10 rankings, such as Andhra Pradesh, Delhi, Gujarat, Karnataka, Maharashtra, Tamil Nadu and Uttar Pradesh maintained the same rankings in both years.

10 Regional Competitiveness Analysis and a Master Plan on Regional Development Strategies for India Table and 2014 Overall Competitiveness Rankings for 35 States and Union Territories of India Rank Economy Andaman & Nicobar Islands # Andhra Pradesh 6 6 Arunachal Pradesh 8 15 Assam Bihar Chandigarh # Chhattisgarh Dadra & Nagar Haveli # Daman & Diu # Delhi # 2 2 Goa 9 13 Gujarat 4 4 Haryana Himachal Pradesh Jammu & Kashmir Jharkhand Karnataka 5 5 Kerala 11 8 Lakshadweep # Madhya Pradesh Maharashtra 1 1 Manipur Meghalaya Mizoram Nagaland Odisha Puducherry # Punjab Rajasthan Sikkim Tamil Nadu 3 3 Tripura Uttar Pradesh 7 7 Uttarakhand West Bengal 14 9 # denotes union territories Source: ACI

11 2014 Annual Update on Competitiveness for 35 States and Union Territories of India: An Overview Review of Rank and Score: Four Environments This section presents the results and analysis based on the competitiveness of the state or union territory for the four constituent environments of Overall Competitiveness. Table 1.3 presents the rank and score for the environment of Macroeconomic Stability for the 35 states and union territories for Maharashtra ranked first with a score of and significantly outperformed the other states and union territories. The competition is much closer between Delhi, Tamil Nadu, Gujarat and Karnataka, which ranked second, third, fourth and fifth respectively with their scores in close proximity. Manipur ranked last with a score of , quite a distance from 34 th -ranked Meghalaya which scored However, the other states ranked in the bottom 10 between 26 th -ranked Puducherry (score: ) and 34 th -ranked Meghalaya (score: ) have scores that are quite close, intensifying the competition at the bottom of Table 1.3. Figure 1.3 shows the performance of the states and union territories for the environment of Macroeconomic Stability projected on a map of India. The top 10 states and union territories are geographically spread across the south, west and north of the country. Delhi, Haryana and Uttar Pradesh from the north; Gujarat, Madhya Pradesh and Maharashtra from the west; Andhra Pradesh, Karnataka and Tamil Nadu from the south; and West Bengal from the east of the country make it to the top-10 list. The north eastern states of Assam, Manipur, Meghalaya and Tripura are in the bottom 10 positions. The others in the bottom 10 positions include the states of Jammu & Kashmir and Jharkhand, and the union territories of Andaman & Nicobar Islands, Daman & Diu, Dadra & Nagar Haveli and Puducherry. Table 1.4 compares the Macroeconomic Stability rankings for the 35 states and union territories for 2013 and Mizoram, in the northeast of the country, experienced the largest jump in its ranking, moving up 10 positions from 33 rd to 23 rd between 2013 and Arunachal Pradesh and Nagaland, which are also in the northeast, moved up by seven positions each in Among the larger states, Meghalaya dropped the most in ranking, from 24 th to 34 th. Other states that dropped in competitiveness rankings include Jharkhand (eight positions), Punjab (six positions) and Himachal Pradesh (five positions). The top-performing states of Gujarat, Haryana, Karnataka, Madhya Pradesh and Maharashtra were able to maintain their ranks in 2014 for the environment of Macroeconomic Stability. Table 1.5 shows the rank and score for the environment of Government and Institutional Setting for the 35 states and union territories for Maharashtra is ranked first with a score of Delhi (score: ) and Uttar Pradesh (score: ) also emerge as competitive states and are ranked second and third respectively. The union territory of Puducherry is ranked last with a score of However, as many as 23 states and union territories have a negative score for this environment. This is caused by the significantly high scores of the top-ranked states which skew the average score upwards, thus resulting in several states and union territories performing below the average score.

12 Regional Competitiveness Analysis and a Master Plan on Regional Development Strategies for India Table Macroeconomic Stability Rank and Score for 35 States and Union Territories of India Rank Economy Score 1 Maharashtra Delhi # Tamil Nadu Gujarat Karnataka Haryana Uttar Pradesh Madhya Pradesh Andhra Pradesh West Bengal Rajasthan Goa Arunachal Pradesh Odisha Kerala Nagaland Bihar Chhattisgarh Punjab Himachal Pradesh Uttarakhand Chandigarh # Mizoram Lakshadweep # Sikkim Puducherry # Jammu & Kashmir Assam Andaman & Nicobar Islands # Jharkhand Daman & Diu # Tripura Dadra & Nagar Haveli # Meghalaya Manipur # denotes union territories Source: ACI

13 2014 Annual Update on Competitiveness for 35 States and Union Territories of India: An Overview 13 Figure Map of Macroeconomic Stability Ranking for 35 States and Union Territories of India Source: ACI In Figure 1.4, for the rankings based on Government and Institutional Setting, we see a pattern that is somewhat similar to the rankings for Macroeconomic Stability as presented in Figure 1.3. Delhi and Uttar Pradesh from the north; Gujarat, Madhya Pradesh and Maharashtra from the west; Andhra Pradesh, Karnataka and Tamil Nadu from the south; and West Bengal from the east of the country again make it to the top 10 positions for Government and Institutional Setting. Bihar also makes it to the top 10 positions for this environment. For the bottom 10 positions, we can observe three distinct groups of states and union territories on the map. The first group lies in the north of the country and includes the states of Haryana, Himachal Pradesh and Uttarakhand. The second group lies in the east of the country with the states of Jharkhand and Chhattisgarh. The third group is concentrated in the northeast of the country and comprises the states of Assam, Meghalaya and Nagaland. The others in the bottom 10 positions include the state of Goa and the union territory of Puducherry. Table 1.6 compares the 2013 and 2014 rankings for Government and Institutional Setting for the 35 states and union territories. Sikkim experienced the largest jump in its ranking, moving up by 13 positions from 28 th to 15 th between 2013 and A few other states and union territories which have improved their

