Towards balanced regional development

By Dr Navin Chandra Joshi

India presents a picture of extreme regional imbalance even five decades after planning whose main objective has always been the elimination of the existing imbalances in development of various regions. While the plans placed special emphasis on reducing regional disparities in the country, major economic indicators reveal glaring differences in economic progress among states and regions. It seems that this situation is due to the fact that developed regions continue to attract the bulk of investment.

Regional distortions and discrepancies have always been misleadingly thought to be involved in the process of growth. May be, developed and under-developed areas of a country are prone to show a progressively lop-sided growth index. The consequences has been that even a proportionate simultaneity of investment in these area does not help the latter catch up with the former. A wrong view always held by planners and administrators. is that poverty of under-developed regions could be removed as a fortuitous corollary or as a by-product of the accelerated development of the developed regions.

It is true that there are disparities in almost all countries of world. For example, there are disparities in the United Kingdom with the northern part of the country being considerably backward as compared to its southern regions. The United States, the world’s most industrialised country also harbours disparities in growth and development in various regions.

The fallacy of the argument that poor regions develop under pressure of fast-growing areas is that such development has only too marginal an effect to make a dent in the living standards of the people of backward areas. Hence, their own growth with the help of their resources-both material and human- seems to be imperative if proper balanced regional development is to take place.

It is useful to know as to what should be the criteria for judging the under-development of a region. As a general estimation, the following tests can be applied:- (i) Poverty of the people as indicated by their per capita income, Areas having lower than 25 per cent of the national average should be considered too poor. Obviously, low income would result in low per capita consumption.

(ii) High density of population as compared to the availability of natural resources. This situation is characterised by a high ratio of population to cultivable land. A per capita land-holding of less than 50 per cent of the national average is a definite symptom of poverty in a predominantly agricultural country. (iii) Low per capita gross value of the region’s agricultural output (again 50 per cent below the national average). (iv) A low percentage of population engaged in secondary and tertiary activities when it is 25 per cent below the national average, and (v) A low percentage of factory employment if it is 50 per cent below the national average.

Apart from these tests, the other indicators are the lack of transport facilities in terms of roads per square mile, the high incidence of unemployment or gross under-employment, low consumption of electric power, etc. An aggregation of these criteria will determine the level of under-development of a region. It helps in making a choice for investment as amongst the various regions in terms of the priority of their needs.

There is the other view also it is that a nation’s development policy can also be guided by the principle of comparative advantage that is generally applied in the sphere of international trade. For example, a region can obtain commodities and services from other regions if they are cheaper to import rather than to create them in the region, and similarly sell to other regions what it could create at a cost lower than that of the other regions.

If infrastructural investment is to follow private investment decisions, it would tantamount to virtually following the dictates of the market in matters that merit attention, not merely from an economic angle but also from a social standpoint. Indeed, the doctrine of comparative cost suggests the desirability of accelerating the development of a few leading regions and thereto, of a few leading sectors only.

While the comparative cost advantage theory would be relevant for supplying of products and services to sectors of other region, a fundamental tenet of the theory is not to equalise growth rates in all regions on in all sectors of a region but to optimise the overall growth rate of the country.

That is to say, a few critical regions or sectors would achieve the level of development that may induce internal and external economies plus linkage and multiplier effects. Besides, constraints like shortage of capital, markets, managerial talents, etc., will not come in the way which otherwise would be the case when each region gets an equivalent quota of investment irrespective of its economic potential.

As for industrial development, regional development will sustain itself by harnessing all kinds of natural resources including cultivable land. With modernisation in production, physical resources have assumed a new dimension as inputs of production. In fact, development of a region has to reckon with the concept of ‘natural resources’. A distinction should be drawn between renewable and non-renewable (exhaustible) resources. The pressure on renewable natural resources (land, forests, rivers, etc.,) has been such that their costly conservation has now become as important as their exploitation. Similarly, limited resources of essential non-renewable items like materials and fossils constitute a serious economic problem.

Modern technology has made low-cost exploitation and extraction possible and consequently, products of all kinds enhance the consumption pattern of relatively developed areas.

The Planning Commission has made a plea for a strategy to speed up economic growth to deal with the problem of unbalanced regional development. The Commission wants to ensure that disparities between the states and within them "do not widen further and tensions do not exacerbate."

With this in view, the Tenth Five-Year plan should emphasise on the need for containing and correcting the large disparities that are now manifest in income generation, levels of consumption and provision of essential services among the states and within the states.

A broad strategy for growth during the Tenth Plan period is suggested hereunder:- (a) Direction of income-generating investment to poverty pockets with particular focus an stimulating infrastructure and strengthening productive skills among the local population. (b) A minimum needs package that is explicitly oriented towards geographical areas which show the greatest deficiency judged on the basis of the district rather than the states as a unit. (c) Adequate institutional set-up, especially cooperative and community organisations, and (d) A fresh look at the resources base and the financing pattern for the plan programme with a view to making available more resources to benefit the more backward areas.

Moreover, the movement of the economic to a higher growth path would call for strengthening of the foundations of technological upgradation that modernise the production system. Also, there is need to allow the private sector to pay greater attention to R & D by committing more resources. The policy framework should be such as to facilitate this, making full use of indigenous capabilities.

R & D and production capabilities built up in the economy, particularly in sectors needing continued expansion such as fertilisers, steel and heavy engineering and, machine tools, need to be nurtured and not undermined in the name of instant modernisation. It is in this context that the approach of the Tenth Plan should be to ensure balanced industrial development of the country. In fact, the setting up of growth centres would be one step in this direction so that employment opportunities also improve in areas other than metropolitan centres or developed regions.

