What is it that pulls the all-India performance down?

I READ REPORTS ABOUT what the Finance Minister of West Bengal recently said. Given the media’s predilections, one is never sure whether an attributed quote has been correctly reported. For a news item like this, reportage is probably right. “I am delighted to say that as per the Government of India’s Ministry of Statistics and Programme Implementation just-published table on GDP growth of states in 2018-19 West Bengal’s growth is the highest in the country at 12.58 per cent… We are holding the baton and moving forward while the rest of the country is going through serious recession.” Among social sciences, economics is certainly the most rigorous. Therefore, most, though clearly not all, economists are careful and precise when using expressions. The country isn’t going through a recession, serious or otherwise. There can be different definitions of recession. But no economist will use the word ‘recession’ unless GDP declines, perhaps for two quarters. As things stand, there was real GDP growth of 6.8 per cent in 2018-2019 and no projection, including those from outside Government, expects growth in 2019-2020 to be less than 6 per cent. A careful economist wouldn’t have used the word ‘recession’. At best, the word used would have been ‘downturn’, “serious” or otherwise. But I wish to focus on something else, the performance of states.

For states, growth means growth in gross state domestic product (GSDP) and real growth means these are constant price figures, with 2011-2012 as a base. The last year for which such GSDP figures are available is obviously 2018-2019 and these numbers originate with Directorates of Economics and Statistics of state governments. However, there are often time lags for some states and Union Territories (UTs). To be strictly accurate, these numbers aren’t available for all states and UTs in 2018-2019. The last year for which these numbers are available for all states and UTs is 2017-18. But that’s being pedantic. The numbers are available for most states and UTs in 2018-2019. The exceptions are Arunachal, Assam, Gujarat, J&K, Kerala, Maharashtra, Manipur, Meghalaya, Mizoram, Nagaland, Tripura, Andaman & Nicobar Islands and Chandigarh. West Bengal did clock 12.58 per cent and in that reduced set, this is indeed the highest. The next highest is Andhra at 11.02 per cent. To repeat, these figures are for real growth and, therefore, they are impressive. But how about 2017-2018, when we have figures for a complete set of states and UTs, not the reduced set? It transpires in 2017-2018, West Bengal’s growth was 8.88 per cent, not the highest. Indeed, several states and UTs outperformed West Bengal. By the way, Andhra did clock 11.32 per cent in 2017-2018. The base for GDP measurement was changed in 2011-2012. Hence, numbers before 2011-2012 are not quite comparable with those thereafter. In the new national income account series, West Bengal’s growth was 4.17 per cent in 2012-2013, 3.01 per cent in 2013-2014, 2.84 per cent in 2014-2015, 6.13 per cent in 2015-2016, 7.2 per cent in 2016-2017, 8.88 per cent in 2017-2018 and 12.58 per cent in 2018-2019. You might argue that growth has been inching up, but you will have to admit this series is less impressive than a spectacular 12.58 per cent.

Partly because of agriculture, though that does not explain it completely, growth rates in states are subject to a lot of volatility. There are two objectives of reform. First, growth rates must increase. Second, there must be reduced volatility and fewer year-to-year fluctuations. Both are important objectives, not just the first. However, today, volatility is a fact of life. Therefore, one way to gauge a state’s performance is average real rate of growth since 2012-2013. (I have simply computed the arithmetic average of growth rates in these six years. You can try out other forms of averaging, but that won’t alter the conclusion.) Let’s now cluster the states and UTs. Those that have grown an average of more than 10 per cent are Gujarat and Mizoram. Those that have grown between 9 per cent and 9.99 per cent are Karnataka and Tripura. Those that have grown between 8 per cent and 8.99 per cent are Andhra, Haryana, Madhya Pradesh, Andaman & Nicobar, Chandigarh and Delhi. Given India’s aspirations, we need more than 8 per cent growth. Therefore, it is only these states that can be regarded as stellar performers for the period I am talking about. States and UTs that have grown between 7 per cent and 7.99 per cent are Assam, Himachal, Maharashtra, Odisha, Telangana and Uttarakhand. Those that have grown between 6 per cent and 6.99 per cent are Arunachal, Bihar, Goa, Jharkhand, Kerala, Rajasthan, Sikkim, Tamil Nadu and Uttar Pradesh. This is a middling and sub-aspirational performance. It is not good enough. We are left with Chhattisgarh at 5.59 per cent, J&K at 5.63 per cent, Manipur at 5.62 per cent, Meghalaya at 3.04 per cent, Nagaland at 4.87 per cent, Punjab at 5.88 per cent, West Bengal at 5.37 per cent and Puducherry at 5.10 per cent. This is not just sub-aspirational, it is sub-par. It is growth rates like these that pull down the all-India growth rate.