14 Regional Competitiveness Analysis and a Master Plan on Regional Development Strategies for India Table and 2014 Macroeconomic Stability Rankings for 35 States and Union Territories of India Economy Rank Andaman & Nicobar Islands # Andhra Pradesh 7 9 Arunachal Pradesh Assam Bihar Chandigarh # Chhattisgarh Dadra & Nagar Haveli # Daman & Diu # Delhi # 3 2 Goa Gujarat 4 4 Haryana 6 6 Himachal Pradesh Jammu & Kashmir Jharkhand Karnataka 5 5 Kerala Lakshadweep # Madhya Pradesh 8 8 Maharashtra 1 1 Manipur Meghalaya Mizoram Nagaland Odisha Puducherry # Punjab Rajasthan Sikkim Tamil Nadu 2 3 Tripura Uttar Pradesh 9 7 Uttarakhand West Bengal # denotes union territories Source: ACI

15 2014 Annual Update on Competitiveness for 35 States and Union Territories of India: An Overview 15 Table Government and Institutional Setting Rank and Score for 35 States and Union Territories of India Rank Economy Score 1 Maharashtra Delhi # Uttar Pradesh Tamil Nadu Andhra Pradesh West Bengal Karnataka Gujarat Madhya Pradesh Bihar Arunachal Pradesh Rajasthan Mizoram Daman & Diu # Sikkim Chandigarh # Kerala Andaman & Nicobar Islands # Manipur Dadra & Nagar Haveli # Odisha Jammu & Kashmir Punjab Lakshadweep # Tripura Assam Haryana Nagaland Chhattisgarh Meghalaya Jharkhand Himachal Pradesh Uttarakhand Goa Puducherry # # denotes union territories Source: ACI

16 Regional Competitiveness Analysis and a Master Plan on Regional Development Strategies for India Figure Map of Government and Institutional Setting Ranking for 35 States and Union Territories of India Source: ACI rankings are Mizoram (five positions), Andaman & Nicobar Islands (four positions), Madhya Pradesh (two positions) and Tripura (two positions). The state of Manipur experienced the largest drop of 10 positions in its rankings, moving from ninth in 2013 to 19 th in Other states that experienced a decline in their rankings for this environment in 2014 include Jammu & Kashmir (six positions), Haryana (four positions) and Punjab (three positions). Interestingly, Maharashtra, Delhi, Uttar Pradesh, Tamil Nadu and Andhra Pradesh, which were the top five states/union territories in 2013, retained their positions in Table 1.7 shows the rank and score for the environment of Financial, Businesses and Manpower Conditions for the 35 states and union territories for Maharashtra is again ranked first for this environment with a score of Delhi and Tamil Nadu follow at second and third place with scores of and respectively. Nagaland is ranked last with a score of Tripura and Manipur, 33 rd and 34 th with scores of and respectively, are not too far ahead. Figure 1.5 on Financial, Businesses and Manpower Conditions demonstrates the strong performance of the states in the south and west of the country. All the southern states, Andhra Pradesh,

17 2014 Annual Update on Competitiveness for 35 States and Union Territories of India: An Overview 17 Table and 2014 Government and Institutional Setting Rankings for 35 States and Union Territories of India Economy Rank Andaman & Nicobar Islands # Andhra Pradesh 5 5 Arunachal Pradesh Assam Bihar Chandigarh # Chhattisgarh Dadra & Nagar Haveli # Daman & Diu # Delhi # 2 2 Goa Gujarat 8 8 Haryana Himachal Pradesh Jammu & Kashmir Jharkhand Karnataka 6 7 Kerala Lakshadweep # Madhya Pradesh 11 9 Maharashtra 1 1 Manipur 9 19 Meghalaya Mizoram Nagaland Odisha Puducherry # Punjab Rajasthan Sikkim Tamil Nadu 4 4 Tripura Uttar Pradesh 3 3 Uttarakhand West Bengal 7 6 # denotes union territories Source: ACI

18 Regional Competitiveness Analysis and a Master Plan on Regional Development Strategies for India Table Financial, Businesses and Manpower Conditions Rank and Score for 35 States and Union Territories of India Rank Economy Score 1 Maharashtra Delhi # Tamil Nadu Sikkim Goa Kerala Karnataka Uttar Pradesh Andhra Pradesh Gujarat Chandigarh # Punjab Haryana Rajasthan West Bengal Himachal Pradesh Uttarakhand Puducherry # Lakshadweep # Odisha Madhya Pradesh Daman & Diu # Jharkhand Andaman & Nicobar Islands # Dadra & Nagar Haveli # Jammu & Kashmir Arunachal Pradesh Mizoram Chhattisgarh Bihar Meghalaya Assam Tripura Manipur Nagaland # denotes union territories Source: ACI

19 2014 Annual Update on Competitiveness for 35 States and Union Territories of India: An Overview 19 Figure 1.5. of India 2014 Map of Financial, Businesses and Manpower Conditions Ranking for 35 States and Union Territories Source: ACI Karnataka, Kerala and Tamil Nadu, made it to the top 10 positions. Similarly, the western states of Gujarat, Goa and Maharashtra are part of the top 10 positions. Uttar Pradesh from the north and Sikkim from the northeast of the country also made it into the top 10 positions. The states in the northeast of the country performed particularly poorly in this environment, with six of the seven states from the region in the bottom 10 (least competitive states). The eastern states, Bihar and Chhattisgarh; and the northernmost state Jammu & Kashmir also perform poorly and are found in the bottom 10 positions. All the states which perform poorly in this environment experience an unstable political and economic environment due to international border disputes or domestic insurgencies. As a result, these states find it difficult to attract investments from the private sector, impacting the indicators in the environment of Financial, Businesses and Manpower Conditions. Table 1.8 compares the Financial, Businesses and Manpower Conditions rankings for the 35 states and union territories for 2013 and 2014.

