New Delhi: Calling it the greatest turnaround by an Indian state, a World Bank report has concluded that Orissa has achieved the biggest success in coming out of the red.
While an impressive achievement for a state that is among India’s poorest even as it sits on the country’s richest deposits of iron ore, bauxite and copper, the turnaround also illustrates what has happened with several Indian states that have managed to fix their finances.
It is a far cry from just seven years ago when many Indian states used to spend all their income by the 7th of every month, resorting to overdrafts for the interest payments that would come up by the 15th. Any further need would need a trip to New Delhi for short-term help. The last 10 days of the month usually saw the state treasury simply close down.
Long way ahead: Though the World Bank report is positive, Orissa has far to go in terms of whether tribals, some 22% of the state’s population and 40% of its poor people, will eventually benefit from industrial growth.
But, over the last few years, as the Indian economy grew faster, most states came out of the red, with the help of a new revenue-sharing arrangement and debt reduction plan approved by the 12th Finance Commission, and managed to show a small surplus income in the aggregate in 2006-07.
The better performing states are led by Orissa, which managed to post a surplus of 0.64% of its gross state domestic product in its revenue account as early as 2005-06. It was also the first state to achieve the lowest fiscal deficit, or gross borrowing of 0.37% in that year, from 7.56% in 2001-02.
Indeed, by 2006, according to the World Bank report, which will be released in July, Orissa managed the smartest turnaround among all states, wiping out its primary deficit (when it had to borrow just to pay interest obligations on past debt) from 5.9% of state domestic product, and bringing it down to a surplus of 2.8% in 2006.
The report, Orissa in Transition, says that over the 2000-06 period, Orissa raised industrial growth to over 20%, doubled own revenue collection, cut wasteful expenditure significantly and managed to lift some three million people out of poverty.
It doesn’t mean the state is out of the woods. Far from it, especially in terms of whether its tribals, some 22% the state’s population and 40% of its poor people, will eventually gain from Orissa’s mineral resource-based industrial growth?
“The best part about Orissa’s turnaround is that rural families in its southern region, among the poorest in India, are now spending 25% more on basic necessities. But, the poorest 40%, which includes tribals, has gained much less than the rest,” says V.J. Ravishankar, lead economist with the World Bank and principal author of the study.
This is despite the fact that over 2003-06, Orissa’s growth has been higher and more broadbased than that of the country.
Compared with an average 8% overall economic growth for India, Orissa grew at 10%. Even the cost of doing business in the state has declined and is now comparable with the national average.
At $125 billion, or about Rs5.25 trillion, the ongoing investments in the state are almost three times the state domestic product, says the report. There is a pipeline of 27 infrastructure projects including four ports.
The bank launched a development policy project in Orissa in 2004 and has so far disbursed $275 million, with a last tranche of $75 million about to be released.
“Orissa has indeed shown the fastest and biggest turnaround,” says Tapas Sen, senior fellow, National Institute of Public Finance and Policy, an independent think tank in New Delhi. “But, even as the coastal region has prospered, the tribals who are concentrated in the south, still live in misery and little hope.”