Does Arunachal Pradesh really have the highest growth rate?

Does Arunachal Pradesh really have the highest growth rate?

Guess which is the fastest growing state in the country. Is it Gujarat, much tom-tommed for its industry-friendly policies? Could it be Maharashtra, where Mumbai remains, despite recent attempts to reduce it to a parochial village, a throbbing cosmopolitan metropolis, home to the country’s entrepreneurial elite? Or is it one of the southern states such as Tamil Nadu, which has attracted so many industries? Or, wait a bit, could it be once-laggard states such as Bihar, which is now purportedly in the process of catching up rapidly with the rest of the country?

A couple of years ago, economists discovered that economic growth had suddenly taken wing in Bihar. Growth in its gross domestic product (GDP) in 2008-09 was an astounding 13%. A few months later, Chhattisgarh became the new champion, as economists found that its growth was the highest in 2009-10.

There’s more to the story. In second place was another surprise—Mizoram, with a growth rate of 13.95%. Goa came third in 2009-10, growing its GDP by 13.03%. That’s not all. It now turns out that Bihar was not really the fastest growing state in 2008-09—that honour goes to Mizoram, with a growth rate of 13.91%, while Bihar came second. Andaman and Nicobar Islands, growing by 11.17%, came third.

As a matter of fact, 2005-06 was the last year in which the fastest growing states were the conventional champions. In that year, Gujarat was the most rapidly growing state, followed by Maharashtra. Since then, however, the league tables have gone haywire. In 2006-07, the leader was Chhattisgarh, followed by Bihar. Andaman and Nicobar Islands came third. In 2007-08, the top spot was taken by Jharkhand, which grew by a huge 20.52%. Uttarakhand came second. The top ranks for 2008-09 and 2009-10 have already been given above. Mizoram’s average growth rate between 2007 and 2010 has been 12.9%. The average for Arunachal Pradesh in those three years was 13.98%.

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Does this mean that these north-eastern states have now become the new growth hubs? That’s unlikely. Their reason for being at the top of the league table is probably the low base for these states. Could the data be wrong? That too would hardly be surprising, considering that the total of the states’ and Union territories’ GDP does not add up to India’s GDP. In 2008-09, the states’ total was lower than the all-India figure by Rs2.18 trillion (at 2004-05 prices), slightly lower than Karnataka’s GDP. In 2009-10, the all-India was higher than the states’ total by Rs2.24 trillion. In short, there’s a huge discrepancy in the data, about 5% of the country’s total GDP.

Let’s look a bit further. If we take the states’ domestic products at 1999-2000 prices, we find that the picture doesn’t really change and the rankings turn out to be equally odd. For instance, in 2000-01, Nagaland recorded the highest rate of growth among states, with a growth rate of 16.6%. Bihar came second, with a growth rate of 16.04%. In 2000-01, Arunachal Pradesh was numero uno, with a growth rate of 15.7% while Tripura came second, growing by 14.07%. In 2002-03, Chandigarh was first, followed by Bihar. Rajasthan and Jharkhand were the leaders in the following years.

But wait a bit. There’s also a huge difference between the growth rates if we take 1999-00 constant prices and 2004-05 constant prices. Arunachal Pradesh’s growth according to the 1999-00 prices for 2006-07 was 13.75%, for 2007-08 6.36%, for 2008-09 5.87%. At 2004-05 constant prices, the growth for 2006-07 is 4.95%, 12.01% for 2007-08 and 7.51% for 2008-09. Why should GDP at 2004-05 prices be so much lower than GDP at 1999-00 prices for 2006-07 and so much higher in 2007-08?

For Bihar, GDP growth at 1999-00 prices for 2008-09 is 16.59% while it is 13.06% at 2004-05 prices. That is fine, perhaps the 2004-05 series lowers growth? But in 2009-10, the state GDP computed according to the 2004-05 prices is 8.56% while it is much lower, at 4.72% at 1999-00 prices. This is absurd.

A friend of mine, who worked in a nationalized bank, told me a story about how, when he was posted in a village branch, he was once asked to respond immediately to a parliamentary question. The question was about how many Christians, Muslims, Sikhs and other minorities he had given advances to. But the bank records did not mention the religion of the borrower. My friend estimated that the village in which he was posted had about 50% Muslims and the rest Hindus. He accordingly took the total number of borrowers, divided it by two and said that was the number of Muslims financed by his branch. All over the country, bank managers adopted similar methods. The upshot was a completely bogus report on minority financing by banks reached Parliament and there must have been impassioned debates on this absolutely useless piece of information. Given the problems with the GDP, Index of Industrial Production and the state GDP numbers, I suspect most macro information in this country might be collected in the innovative manner my friend adopted.

Illustration by Shyamal Banerjee/Mint

Manas Chakravarty looks at trends and issues in the financial markets. Comment at