20 Regional Competitiveness Analysis and a Master Plan on Regional Development Strategies for India Table and 2014 Financial, Businesses and Manpower Conditions Rankings for 35 States and Union Territories of India Rank Economy Andaman & Nicobar Islands # Andhra Pradesh 8 9 Arunachal Pradesh Assam Bihar Chandigarh # Chhattisgarh Dadra & Nagar Haveli # Daman & Diu # Delhi # 2 2 Goa 5 5 Gujarat 9 10 Haryana Himachal Pradesh Jammu & Kashmir Jharkhand Karnataka 6 7 Kerala 10 6 Lakshadweep # Madhya Pradesh Maharashtra 1 1 Manipur Meghalaya Mizoram Nagaland Odisha Puducherry # Punjab Rajasthan Sikkim 4 4 Tamil Nadu 3 3 Tripura Uttar Pradesh 7 8 Uttarakhand West Bengal # denotes union territories Source: ACI

21 2014 Annual Update on Competitiveness for 35 States and Union Territories of India: An Overview 21 The following union territories have improved their ranking in 2014 as compared to 2013: Daman & Diu (seven positions), Dadra & Nagar Haveli (five positions), Andaman & Nicobar Islands (two positions) and Lakshadweep (two positions). Some of the larger states which also moved up in the rankings include Kerala (four positions), Himachal Pradesh (two positions), Rajasthan (two positions), Tripura (two positions) and West Bengal (two positions). Mizoram dropped by six positions in its ranking, moving from 22 nd in 2013 to 28 th in Other states that declined in the rankings for this environment in 2014 include Chhattisgarh (four positions), Arunachal Pradesh (three positions), Meghalaya (three positions), Puducherry (three positions) and Uttarakhand (three positions). Assam, Chandigarh, Delhi, Goa, Jharkhand, Maharashtra, Sikkim and Tamil Nadu maintained the same rankings in Table 1.9 presents the rank and score for the environment of Quality of Life and Infrastructure Development for the 35 states and union territories for Kerala ranked first with a score of , which is significantly higher than that of the second-ranked Gujarat (score: ). Maharashtra slipped to third position with a score of ; this is the only environment wherein it did not rank first. Bihar ranked last with a score of Assam (ranked 33 rd ) and Jharkhand (ranked 34 th ) also had large negative scores of and respectively. The map of rankings based on Quality of Life and Infrastructure Development in Figure 1.6 again underscores the strong performance of the southern and western states of the country. Arunachal Pradesh in the northeast is the only state outside these regions which appears in the top 10 positions. The northernmost state of Jammu & Kashmir is part of the bottom 10 positions. Uttar Pradesh and Bihar, with a significantly large proportion of the population below the poverty line, are also part of the bottom 10 positions. Chhattisgarh, Jharkhand and Odisha, which lie in the forested, mineral-rich region of the country, are also some of the least competitive states with respect to Quality of Life and Infrastructure Development. Similarly, Assam, Meghalaya and Tripura, found in the northeast of the country, are part of the bottom 10 positions. Table 1.10 compares the Quality of Life and Infrastructure Development rankings for the 35 states and union territories for 2013 and Some of the larger states were able to significantly improve their performance to move up in the competitiveness rankings. They include: Kerala (11 positions), Manipur (10 positions), West Bengal (eight positions), Himachal Pradesh (five positions) and Uttarakhand (five positions). On the other hand, the states that showed the largest drop in their rankings for this environment are: Uttar Pradesh (11 positions), Jammu & Kashmir (11 positions), Madhya Pradesh (10 positions), Rajasthan (nine positions), Odisha (nine positions), Arunachal Pradesh (eight positions), Goa (six positions), Assam (six positions) and Bihar (five positions). Sikkim and Tamil Nadu were the only two states which were able to maintain their rankings in 2014.

22 Regional Competitiveness Analysis and a Master Plan on Regional Development Strategies for India Table Quality of Life and Infrastructure Development Rank and Score for 35 States and Union Territories of India Rank Economy Score 1 Kerala Gujarat Maharashtra Lakshadweep # Karnataka Puducherry # Andaman & Nicobar Islands # Tamil Nadu Arunachal Pradesh Andhra Pradesh Goa Delhi # Manipur Chandigarh # Mizoram Sikkim Daman & Diu # Nagaland Punjab Himachal Pradesh West Bengal Rajasthan Dadra & Nagar Haveli # Madhya Pradesh Haryana Uttarakhand Odisha Uttar Pradesh Tripura Meghalaya Jammu & Kashmir Chhattisgarh Assam Jharkhand Bihar # denotes union territories Source: ACI

23 2014 Annual Update on Competitiveness for 35 States and Union Territories of India: An Overview 23 Figure Map of Quality of Life and Infrastructure Development Ranking for 35 States and Union Territories of India Source: ACI

