India is going to get huge foreign investments in the coming days because of the changing geopolitical situation. We must use this opportunity to spread economic activities more evenly
The country is under lockdown since March 25 and all economic activity, especially industrial production, has halted since then. The Government has wisely extended some exemptions in this new phase of the lockdown to bring the economy back on track. The 733 districts of India are broadly divided into Red, Orange and Green Zones. This zone classification is dynamic and will determine the kind of restrictions placed on the movement of people and goods.
However, the uneven growth pattern of India has hurt us like never before. About 70 per cent of the population of India now stays in relatively safe zones i.e. they are either located in the Green or Orange Zone but only 46 per cent of employment activity can start effectively. The rest 54 per cent employment is at risk due to different forms of restrictions. Like in Mumbai and Pune, factories are closed and may remain shut till the end of May. Closing factories in the Red Zone will affect production capacities of Orange and Green Zone factories and production houses as MSMEs (Micro, Small and Medium Enterprises) are dependent on locally-produced raw materials. Allowing factories to operate in Red Zones, even at a lower scale, is going to help but it runs under huge production risk and carries the risk of spreading the Coronavirus.
So what went wrong with our development strategy? Well spread out economic activity would have improved the employment figure by up to 65-70 per cent, which would mean more breathing space for MSMEs. Not only that, spatial inequality has resulted in other serious consequences. Due to uneven opportunity available at the local level, a massive number of people have to migrate for employment, education and living. The Economic Survey of India 2017 estimates that the magnitude of inter-State migration was close to nine million annually between 2011 and 2016, while census 2011 puts the number of internal migrants in the country (inter and intra-State movement) at a staggering 139 million. Uttar Pradesh (UP) and Bihar are the biggest source States, followed by Madhya Pradesh, Punjab, Rajasthan, Uttarakhand, West Bengal and the Union Territory of Jammu and Kashmir.
The major destination States are Delhi, Maharashtra, Tamil Nadu, Gujarat, Andhra Pradesh and Kerala. The industrial progress of a State, no doubt broadly depends on natural resources, improved social and physical infrastructure, availability of skilled human capital and existence of a potential market. All these factors cumulatively create a business environment that attracts new industry and investment. We have no control over the distribution of natural resources but an important observation is that endowed States hardly make their presence felt in the upper quartile of the growth table. Instead, medium-grade States, with a developed transport, logistic and law and order machinery, excel.
The variation in industrialisation has existed in India since colonial times. States like Maharashtra, Gujarat, Tamil Nadu and West Bengal, due to their proximity to resources and other factors, used to attract most of the investment and therefore industries. A major portion of the hinterland has remained neglected since then. Metropolis district data show that between 1953 and March 1961, of the 4,971 industrial licences granted in the country about 36 per cent went to the three industrial metropolises — Calcutta, Bombay and Madras. Nearly 21.5 per cent of all licences in India went to Bombay and 56 per cent of all licenses were given to firms located in the three leading States: Maharashtra, West Bengal and Tamil Nadu.
During the late 60s and 70s, a spurt in public sector investment took place to improve regional disparity. Several instruments to achieve balanced regional industrialisation were instituted. Industrial licencing was used to draw huge investments in areas lagging behind. Large public sector projects were located in backward States like Bihar, Odisha and Madhya Pradesh. Industrial estates or growth centres were identified for infrastructure development. Incentives were also announced for private investments in backward districts. Several studies have shown that despite the widely-prevalent regional disparity in industrial development, spatial concentration has been declining since 1970. After a gradual shift from the more regulated policy to the market-oriented neo-liberal economy, the tendency for this level of concentration to fall has become stagnant.
More recently, the allotment of Special Economic Zones (SEZs) tends to reflect the level of investment disparity. These SEZs are expected to create employment through backward and forward linkage effects and act as a stimulus for the backward regions of India. In 2004-05, the share of the four most industrialised States (Tamil Nadu, Karnataka, Gujarat and Maharashtra) in total approvals was 49.5 per cent. While Andhra Pradesh, Kerala and Haryana accounted for another 34.4 per cent of total approvals. Thus seven States accounted for 80.6 per cent of approvals. On the other hand, industrially-backward States of Bihar and the North-East did not have a single approval.
The allocation of active SEZs is still the same now. States like West Bengal, Chhattisgarh and Madhya Pradesh had single-digit allocation in 2020, even after 15 years of the SEZ policy. SEZs could have been a tool to unshackle the growth potential of backward areas but failed to take off.
Economic disparity is visible at both, the State and district level. For example, in Maharashtra, industries/employment are typically concentrated in the Mumbai and Pune cluster; so are the SEZs. Mumbai, Thane and Pune constitute about 45 per cent, 52 per cent and 66 per cent of the total MSMEs, registered factories and SEZs respectively in Maharashtra. These figures inevitably suggest how bad other districts are in terms of economic activity and infrastructure. This shows simple negligence and incompetency at the local level.
The presence of natural resources may be God’s gift but not physical and social infrastructure. The local administration and age-old hierarchical posting protocol should be blamed for this inefficiency. Most inexperienced Government staff across all levels and all Government departments are sent to the most challenging district of every State. As soon as they learn to deal or navigate the system they are transferred to a better region. The result is that some districts have become informal training centres for our administration. This vicious circle needs to be broken and the most experienced employees in every department need to be posted to the most challenging areas.
The pandemic has revealed the vulnerabilities of the clustered development agenda. Huge resources are wasted sometimes restricting migrants or otherwise, trying to start factories in Red Zones. These could have been used for more productive purposes and things could have been much better if we were self-sufficient locally. Nevertheless, it is an opportunity to address the spatial variation among States and prepare a holistic development plan. We need to develop a sense of self-reliance not only for basic amenities or facilities but it should be the core of our lifestyle. In coming days, policymakers should think on these lines and prepare a comprehensive policy directive to allow equal access to all; irrespective of their geopolitical position.
India is going to get huge foreign investments in coming days because of the changing geopolitical situation. We must use this opportunity to spread economic activities more evenly. Central and State Governments must work together to urgently change their existing administrative protocols to allow wider access to locals in decision-making.
Technology is a great way to remove locational barriers. Steps for setting up a new business should be mandatorily made online. This will ensure that decisions will be independent of applicant and approver biases. Though this is the need of the hour because of social distancing but it should be the norm rather than a one-time measure. Set up a clearing house at the State and district level for a Single Window Clearance System, online application for electricity connection, digitisation of land records and online payment service for registration under various taxes and so on. These steps significantly cut the time required to start a business as well as implement Government infrastructure projects. Give more power to the local administrations and digitally-enable them. Services like land allocation, electricity and fire clearances should be time-bound in all districts. Land procurement is the single-most important barrier for setting up any business establishment; unless it’s done through a Special Purpose Vehicle (SPV). Land records need to be digitised, well-accessed and clear. The local administration plays a critical role in this process and thus, needs to be evaluated regularly. Problem spots should be improved and must not be used as a punishment posting.
(Writer: Arijit das; Courtesy: The Pioneer)