While it is well known that the eastern states of India have been lagging behind the rest of the country for decades, it is less appreciated that these states have been reinventing themselves in recent years.
Orissa, Chhattisgarh and Jharkhand have returned growth rates higher than the national rate since 2000-01 and, ironically, the global slowdown may in all probability benefit this region by raising its relative importance in the country.
The eastern states comprising Bihar, Jharkhand, West Bengal, Orissa and Chhattisgarh have economies that are still making the transition away from the primary sector.
They are now all set to reap rich dividends in the current scenario, where domestic markets are being relooked at as sources of growth, agriculture is on the verge of a technological revolution and India’s export-dominated centres are no longer as attractive to investors.
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With the National Rural Employment Guarantee Act implemented in the last couple of years and higher agricultural prices, eastern India’s predominantly rural economy has benefited. Construction is another booming sector as various infrastructure projects are being undertaken; in fact, Bihar has reported a phenomenal average annual growth of 46% in construction over the period 2004-05 to 2006-07.
Moreover, with the government stimulus packages aiming at increasing infrastructure investment, demand for steel, cement and heavy engineering will increase, and these production units are largely in the eastern region.
One force that favours eastern India in the long term is human capital/workforce.
One of the reasons why southern and western India have been leading India’s growth is that they have had higher shares of population in the working age group. But with higher fertility rates, the eastern states, which have reached the levels in the western states already, are all set to catch up with increased share of working population as in the southern states by 2016. According to the Registrar General of India estimates, the population in the working age group of 15-59 will increase from 58.4% of the total in 2001 to about 66% in 2016 in the eastern states.
Clearly, for a bright future, it is imperative that the state administrations be responsive to emerging opportunities. This process, however, has already begun. Governments in Bihar, Orissa and Chhattisgarh have made positive moves to improve governance and West Bengal has made a beginning in trying to restore its past glory in manufacturing.
But there are many challenges ahead. The poor quality of governance has contributed to an increasing Naxalite problem. These groups are active, well networked and spread. Go a few kilometres beyond the boundary of most cities, and Naxalite activity is evident. There is a deeply entrenched distrust of market forces and the opportunities that they could provide. And for good reason. A poor ethical record, exploitation of the uneducated and illiterate, misuse of power, broken promises and so on. have been the tools used by small traders, and large companies, not to mention the government.
Markets cannot function in a society that is ruled by distrust and suspicion. And markets cannot function when the state cannot ensure security of life or property. Rebuilding trust is a necessary precondition for the full potential of the east to be realized.
And so there is a long way to go, especially in improving the urban centres of growth. Kolkata and its surrounding areas—Raipur, Asansol and Ranchi—are the only urban markets that rank within the top 40 urban markets in India.
These markets are relatively smaller and are dependent to a high degree on cash-based transactions; credit is difficult to obtain for both businesses and consumers. But do not count these cities out. For it is a rich region where investment worth hundreds of thousands of crores of rupees will rapidly come in once the problem of distrust in markets and state is addressed.
Demand Curve is a weekly column by research firm Indicus Analytics Pvt. Ltd on consumer trends and markets. Your comments are welcome at firstname.lastname@example.org
Graphics by Sandeep Bhatnagar / Mint