24 Regional Competitiveness Analysis and a Master Plan on Regional Development Strategies for India Table and 2014 Quality of Life and Infrastructure Development Rankings for 35 States and Union Territories of India Economy Rank Andaman & Nicobar Islands # 6 7 Andhra Pradesh 9 10 Arunachal Pradesh 1 9 Assam Bihar Chandigarh # Chhattisgarh Dadra & Nagar Haveli # Daman & Diu # Delhi # Goa 5 11 Gujarat 3 2 Haryana Himachal Pradesh Jammu & Kashmir Jharkhand Karnataka 4 5 Kerala 12 1 Lakshadweep # 24 4 Madhya Pradesh Maharashtra 2 3 Manipur Meghalaya Mizoram Nagaland Odisha Puducherry # 7 6 Punjab Rajasthan Sikkim Tamil Nadu 8 8 Tripura Uttar Pradesh Uttarakhand West Bengal # denotes union territories Source: ACI

25 2014 Annual Update on Competitiveness for 35 States and Union Territories of India: An Overview Review of What-if Competitiveness Simulation: Overall Competitiveness We now examine the results of the What-if Competitiveness Simulation for the 35 states and union territories of India for Table 1.11 shows the ranking and score for each state and union territory before and after simulation. The improvement in the results after policy simulation shows how ACI s analysis helps states/union territories to improve after constructive intervention. The simulation results (Table 1.11) show that different states and union territories have different potential to improve their rankings and scores. With the simulation that improves their top- 20% weakest indicators (assuming other states and union territories remain unchanged), some states and union territories experience significant jumps in position while others improve by only a few positions. States which demonstrate the maximum potential for improving their competitiveness after the What-if Competitiveness Simulation include Bihar (15 positions), Manipur (14 positions), Nagaland (11 positions), Assam (10 positions), Meghalaya (10 positions) and Mizoram (10 positions). Similarly, the following union territories also display significant potential for improvement after the simulation: Puducherry (12 positions), Daman & Diu (11 positions), Andaman & Nicobar Islands (10 positions) and Dadra & Nagar Haveli (10 positions). The top 10 states and union territories with strong performances even before the simulation show modest jumps after the simulation, while the top three states remain unchanged in position after the simulation. The competition at the top gets more intense, requiring these states to work harder to retain their positions. All states which ranked 20 th and below before the simulation show a jump of at least eight positions after simulation, with the state of Bihar moving up by as many as 15 positions. It is also interesting to note that Manipur is the only bottom-10 state which is able to convert its overall negative score to a positive one post-simulation. This is primarily driven by its exceptional scores across the top-20% strongest indicators which highlight efficient government institutions as well as good quality of life and infrastructure development. Therefore, the policy simulation to improve the top-20% weakest indicators results in an overall positive score for Manipur. The potential to jump up by multiple positions depends on two factors: (1) the spread of scores among the different indicators for each state or union territory, and (2) the difference in aggregated scores between that particular state and the state that is one position higher. If two consecutively ranked states or union territories have a wide gap between their scores, then the one with the lower score will have difficulty in leapfrogging over the one with the higher score. What-if Competitiveness Simulation assists states in directing their limited resources into areas which increase their competitiveness significantly. The top-20% weakest indicators are simulated by policy to show how the states and union territories can target some low-hanging fruits to spur growth and development. This will allow the states to optimise their resources and gain confidence, in turn leading these policy measures in loosening some other tight screws.

26 Regional Competitiveness Analysis and a Master Plan on Regional Development Strategies for India Table What-if Competitiveness Simulation on Overall Competitiveness for 35 States and Union Territories of India Rank Score Economy Before After Before After Andaman & Nicobar Islands # Andhra Pradesh Arunachal Pradesh Assam Bihar Chandigarh # Chhattisgarh Dadra & Nagar Haveli # Daman & Diu # Delhi # Goa Gujarat Haryana Himachal Pradesh Jammu & Kashmir Jharkhand Karnataka Kerala Lakshadweep # Madhya Pradesh Maharashtra Manipur Meghalaya Mizoram Nagaland Odisha Puducherry # Punjab Rajasthan Sikkim Tamil Nadu Tripura Uttar Pradesh Uttarakhand West Bengal # denotes union territories Source: ACI

