I never tire of telling friends that India is akin to 28 distinct European nations inside a common border—society, lingo, business methods changing every few hundred miles—and not a homogeneous entity as is believed.
Ruchir Sharma’s Breakout Nations is unarguably an epoch-defining book—unusual for a comparative study of nations based on ground-level data collected from personal experience. On his conclusions about the Indian north and south, though, I beg to differ. A perceptive report by Zurich-based financial services group Credit Suisse titled Fresh Horses argues that between 2004-2008, almost every Indian state, with a handful of exceptions, saw a compounded annual rate of growth of over 9 per cent. Even West Bengal, a state run by Communists for three decades, grew 1.5-2 percentage points more than the national average for 1994-2003, making one wonder about the causality between governance and growth. South India—Andhra Pradesh, Tamil Nadu, Karnataka, Kerala and Pondicherry—has a combined state GDP of over $300 billion, securing it a place among the top 30 economies of the world, and contributes over 22 per cent of India’s GDP and 28 per cent of its employment. It also produces 38 per cent of India’s engineering graduates, 49 per cent of its medical graduates and 25 per cent of its post-graduates each year. The region also provides a higher-than-national average access to basic amenities, with close to 100 per cent electrification of its villages. While schools in UP teach ‘b for bomb’ and ‘c for chaaku’, where is the question of the north overtaking the south?
Barring Gujarat—competing less with the rest of India than with China—almost all states pale in comparison to south India on most metrics of investment and development. Between 2005 and 2010, private equity and venture capital funds invested nearly $10 billion in around 450 firms in the south, higher than any other region. Key investment sectors are IT/ITES, consumer finance, power and construction and engineering. TN has the largest auto and ancillary clusters as also ICT manufacturing and textiles; AP leads in pharma and ITES (IT-enabled services); Karnataka in software development, ITES, steel and ICT manufacturing; Kerala in tourism and healthcare. Each state’s share is between 10-30 per cent of the national revenue in their respective sectors. A shining example is Karnataka, which hosted a Global Investor Meet in 2010 that saw a staggering Rs 3.92 lakh crore of investment signed in 389 MOUs, about a quarter on which construction work has already begun in just two years. A remarkable sign despite the political uncertainty in the state.
The real challenge is one of governability and here almost all the states—with the exception of Gujarat, Bihar, Chhattisgarh and, more recently, Karnataka and Maharashtra—have nothing to write home about. In general, there is comparatively less strife, less violence, more discipline in, say, a Karnataka or a Tamil Nadu as compared to a UP or a Haryana. On governability, investors are wary of the absence of the basics in India. One, we follow common law more in procedure than in substance and contracts enforcement is laborious, painful and riddled with corruption. Second, very few in government (fewer still outside) are able to assure investors that a policy, once written, will stay good for the foreseeable future. Policy interpretation is always based on “show me the guy and I will show you the rule” and the same rule can be read into 180 degrees every which way, depending on who is on the other side! Further, litigation is constant with courts sometimes even turning around their own multi-bench judgements! Third, even sectors like power that have seen enormous reform since 2003 still require almost 20 statutory and non-statutory clearances before one can start a power plant! The license raj is still prevalent, albeit in mufti, or many a times in the form of the grabbing regulatory hand!
In all these (and other) aspects of governability, the difference between the south and the north is, in general, one of degree. Though in a few exceptional cases, it’s one of kind too: southern governments are seen by industry and investors as more reasonable, less capricious or rapacious and more understanding—with, regrettably, some honourable exceptions. Without question or qualification, though, the role model for states remains Gujarat on the investment, manufacturing and industry fronts. Kerala wears that aspired-to mantle on the grounds of its social indicators. Gujarat has shown that strong, decisive leadership has a causal effect on economic growth. It has spurred inter-state competition for investment. That will be good for the country as a whole.
Lastly, though, let us not forget that Rajnikanth, who can make even a website work without the Internet powering it, is with the south. Now, now, come on, does the north really think it can still beat the south? Silly rascals.
(The author is an IAS officer. He tweets @srivatsakrishna.)