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Economy SBI: Economy can grow to $ 5 trillion only...

SBI: Economy can grow to $ 5 trillion only if States cooperate

The Economic Research Department of the SBI recommends that the States must adopt economic policy agnosticism so that regime changes do not affect continuity

The latest report from the Economic Research Department of State Bank of India (SBI) is out. Authored by Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI, the report says States have a crucial role in helping the government achieve the Prime Minister Narendra Modi-set target of $ 5 trillion worth economy by 2024.

The States “have to transform by undertaking various structural reforms and learn from each other. Since there are wide differences in the Indian States, the contribution of each in the government’s goal will be different,” says the report.

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For its analysis of how different States stack up in terms of their relative ranks, SBI decided on a bouquet of State-level indicators and juxtaposed the same on a paired basis based on their supposed causation, the report explains.

Subsequently, the SBI team constructed a composite indicator using a PCA analysis by using eight variables namely

  1. GSDP
  2. population
  3. fiscal deficit
  4. tax revenue collected
  5. national highway length
  6. power availability
  7. unemployment
  8. infant mortality

The result showed States of Maharashtra, Uttar Pradesh, Tamil Nadu, Karnataka, Gujarat, Rajasthan, West Bengal, Madhya Pradesh, Andhra Pradesh and Telangana were the more promising States and these States together accounted for around 16.8% of the global GDP (in PPP terms) when compared with countries with approximately the same population size.

On this basis, the SBI strongly recommends that States should maintain policy continuity and “such should be political regime agnostic, as there have been regime changes in some of these States”. For example, the public sector bank explains, “rather than going for short-term measures like farm loan waivers, which lead to moral hazard problem, impacting the credit culture, measures should be taken to improve the agricultural productivity as in many States agriculture is the mainstay”.

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“Simultaneously,” the SBI team says, “we believe the government should speed up the much-awaited land and labour reforms so that the States can grow to their full potential. For example, as land acquisition is a concurrent subject, many States have come up with their own laws to amend the central Act.”

The Economic Research Department of India’s largest public sector bank continues, “Though States have evolved their own amendments to the central Act, the Centre should make the national Act on land acquisition clear and transparent so as to avoid conflicts due to difference in interpretations.”

It may be noted that since the tenure of Modi 1.0,

  • States get 42% of the revenue share
  • Several of the environmental clearances for new industrial projects that were earlier done by the Centre are now done by the States
  • FDI in multi-brand retail is allowed in an area only if the State where the region falls allows it, but here, the Centre and the States have both failed the consumer, as the Modi government cannot allow it under the pressure of RSS’s Swadeshi Jagaran Manch whereas no leftist philosophy-ruled State allows it either
  • After failing to pass the land acquisition amendment bill, the previous Modi government let individual States decide the rules for acquiring land that would be applicable in their respective areas of jurisdiction

For these and several other instances of decentralisation, the current Union government enjoys far less leverage on the economy than its predecessors.

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