27 2014 Annual Update on Competitiveness for 35 States and Union Territories of India: An Overview Review of What-if Competitiveness Simulation: Four Environments What-if Competitiveness Simulation is also performed for each of the four environments using the same methodology as discussed in Section Each state/union territory s top-20% weakest indicators in a particular environment are improved by policy to attain the average, and the standardised score is re-calculated based on such an improvement. Table 1.12 shows the results of the What-if Competitiveness Simulation for the environment of Macroeconomic Stability. Among the larger states, Jharkhand displays the maximum potential to improve post-simulation, moving up by 10 positions from 30 th to 20 th. However, it is still unable to improve its score to a positive one. Meghalaya and Tripura also show significant improvement, moving up by seven and nine positions respectively after simulation. Keeping an eye on the post-simulation scores is also important. For example, although Arunachal Pradesh did not improve on its ranking, its score changed from negative to positive, indicating an improvement in its competitiveness. Table 1.13 shows the results of the What-if Competitiveness Simulation for the environment of Government and Institutional Setting. Among the larger states, Haryana and Punjab display significant potential to jump to a higher position. After the simulation, Haryana moved up by 15 positions (from 27 th to 12 th ) and Punjab by 13 positions (from 23 rd to 10 th ). The north eastern states of Meghalaya, Nagaland and Tripura also move up by several positions after the simulation, i.e., 19, 19 and 16 positions respectively. Several union territories also display potential to improve post-simulation, such as Andaman & Nicobar Islands which improved by 12 positions, Lakshadweep by 18 positions and Puducherry by 16 positions. Table 1.14 shows the results of the What-if Competitiveness Simulation for the environment of Financial, Businesses and Manpower Conditions. Among the larger states, Bihar moves up the most post-simulation by 11 positions. Although Odisha only moves up by six positions, it is able to improve from a negative score of to a positive score of Similarly, Uttarakhand, which improved in ranking by three positions, was able to improve to a positive score of from Achieving a positive score is as much an improvement in a state s competitiveness as it is an encouragement for the state, because it signifies an above-average performance, thereby instilling confidence and determination to execute further reforms. Table 1.15 shows the results of the What-if Competitiveness Simulation for the environment of Quality of Life and Infrastructure Development. Several states show an inclination to move up the rankings post-simulation, such as Assam (11 positions), Bihar (13 positions), Jammu & Kashmir (11 positions), Madhya Pradesh (12 positions), Odisha (11 positions), Punjab (13 positions) and, most significantly, Uttar Pradesh (21 positions). It is especially encouraging to see the potential for improvement for Bihar and Uttar Pradesh, which are home to almost 25% of India s population. Improvement in indicators for Quality of Life can have a direct impact on the large population of these two states.

28 Regional Competitiveness Analysis and a Master Plan on Regional Development Strategies for India Table What-if Competitiveness Simulation on Macroeconomic Stability for 35 States and Union Territories of India Rank Score Economy Before After Before After Andaman & Nicobar Islands # Andhra Pradesh Arunachal Pradesh Assam Bihar Chandigarh # Chhattisgarh Dadra & Nagar Haveli # Daman & Diu # Delhi # Goa Gujarat Haryana Himachal Pradesh Jammu & Kashmir Jharkhand Karnataka Kerala Lakshadweep # Madhya Pradesh Maharashtra Manipur Meghalaya Mizoram Nagaland Odisha Puducherry # Punjab Rajasthan Sikkim Tamil Nadu Tripura Uttar Pradesh Uttarakhand West Bengal # denotes union territories Source: ACI

29 2014 Annual Update on Competitiveness for 35 States and Union Territories of India: An Overview 29 Table What-if Competitiveness Simulation on Government and Institutional Setting for 35 States and Union Territories of India Rank Score Economy Before After Before After Andaman & Nicobar Islands # Andhra Pradesh Arunachal Pradesh Assam Bihar Chandigarh # Chhattisgarh Dadra & Nagar Haveli # Daman & Diu # Delhi # Goa Gujarat Haryana Himachal Pradesh Jammu & Kashmir Jharkhand Karnataka Kerala Lakshadweep # Madhya Pradesh Maharashtra Manipur Meghalaya Mizoram Nagaland Odisha Puducherry # Punjab Rajasthan Sikkim Tamil Nadu Tripura Uttar Pradesh Uttarakhand West Bengal # denotes union territories Source: ACI

30 Regional Competitiveness Analysis and a Master Plan on Regional Development Strategies for India Table What-if Competitiveness Simulation on Financial, Businesses and Manpower Conditions for 35 States and Union Territories of India Rank Score Economy Before After Before After Andaman & Nicobar Islands # Andhra Pradesh Arunachal Pradesh Assam Bihar Chandigarh # Chhattisgarh Dadra & Nagar Haveli # Daman & Diu # Delhi # Goa Gujarat Haryana Himachal Pradesh Jammu & Kashmir Jharkhand Karnataka Kerala Lakshadweep # Madhya Pradesh Maharashtra Manipur Meghalaya Mizoram Nagaland Odisha Puducherry # Punjab Rajasthan Sikkim Tamil Nadu Tripura Uttar Pradesh Uttarakhand West Bengal # denotes union territories Source: ACI

31 2014 Annual Update on Competitiveness for 35 States and Union Territories of India: An Overview 31 Table What-if Competitiveness Simulation on Quality of Life and Infrastructure Development for 35 States and Union Territories of India Rank Score Economy Before After Before After Andaman & Nicobar Islands # Andhra Pradesh Arunachal Pradesh Assam Bihar Chandigarh # Chhattisgarh Dadra & Nagar Haveli # Daman & Diu # Delhi # Goa Gujarat Haryana Himachal Pradesh Jammu & Kashmir Jharkhand Karnataka Kerala Lakshadweep # Madhya Pradesh Maharashtra Manipur Meghalaya Mizoram Nagaland Odisha Puducherry # Punjab Rajasthan Sikkim Tamil Nadu Tripura Uttar Pradesh Uttarakhand West Bengal # denotes union territories Source: ACI