To make cross-country comparisons, one needs to convert GDP (which is in domestic or national currencies) into a common currency or numeraire. Because of the importance of the US economy, this has de facto become the US dollar. There are two sets of figures one comes across, those that do the conversion from national currency to US dollar using official exchange rates and those that do the conversion using purchasing power parity (PPP) exchange rates. Typically, any PPP conversion increases per capita income of relatively poorer countries and decreases per capita income of relatively richer countries. That’s because purchasing power parity measures how much one unit of a currency can buy and many services are cheaper in relatively poorer countries. Though those PPP figures are readily available, I am going to quote the ones that use official exchange rates for conversion. We have figures for 2019 and India’s per capita GDP is $2,188. This means we are between Nicaragua and Djibouti. The world as a whole has a per capita GDP of $11,673. India’s per capita income is 18.75 per cent of the world average, not a situation to be proud of. The poorest country in the world is Sudan, with a per capita income of $225, and the richest country, Luxembourg, with a per capita income of $115,203. That benchmarks India as a country.

But, as I have said before, the all-India GDP figures are mostly (with exception of railways and defence) an aggregate of state-level figures. Let us take the per capita net state domestic product (NSDP) figures, using an exchange rate of Rs 70 to $1 (after all, this is for purposes of illustration and an approximation is permissible) and search for a country that has a per capita income that is closest to this dollar figure. Stated differently, for any given state, which country’s per capita income does it most resembles? There is more than one country that a state/UT can be bracketed with. I have chosen two of these at random. The figures are for 2017-2018, since a complete set is not available for 2018-2019. This is what the comparison looks like: Andhra (Nicaragua, Djibouti), Arunachal (Cote d’Ivoire, Bangladesh), Assam (Nepal, Tanzania), Bihar (Afghanistan, Liberia), Chhattisgarh (Mauritania, the Kyrgyz Republic), Goa (Iraq, Namibia), Gujarat (Papua New Guinea, Timor-Leste), Haryana (Lao, Egypt), Himachal (Papua New Guinea, Timor-Leste), J&K (Eritrea, Mauritania), Jharkhand (Nepal, Yemen), Karnataka (Vietnam, Honduras), Kerala (Timor-Leste, the Republic of Congo), MP (Eritrea, Mauritania), Maharashtra (Timor-Leste, the Republic of Congo), Manipur (Ethiopia, Benin), Meghalaya (Tanzania, Eritrea), Mizoram (Nicaragua, Djibouti), Nagaland (Senegal, Uzbekistan), Odisha (Eritrea, Mauritania), Punjab (Nicaragua, Djibouti), Rajasthan (Zambia, Lesotho), Sikkim (Samoa, Algeria), Tamil Nadu (Papua New Guinea, Timor-Leste), Telangana (Timor-Leste, the Republic of Congo), Tripura (Senegal, Uzbekistan), Uttar Pradesh (Sudan, Tajikistan), Uttarakhand (Timor-Leste, the Republic of Congo), West Bengal (Zimbabwe, Myanmar), Andaman & Nicobar (the Solomon Islands, Papua New Guinea), Chandigarh (Jordan, Tuvalu), Delhi (Guatemala, Azerbaijan) and Puducherry (Lao, Egypt).

It is indeed true that per capita income isn’t everything and there are other indicators that measure the quality of life. However, many of these developmental indicators are correlated with per capita income. Therefore, though it ignores distribution, per capita income is a reasonably good indicator of the standard of living of the average citizen, of the country or of the state/UT. Unless you are very aware about how we stand in cross-country comparisons, you will probably be surprised at which countries in the world India is bracketed with and at which countries in the world some of our states/UTs are bracketed with. That’s the reason why states need to improve their growth performances and reduce the volatility of growth. Both are functions of reforms. As those real growth figures showed, many state performances are sub-aspirational and sub-par. Many states are below average. For some reason, a statement like that seems to upset people. Therefore, let me rephrase it and say, some states are above average. That statement is probably more acceptable, even though it means exactly the same thing. Those states that are not above average are pulling the all-India performance down. They are not holding the baton. They may be moving forward, but that movement is exceedingly slow.

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