Kautilya: East Needs Yeast

India Today
October 12, 1998

KAUTILYA
East needs Yeast

The pains are east of Kanpur, the gains elsewhere

Jairam Ramesh

The economic decay of Bihar set in long before Laloo Prasad Yadav appeared on the scene. It is actually part of a deeper malaise we have long ignored. It can be diagnosed as "EOK negative". If a vertical line were to be drawn through Kanpur, EOK -- east of Kanpur -- is stagnant while the western segment is buoyant.

This is not to suggest the entire wok is advanced. Northern Karnataka, western Gujarat, central Maharashtra, north-west Andhra Pradesh and parts of Bundelkhand are all backward, although not in as stark a manner as EOK. But the essential difference between EOK and wok is one of developmental ethos and ambience.

There is nothing genetic about it: EOK labour underpins Punjab's farm prosperity. EOK is India's most resource-rich region. It is also politically very conscious. But it remains the bowl of poverty and backwardness. State governments are primarily responsible but the Centre has contributed substantially to EOK's plight and misery. Its rejuvenation is now a national responsibility transcending partisan politics. But this will not be achieved through Article 356-type coups.

Of the 243 Central PSUs, 58 are chronically loss-making. Almost 60 per cent of the workers in these companies, which just cannot be turned around, are in EOK. Similarly, there are about 2,000 private companies in intensive care, facing a slow death. Half their employees are in EOK.

What is inhibiting quick industrial restructuring is that EOK receives only about 15 per cent of new investment. When new jobs are not being created in large numbers, old and unproductive jobs cannot be phased out without exacerbating social tensions. Kanpur itself epitomises this poignantly.

Liberalisation has not created the EOK problem but only brought it into sharper focus. Fifty per cent of all public investment in industry in the 1950s and '60s took place in EOK. But the policy of freight equalisation -- that equalised the price of steel throughout the country -- killed the comparative advantage of EOK. The failure of India's heavy industrialisation strategy -- we should have been producing 100 million tonnes of steel now instead of 22 million tonnes -- resulted in huge idle capacities in EOK.

Pre-1991, 50 per cent of all industrial licences went to just four states: Gujarat, Maharashtra, Tamil Nadu and Karnataka. Disbursements by all-India financial institutions to EOK made up 20 per cent of the total in the heyday of planning. By 1991, this had fallen to just 15 per cent.

Even after 1991, it was the wrangling between two Union ministries that sabotaged the prospects of companies like Amoco investing billions of dollars in Bihar. To this day there remain barriers to private investment in the coal industry. It took 20 years to get the Haldia Petrochemicals project off the ground. The formula for sharing revenues with states in EOK for the use of mineral resources still favours the Centre. EOK is home to about 40 per cent of India's poor but gets less than 20 per cent of the food subsidy.

In the past decade, EOK has done well in agriculture. Fertiliser use has increased, as have tractor sales and energisation of pumpsets. The farm productivity gap between eastern and western Uttar Pradesh has narrowed.

But much more is required to sustain an annual 5-6 per cent growth in agriculture. Just about 21 per cent of the major and medium irrigation potential of Assam and 43 per cent of Bihar and Orissa have been developed. Associated with this is a special thrust on agro-processing technology and marketing. West Bengal, for instance, has gone through a potato revolution but value-addition has been low.

With growing environmental consciousness in the world, jute will gain in importance. The world wants new jute-based products but all we can offer in volumes are gunny bags.

EOK needs roads and bridges. A Calcutta-Siliguri expressway will transform north Bengal. North and south Bihar are connected only by one road-cum-rail crossing across 800 km of the Ganga. A string of superthermal power stations at the coal pithead will transform the power scene. But there must be fresh demand as well. West Bengal has a power surplus because there is no demand growth.

EOK's financial system needs major expansion. In north India, the average population per bank branch is 12,000. In EOK, it is almost 19,000. In wok for every Rs 100 bank deposit credit is Rs 65-75. In EOK it is Rs 30-50. Money alone is not the answer. The Centre pours Rs 3,000 crore yearly into the North-east. But this has little effect since corruption is seen by successive Central governments as a mode of cohesion.

EOK's economic future is intimately linked to the integrated development of the Ganga-Brahmaputra-Barak basin. EOK chief ministers must demand an India-Nepal-Bangladesh endeavour to harness the eastern Himalayan rivers. Such a joint effort will bring all-round prosperity and respite from floods.

Finally, the reorientation of public expenditure at the Central level is essential for releasing more resources that could be used for social development in the EOK region. If EOK states carry out painful reform as Orissa is doing in the power sector, the Centre must transfer a share of the improvement in its fiscal deficit to make state finances viable. This is an essential prerequisite for growth.

The author is secretary of the AICC's Economic Affairs Department. The views expressed here are his own.

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