32 Regional Competitiveness Analysis and a Master Plan on Regional Development Strategies for India Median and Maximum Competitiveness Web Charts To better understand an entity s relative strengths and weaknesses, it is useful to compare and contrast its attainment against the median and maximum scores of India s 35 states and union territories for the 11 sub-environments that make up the four environments. The median competitiveness web analysis in Figure 1.7 plots the attained scores across the 11 sub-environments for Maharashtra (ranked first) and Assam (ranked last), along with the median scores for the 35 states and union territories of India. The contrast between the performances of the two states at the opposite ends of the spectrum is clearly observed in Figure 1.7. Top-ranked Maharashtra scores higher than the median score for all the sub-environments except Technological Infrastructure and Standard of Living, Education and Social Stability. On the other hand, Assam, which is ranked last, scores below the median for all sub-environments except for Physical Infrastructure, where its score is marginally above the median score. Assam s performance is especially poor for Technological Infrastructure, where it scores significantly lower than the median score. The maximum competitiveness web analysis in Figure 1.8 plots the attained scores across the 11 sub-environments for Maharashtra (ranked first) and Assam (ranked last), along with the maximum scores for the 35 states and union territories of India. Top-ranked Maharashtra sets the maximum score for five sub-environments, namely Regional Economic Vibrancy, Openness to Trade and Services, Financial Deepening and Business Efficiency, Labour Market Flexibility, and Physical Infrastructure. On the other hand, the scores for Assam across all 11 sub-environments seem very distant from the maximum scores. The gap highlights the difference between Assam and the other top-performing states. The median and maximum competitiveness web charts are tools which provide a high-level snapshot of the performance of states at the sub-environment level. The charts can be analysed Figure Median Competitiveness Web Analysis: Maharashtra and Assam Standard of Living, Education and Social Stability Technological Infrastructure Physical Infrastructure Regional Economic Vibrancy Openness to Trade and Services Attractiveness to Foreign Investors Government Policies and Fiscal Sustainability Productivity Performance Labour Market Flexibility Institutions, Governance and Leadership Financial Deepening and Business Efficiency Maharashtra Median Assam Source: ACI

33 2014 Annual Update on Competitiveness for 35 States and Union Territories of India: An Overview 33 Figure Maximum Competitiveness Web Analysis: Maharashtra and Assam Standard of Living, Education and Social Stability Technological Infrastructure Physical Infrastructure Regional Economic Vibrancy Openness to Trade and Services Attractiveness to Foreign Investors Government Policies and Fiscal Sustainability Productivity Performance Labour Market Flexibility Institutions, Governance and Leadership Financial Deepening and Business Efficiency Maharashtra Maximum Score Assam Source: ACI to better understand the strengths and weaknesses of a state. This can enable the states and union territories to channel their limited resources into areas where this will have the maximum impact. REFERENCES Garg, Ishu and Suraj Walia. An Analysis of Services Sector in Indian Economy. International Journal of Research in Economics and Social Sciences 3, no. 3 (April 2013): Geweke, John. Measurement of Linear Dependence and Feedback Between Multiple Time Series. Journal of the American Statistical Association 77, no. 378 (June 1982): Tan, Khee Giap, Amri Mulya, Low Linda and Tan Kong Yam. Competitiveness Analysis and Development Strategies for 33 Indonesian Provinces. Singapore: World Scientific Publishing Co Pte Ltd, Tan, Khee Giap, Low Linda, Tan Kong Yam and Lim Lijuan Amanda. Annual Analysis of Competitiveness, Development Strategies and Public Policies on ASEAN-10: Singapore: Pearson Education South Asia Pte Ltd, Tan, Khee Giap, Low Linda, Tan Kong Yam and Rao Kartik. Annual Analysis of Competitiveness, Simulation Studies and Development Perspective for 35 States and Federal Territories of India: Singapore: World Scientific Publishing Co Pte Ltd, Tan, Khee Giap, Yuan Randong, Yoong Wei Cher Sangiita and Yang Mu. Annual Analysis of Competitiveness, Simulation Studies and Development Perspective for 34 Greater China Economies: Singapore: World Scientific Publishing Co Pte Ltd, The World Bank. GDP Growth. < Retrieved on 26 June 2014.

34 Review Paper 1 Mr Mohan Guruswamy Chairman, Centre for Policy Alternatives, India Good morning, Professor Kanti, and thank you for the introduction. Dr Tan Khee Giap and Dr Tan Kong Yam, thank you for having me back here. I realise that over the years, I have been coming to the school and this is actually my seventh visit to this university. Seven days has a special significance in India these days because our education minister recently claimed that she had a degree from Yale because she did a seven-day course at Yale. So, I am hoping that with Kanti around here, I might get a Lee Kuan Yew School [of Public Policy] degree in addition to my Harvard education. Degrees are very important because when Kennedy was given a PhD honoris causa at Yale, he said that he had the best of both worlds now a Harvard education and a Yale degree. So, there is nothing better to top off my life than with a Singapore degree. Talking about Harvard, when I finished my education in 1964 and returned to India, I went to work at the Administrative Staff College as a Professor of Public Policy. In the course of my work, I met several politicians and leaders in Delhi. A man who later on became the Prime Minister of India said to me, Look, you won t understand India until you go and work in Bihar. As a part of my job, we were given 12 weeks [per] year of consulting and I decided to go to Bihar and spend all 12 weeks in Bihar. It was about the most dismal place I had ever been to in the world, and to a large extent, Bihar continues to be like that. It has very little infrastructure and a bad law and order problem. Despite having very rich soil and a very rich cultural and historical background, it continues to lag behind several Indian states. So, I did a study which was grandiosely called The Children of the Ganga: An Enquiry into the Poverty of the Gangetic Plains. Given the tools with which you came out from a school of public policy, you looked at input output. There is a great lesson in public administration in the United States back in the 1970s and 1980s that all problems can be handled with good management and application of resources, like how World War II was won. All world problems can be solved with good management and application of resources. So, we looked at allocated resources which went to Bihar and I found that ever since the first plan began in India, Bihar was systematically underinvested in. As government plans, government expenditure drives growth in many countries at the early stages of development, you get different income levels. Income generates taxation, and then taxation gives you the share of the national budget. As these plans began, Bihar started getting less and less. By the time I reached there during the eighth plan, the distance between Bihar and the rest of the country in terms of per capita investment had become enormous. This was one big lesson, and I had an answer. When you come back young from Harvard, you have to have answers. I said that Bihar has been underinvested in and under-exploited. It s an internal colony of this country. The credit deposit ratio further proved it because Bihar had a credit deposit ratio of 126, which meant more 34

