BW Communities

State Of Our States

BW Online Bureau Nov 08, 2014

<?xml version="1.0" encoding="UTF-8"?><root available-locales="en_US," default-locale="en_US"><static-content language-id="en_US"><![CDATA[Different Strokes: They might sit at the same table, but they are certainly not equals on competitiveness Remember the competing bids from states to attract Tata Motors’ Nano project? Originally slated for West Bengal, the Tatas’ Rs 1-lakh car project, which created such a buzz, was shifted to Gujarat following violent protests in Bengal. Gujarat ‘won’ over states such as Karnataka and others (Karnataka may yet get the second Nano plant). Gujarat Chief Minister Narendra Modi left no stone unturned to lay out the red carpet for the Nano project, from tax incentives to enabling land acquisition — the very point which the Bengal protests were focused on. That was also Modi’s way of demonstrating the investor friendliness of his state. But that’s competition, not competitiveness. So how does one define state competitiveness? “Competitiveness at the regional level is conceptually the same as competitiveness at other levels of geography,” says Michael Porter, professor at Harvard Business School and a leading authority on competitive strategy and international competitiveness. “It has to do with the productivity with which the region uses its resources — labour, capital or endowments to produce value.” The competitiveness of a state also depends on how competitive the institutions, firms and people in it are. It is the micro foundations that one must delve into and that is what this survey of state competitiveness, undertaken by the Institute for Competitiveness and BW, seeks to do. Related Stories How We Did It? The States Quo The Regional Force Federal Dividends Busy With Business For A Greener Valley Pride And Prosperity Southern Success Jack Of All Trades Well-Rounded Versus Muscled This is not the first such study. In 2004, the National Council for Productivity did a state competitiveness survey. Maharashtra topped the rankings in that, like it has in this one. Of course, Maharashtra has several advantages, including that of endowment and legacy (see page 43). But the state does not come out as No. 1 in any of the sub-categories that go towards making up the final rankings. This is what a competitive leader is like, wherein the overall picture creates a synergistic impact of its elements. It is no doubt powered by powerful demand conditions, demographics, income distribution and spending pattern. Its business incentive scenario is the second best in the country. Perhaps the lesson for other states is to aspire for and attain wholesomeness on the multifarious dimensions of competitiveness. That said, it still ranks 25 on administrative efficiency, and its ranking on innovation is dismal as well. Like Maharashtra, Tamil Nadu is well endowed; mineral deposits are rich, and agriculture is a key contributor to state GDP. The diversity of firms ranges from cement, automobiles, automotive components, leather and textiles (which are under some stress now), agri-based products, paper, software and bio-technology. For such a wide variety of industries, supplier sophistication and related industries need to be of a high order, and they are: Tamil Nadu ranks No. 1 on this parameter. But on human capacity, innovation and communications infrastructure, its score is low. Its performance on income distribution is not inspiring either, pointing to areas where the authorities can focus on. It is odd that Jammu and Kashmir (J&K), a state that enjoys an independent constitution, lags at the bottom of the pile on competitiveness; it ranks 27. For one thing, the state’s GDP is lopsided, with agriculture accounting for 80 per cent, which goes against the pattern for most advanced and some emerging economies. Its tourism industry lies in tatters, destroyed by years of terrorist activity. But its raw scores on many individual parameters are within 5 per cent of the bottom six states. Most surprisingly, its administrative rank is 9. That implies that the aura of fear built around the state may be more myth than fact. J&K’s competitiveness can be raised by focusing on specific parameters and backing them with political will. Some Considerations While competitiveness at the microeconomic level has been the context of this survey, there are three factors (that do not feature here) that will impact states. The first is the sorry condition of state finances, the second is lack of coherent environment policy and the third is quality of governance (see page 52). States have always complained that the central government has been stingy with financial resources, which makes it difficult for them to raise or exploit their competitive advantage. But state finances have been the plaything of political rather than economic compulsions; the more progressive states have sought to put their finances in order, but these times of stress will show how well they really fared — and whether they will continue to do so. True, their position has improved overall in the past few years; they have brought down the huge deficits they have run for several years down, thanks to the several Fiscal Responsibility and Budget Management Acts passed by state legislatures — but as the Reserve Bank of India report on state finances for 2008-09 points out, much of the correction is accounted for by a few states only. Two areas of expenditure are of particular concern at this difficult time: health and education. If states are going to cash in on the demographic dividend, their attention on these two areas cannot be lessened. Otherwise, building human capacity and innovation will be a longer road. These expenditures account for about 33 per cent of total expenditure, but they are volatile. In 2001-02, they were nearly 36 per cent, and fell to just over 25 per cent in 2004-05, before rising to their present levels. In the coming years, a key factor affecting choice of location in investment decision-making will be environmental policies of states. Global rules and agreements — the realisation dawning on many countries, including India, that climate change is a serious issue — is creating demand for a coherent set of policies related to the environment, particularly for the extractive industries such as oil and metals. States have so far tended to brush this aside as politically unimportant — except perhaps in the area of energy efficiency. Many Indian companies have also sought to use the business opportunity to make money from clean development mechanisms (CDS) and others plan to use the carbon emissions cap and trade regime to trade in carbon credits when it comes about. A powerful illustration of the environmental issue is the apocryphal story that compares the earth’s environment to a beautiful lake with one lotus in it. The number of lotuses double each day. Given the size of that lake, it will completely fill up with lotuses, killing all other life forms in the lake in 30 days. Today is day 29. States might want to remember that. srikanth dot srinivas at abp dot in (Businessworld Issue 17-23 Feb 2009)