It has been 17 years since the Indian economy took its first step towards liberalization. Much has changed since then, but as with all changes, there are winners and losers. Even if the economy has gained, there are some regions that have gained more than others. The data on credit utilization in the various states and regions, detailed in the basic statistical returns of banks, gives an idea of which areas have benefited the most from the new economic regime ushered in by liberalization and which regions have been the biggest losers, in relative terms.
The data contains the outstanding loans sanctioned in a particular state/region and utilized in that place. Using data on credit utilized is a better idea because often credit is sanctioned to corporate head offices located in a metropolis but utilized at its factory or mine elsewhere.
Comparing the data for end-March 1991 with the recently released numbers for end-March 2007, the northern and western regions have been the biggest gainers in terms of credit growth. In March 1991, the northern region accounted for 18.3% of the total credit outstanding—that percentage rose to 21.9% in March 2007. The western region, which accounted for 27.5% of total credit outstanding in the country in 1991, saw its share rising to 31.5%. The southern region’s share increased modestly from 28.1% to 28.5%. The losers were: the east, with the region’s share down from 12.3% to 8.9%, the central region (which includes Uttar Pradesh), whose share fell from 12% in 1991 to 8.1% in 2007, and the North-East, for which it declined from 1.7% to 1%.
A closer look shows, however, that in the north it’s Delhi that gained the most, with its share of credit going up from 7.1% in 1991 to 12% in 2007. The shares of Haryana, Punjab, Himachal Pradesh and Jammu and Kashmir all declined over the period, while that of Rajasthan was flat. It’s true that banks in Delhi hold the Union government accounts and also accounts of large entities such as the Food Corporation of India, but that was true in 1991 as well. It’s likely that Delhi has benefited both from a disproportionate share of credit to the private sector as well as by the expansion of Central government borrowing.
Similarly, in the western region, while Maharashtra’s share rose from 21.1% in 1991 to 25.7% in 2007, that of Gujarat declined from 5.9% to 5.4%.
In the east, West Bengal’s share fell from 7.7% in 1991 to 5.3% in 2007, Bihar’s share (including Jharkhand) decreased from 3% to 2% while Orissa’s share remained flat at 1.6%. In the central region, the share of Uttar Pradesh, or UP (including Uttarakhand) fell from 7.9% to 5.2%, while that of Madhya Pradesh, or MP (including Chhattisgarh) declined from 4.2% to 2.9%.
In the south, the big beneficiary has been Karnataka—its share went up from 6.4% to 8.8%. Kerala’s share went down from 3.7% to 3.1%, Andhra Pradesh’s from 7.2% to 6.6% and Tamil Nadu’s from 10.6% to 9.9%.
The received wisdom has been that peninsular India has been the big beneficiary of liberalization while the rest of the country has not done so well. The surprise, however, is that the story is true only for Karnataka and Maharashtra and that Delhi has gained disproportionately. In other words, instead of the gainers and losers being split evenly, a few states have been able to garner a high share of incremental credit.
The data also corresponds to the increasing metropolitan focus of credit delivery. The numbers show that 66.1% of credit was utilized in the metropolitan centres in 2007, compared with 46% in 1991. Naturally, this will mean more credit growth in places such as Delhi and Mumbai. That’s probably the result both of the decay of rural India as well as the more rapid growth of these centres.
Incidentally, the share of Delhi in the national credit pie actually fell between 1981 and 1991, from 10.2% in December 1981 to 7.2% in March 1991. Growth in that period was more uniform, with all the southern states except Kerala gaining modestly during the decade, as did MP, UP, Orissa and Assam.
A 2006 paper by Kalpana Kochhar, Utsav Kumar, Raghuram Rajan, Arvind Subramanian and Ioannis Tokatlidis, titled India’s pattern of development: what happened, what follows?, pointed to the growing gap between the states and warned that, “If this process continues, the fast-growing states will not only suck the more mobile skilled labour from the slow-moving states leading to a further hollowing out of prospects, but also the divergence in growth rates will increase further.”
“Indeed there are additional reasons for concern,” thepaper added. “Visaria and Visaria (2003) suggest that based on current fertility rates in different states, of the expected 620 million addition to the Indian population between now and 2051, 60% will be in Bihar, Madhya Pradesh, Rajasthan and Uttar Pradesh, and only 22% will be in the fast-growing states of Kerala, Tamil Nadu, Andhra Pradesh, Karnataka and Maharashtra. With populous laggard states such as UP and Bihar having substantial political power because of their numbers, the demands for redistribution will increase, as will migration. These will create immense political strains between Indian states and the potential for serious differences.”
We’re already seeing the beginning of these tensions in the attacks on migrants in Mumbai.
To read all of Manas Chakravarty’s earlier columns, go to www.livemint.com/capitalaccount
Manas Chakravarty looks at trends and issues in the financial markets. Your comments are welcome at firstname.lastname@example.org