35 Review Paper 1 35 money was going out from than invested in Bihar. It was one of those appalling things and we said, Unless you correct this, you can t set India right. Those who live and work in India know that you can t go ahead while leaving the states of Bihar and Uttar Pradesh [behind]. Together, they count for about 20% of India s population and they are the most dominant political and cultural states in India. You can t leave them behind and go ahead. After that, I started doing these studies on the states and we found out very clearly that there are high performers and low performers. Each of these states is huge and enormous now, and if the state of Uttar Pradesh was a member of the United Nations, it would be the eighth-largest country in the world. When I first began studying these issues, the gross domestic product (GDP) of India was less than the turnover of General Motors. In 1990, when the first economic reforms were attempted in India, the GDP of India was US$200 billion. Today, the GDP is almost US$2 trillion in current terms. The GDP has grown by 10 times in 24 years. If you look at the next 36 years and benchmark against 2050, 36 years is not a long time in the life of a country. It s just a blink. It goes by just like that. The GDP of India is now projected to be somewhere between US$35 trillion and US$55 trillion depending on which growth rate you are looking at. If you look at the lowest growth trajectory of 5.6%, you are looking at a GDP of US$35 trillion. If you look at a growth rate of 8%, i.e., a leap of 2%, you are looking at a GDP of US$55 trillion. At US$45 trillion, India s GDP will surpass China s GDP. Looking at present conditions, many of us expect India to cross China s GDP around At one time, this looked hugely far-fetched. When I was a graduate student, we had just gotten personal computers at the Kennedy school and we had Lotus spreadsheets for the first time. So, it had become easy for many of us to keep putting in numbers to project with growth rates of 2%, 3%, etc., and suddenly we had started looking at the astounding figures. China was then posting a 7% GDP growth rate in the early 1980s and this is what happens if India joins the race. I took it to my faculty advisor who is a great economist, and I said that I would like to do this for my research. He said, Well, Mohan, do you really think that China and India are going to be there at these levels? Why don t you do something practical? [This is similar to] what happened to Edwin Land when he gave his proposal for the Polaroid camera. His faculty advisor at Harvard said, Do something practical. So, Land went to Massachusetts Institute of Technology (MIT) and the rest is history. Anyway, my professor went on to become a great man; my studies were just left behind and I did something mundane. Kanti mentioned something about India s performance in the last three years with a growth rate of 4%. There was a time when India did not grow beyond 2.6%. 2.6% was considered the Hindu growth rate. As everything in India was growing at 2.6% the population was growing at 2.6%; the economy was growing at 2.6% the famous economist, Dr Raj Krishna, said that this is the Hindu growth rate. But now, he is pessimistic at 4.6%. He feels very disappointed and sad. However, you see that in the last decade, India grew at 7.2% on average. This is a phenomenal and astounding growth rate. This has not happened anywhere [else] in the world except maybe in China. In China and India, we calculate our GDP [growth] rate differently. In India, we calculate it on the basis of consumption; [in China,] they calculate it on the basis of investment. So, you get this little water on the milk. In China, they say that all statistics have a little water added to it and hence the 2% difference. However, the same rates are going on if you disaggregate them. In India,

36 Regional Competitiveness Analysis and a Master Plan on Regional Development Strategies for India you can t tell the change because the more things change, the more confusing they become. The more crowded it is, the more hugely alarming the problems seem to be, so we don t really know what is happening and there is more noise. The Chinese ambassador in Delhi always tells me I can t make anything out in India; there is so much noise. How do you guys get signals out of this?. That is probably the thing that you should be looking for: signals in this huge clutter [sic] of noise in India. Now, there are states in India which have done exceptionally well. For instance, the state of Gujarat, where the current Prime Minister comes from, has done exceedingly well over the years. There are states which were high-flyers at one time, like Punjab, where the green revolution of India began; although it still produces the majority of India s grain surpluses, growth has tapered off in the state. Punjab has had the highest per capita investment in India since the first plan, yet [the per capita investment is now] down to 5.79%. We have other differences in India, which I am sure your study will capture, such as differences in human resource development (HRD). The Multidimensional Poverty Index (MPI) varies widely from state to state. There is the state of Kerala, which has a Human Development Index (HDI) that puts it ahead of China and Sri Lanka. Then, there is the state of Bihar, which has a HDI that puts it on par with Chad, so there is a huge spectrum of different HDI scores. It is also evident through the credit deposit ratio that internal flight of capital is taking place from certain regions to other regions. Tamil Nadu has the highest credit deposit ratio right now at 112. However, if you look at the credit deposit ratio and then at bank penetration, the bank penetration of Tamil Nadu, which is India s most capital-intensive state, is the same as that of Bihar, which is India s least-invested-in state. Actually, Tamil Nadu has 23% bank penetration and Bihar has 21% bank penetration. What are you going to make of this? Clearly, some people are doing well and some are not doing well. Clearly, most people are not doing well, and people who are doing well are doing exceptionally well. India has the largest concentration of billionaires now in Asia. There are more billionaires in South Bombay than in Singapore and Hong Kong. So, you can imagine what s happening. India today has a huge growing middle class with an enormous appetite for goods. As a matter of fact, the world economic growth is going to depend on India s expansion of the middle class. The Chinese expansion of the middle class has begun to taper off. There is no new middle class accruing [sic] in China. China faces the problem of [an] ageing [population] and the dependency ratio is flying out of control. Therefore, India has a much more positive outlook. Many companies and countries are making huge bets on India because the dependency ratio continues to be favourable until There will be a huge expansion of the middle class. Now, this is a very simple input output model, and there is, of course, the World Economic Forum s (WEF) report. The WEF analyses the countries [in the world]. They have begun to analyse states in India and they have many takers in India. Personally, I have very little regard for the WEF s studies and I think it s a certain kind of economic thinking which is retrograde and regressive. This was originally, not surprisingly, proposed by Milton Freidman. His idea of economic freedom was translated by the Fraser Institute of Canada into the Index of Economic Freedom. The Index of Economic Freedom is described as the extent to which one can pursue economic activity without any interference from the government. Economic freedom is built upon personal