The upshot of this discussion is that new gains of under- developed regions should be for their further growth, while at the same time, their existing natural resources should be fully consolidated. In the matrix of our national planning, the disjointed elements should be made to subserve the formation of a coherent whole. Any plan on regional basis has to reckon with certain basic issues viz., (a) Vocational policy instruments, (b) capital supply instruments,(c)technical progress instruments, (d) welfare instruments, and (e) direct and indirect control.

There cannot be any blanket approach while solving the problem of regional imbalances. In fact, different strategies and polices have to be devised in order to suit the particular geographical, demographic and structural situation prevailing in each region.

 PTI Feature

Unfreezing Indo-Japanese ties

By I. S. Chaddha IFS (Retd.)

Prime Minister Atal Bihari Vajpayee's five-day visit to Japan was capped by the joint declaration with his Japanese counterpart, Mr. Junichiro Koijumi, at the Akasaka place. The declaration set the thaw in Indo-Japanese relations that had remained more or less frozen by the post-Pokhran sanctions imposed by Japan in 1998. Interestingly, the text of the document, prepared over the preceding days without too many hiccups, maintained a studied silence on India signing the Comprehensive Test Ban Treaty (CTBT) and the Nuclear non-Proliferation Treaty (NPT).

While Japan has understood that India needs to build consensus within before signing the CTBT, on proliferation it is seen to have underscored India's unequivocal stand, which has carried the day on the weight of its integrity. Indeed the two countries stressed the importance of working together to effectively check nuclear proliferation. Moving beyond these contentious issues, the declaration spoke of working together for stability and prosperity in Asia, and to end terrorism. Further, the two countries have agreed to the regular exchange of views on all security-related issues. Mr. Koijumi went beyond existing economic support programmes to pledge Rs. 2000 crore to India for a coal power plant at Simhadri in Andhra Pradesh, and the Delhi Metro railway project.

The success at the political level was preceded by some straight-talking on economic issues when the trade delegation accompanying the Prime Minister and his Disinvestment Minister, Arun Shourie, met its Japanese counterpart.

For India, Japan is an important economic ally. It is the fifth largest export destination of Indian goods and also the fifth largest investor in India. India setting up a fast track committee to woo Japanese investors was the prerunner of the 1991 liberalisation programme.

Japan was the first to send a high-power delegation, the Ishilkawa Mission, to assess the investment potential and make prescriptions to dismantle the procedural barriers. Quantitatively, there has been phenomenal growth in the bilateral economic relation. But not so qualitatively. India has to that extent failed to grab substantial Japanese investment.

Six years ago, Japan was the second major export destination of Indian goods. Today, it has slipped to the fifth. Japan's exports to India, post-liberalisation, have increased manifold. There has been practically no change in the basket of Indian goods exported to Japan. Diamonds, marine products and iron ore continue to dominate, constituting over 55 per cent of the exports to Japan.

Thus, for Japan, India is still largely a natural resource. The acknowledged software technology expertise is only now beginning to dawn on it. In contrast to the other major trading partners - the US, the UK and Germany, India has managed to generate a demand for more value-added products (readymade garments, engineering goods) post-liberatlisation.

But India can take heart from the flattering picture portrayed by a recent Japan Bank for International Cooperation (JBIC) survey on Japanese FDI outlook overseas. It raised India two positions as the fifth most attractive destination for Japanese investors this year. This is ironical for, in reality, Japanese investments to India declined sharply in that period, with the investment less than half that approved in 1998.

The FDI flows, there has been a tendency to benchmark India against China. The JBIC survey continues to place China as Japan's most favourable investment destination, followed by the US, Thailand and Indonesia. But, contrary to this, Japanese investments in China have declined sharply over the past five years.

In this period, Japanese FDI in China dropped to $751 million in 1999-2000 from $4,473 million in 1995-96. In 1999-2000 when total Japanese FDI leapfrogged to 63.7 per cent after a continuous slump in the preceding three years, that in China declined by 29.5 per cent. It is ironic that Japan's FDI declined in China at a time when the latter was gearing up to enter the WTO.

Perhaps, some political-economical factors contribute to the unstable and weakening investment climate. Japan is teetering on the brink of economic collapse. The nation is reeling under a deflationary situation. In January-October, industrial production fell 11.9 per cent, while retail sales declined 4.9 per cent. The GDP growth plunged into negative growth by 0.7 per cent and the forecast is bleak for the near future. Persistent deflation creates new bad debts in the banking system. It encourages households to put off spending.

Apart form these constraints, India's forceful "Look East" policy emerged a barrier to the Japanese to do business freely in the country. Hong Kong emerged the second largest export destination for India, replacing Japan. South Korea became the fourth largest investor in India in the five years from 1995, pushing Japan to the fifth slot. Further, the Koreans took on successfully the Japanese oligopoly in consumer durables, such as automobiles and household electronic goods, though India has been lukewarm to Korean investment in the early 1990s.

In the small-car segment, the share of Maruti-Suzuki fell from 85 per cent in 1997-98 to 58 per cent this year, because of key Korean players such as Hyundai and Daewoo. The Koreans also emerged the top producers of consumer electronic goods such as refrigerator, TV, microwave ovens.

The Japanese envoy recently expressing indignation over the Indian taxation system, citing it as a stumbling block to Japanese investment does reflect on diplomatic maturity, particularly when Mr. Vajpayee had on his agenda efforts to attract Japanese investments. Japan needs to remodel its overseas investment outlook keeping in view the inherent strength and capability of host nations.

All Asian nations are not alike. The Asian nations are once again heading for volatility. China is yet to prove its compatibility after entering the WTO. The Japanese yen is under constant pressure with the continuous deflation. There are few nations that can forecast a better GDP growth.

In this vicious circle of uncertainty, India's forecast for a 5 per cent growth in GDP and large pool of skilled manpower should attract Japanese investors. INAV