37 Review Paper 1 37 choice, voluntary exchange, the right to keep what you earn and the security of property rights. Now, when you look at this index, you come up with some very astounding countries. In that list, India ranks with Nepal, Iran, Pakistan and Bangladesh at a level of economic freedom that is below that of United Arab Emirates (UAE). Anybody who has been to UAE will say that whatever happens there, it is not free. This is similar for Kuwait, which is a monarchy; Oman, a sultanate; Jordan, with a ruler in power; and El Salvador. The list considers Saudi Arabia as mostly free but it considers India to be mostly unfree, like China. It is absurd and nonsensical. If anybody comes to India, you will realise that we are anything but unfree. We are the freest society in the world, where people can say what they want and do what they want, and the state has no say in that. I have seen meetings where small stakeholders tell the Prime Minister of India, It is not your country and you don t own it; we all own the country together. Only a free society can run India. You can t run India like the communist party in China it is just impossible. I just reject this lock, stock and barrel. Institutes doing these kinds of comparative studies work these indexes out, which become very important and we have to look at them with great care. I think there are some other issues involved too. Take, for example, the city of Nogales in Arizona. The city of Nogales is divided into Nogales in Sonora, which is in Mexico, and Nogales in Arizona, which is in the United States. The people are the same, the agro-climatic conditions are the same, and the terrain is the same. However, Nogales in Arizona is significantly more prosperous than Nogales in Sonora. So, my former colleague and friend at MIT, Acemoglu, did a study and wrote a famous book called Why Nations Fail. This book must be made required reading in this school. It examines why some countries do well while others don t, and it also says that everything you do is due to institutions you create. In the United States, the settlers created institutions which emphasise inclusive growth, whereas in Mexico, in the colonial regime, the people who came set up an extractive regime to take money to the metropolitan regions of the country. Pretty much, the same happens in India. We still have a largely extractive system which takes away money from the hinterland, and brings the money to the city and the pockets of the wealthy. We have to look at the Indian institutions. A very serious study of any institutions in India hasn t really been undertaken. We do it very perfunctorily and we use the same Marxist analysis. When you use Marxist methods for quick solutions, you end up with kill them solutions. Anybody who has been to India will realise that the police and armed forces in India are not people you can roll over. They have 250 years of colonial experience in tackling little insurgencies and they are not fazed by these things. I think there are directional changes which come precipitately due to events. In England, you had the overthrow of King James. This resulted in the charter of freedoms, including economic freedom and political freedom, which resulted in the boom and thinking [sic] of creativity, leading to the Industrial Revolution. On the other hand, the government of Prime Minister Narsimha Rao was very under-regarded, very under-reported and underestimated. The Prime Minister of India ushered in economic reforms in India, very much like Deng did in China, and this triggered different kinds of growth. Sometime in the future, we will have to give him his place in history. Consider why some countries, irrespective of who they are, do well under certain systems East Germany was the highest [sic] high-flyer in the old Soviet block and West Germany was the high-flyer in Europe. There are some things about national traits and characteristics [sic]. In India,

38 Regional Competitiveness Analysis and a Master Plan on Regional Development Strategies for India why don t you see a Sikh beggar, why don t you see a poor Parsi, why don t you see a Marwadi on the street? You will find that there are characteristics in communities and in cultures which prevent them from doing these things, which takes them to investments and being entrepreneurial and creative. Kerala, which has the highest HDI, the highest literacy rates and the highest life expectancy, doesn t have any large industrial name. There is no entrepreneurial activity in Kerala. Kerala s biggest export is manpower, which earns 50% of India s remittances. Remittances in India are huge, with annual remittances of $80 billion a year. If India did not have remittances, trade and current account deficits would be really out of control. Half of it is due to Kerala, so the investment in education pays off, but the people are not entrepreneurs. These are things which need to be studied, and at some stage, your school should look at them. Finally, I would like to leave this seminar with a question: in the global system, having almost 200 independent states at various stages of development, can we have a wide disparity as each of these economies represents a sovereign entity bounded by a border? We could have that, but in a system which is bound by its constitution, its history and the civilisation as one, as India is, can we afford to risk too much diversity in economic well being? Now, this is the tiger way of riding [sic]. If Bihar continues to be one-sixth of India in terms of per capita income; if Bihar continues to get less per capita investment than the rest of India; if Bihar has the highest poverty rate and Odisha has the second highest poverty rate in India; can you go forward? This is a very critical question. You are one country; people can move. Now, I will show you some slides. These are the changing manpower trends in India. The reason why we are all so optimistic about India is because the expansion of the working class is only going to take place in India. The rest of the world is beginning to slow down. China actually falls below the United States with regards to the expansion. If you don t have an expansion of the working class, where is the middle class going to come from? The biggest challenge