Delving deeper into Orissa's economic stae

World Bank is investing in Orissa citing improved growth prospects, contrary to the key indicators which show that the famous trickle-down will not work here. Obviously, extra-economic factors are at play

Mohan Guruswamy and Maria Mini Jos DELHI

Often, the World Bank’s decision to invest in certain states headed by certain favoured politicians seems to be merely an extension of US policies by other means. The World Bank lead economist and co-team leader, V J Ravishankar, on the eve of announcing aid to Orissa, has ascribed the decision to the improving growth prospects of the state. However, the facts are at variance with this common perception of improved rates of growth and better performance of the agricultural sector.

 

According to the Central Statistic Organisation (CSO), the per capita income for Orissa at current prices for the year 2003 is Rs 12,388 as opposed to the all India average of Rs 23,359. The poverty rate (in percentage) for Orissa was the highest among all the Indian states and it stood at 47.15 per cent for the year 1999-2000, according to the Planning Commission’s 10th Five-Year Plan (2002-07). The <Human Development Report> (2001), places the Human Development Index (HDI) ranking for Orissa in an inter-state comparison at 11th for the year 2001 in a survey conducted across 15 states. The agricultural sector which the state government says shows drastic improvements is not in a robust state as the negative 6.8 per cent growth of state-wise Gross State Domestic Product from agriculture for the period (2000-01 to 2001-02 at 1993-94 prices) indicates, as per the CSO. The ministry of agriculture found the state-wise yield of food grains (kg/hectare) showing a decline in the case of Orissa for the 1990-91 to 2000-01 periods at a rate of negative 0.54 per cent as opposed to the all-India average of 1.79 per cent. The State Domestic Product, which, according to official claims, grew at a rate of 8.4 per cent (real growth) actually showed a rate of growth of 4.28 per cent for the years from 1993-2003 at constant prices (1993-94) against the national average annual growth rate of 6.20 percent (CSO).

 

 The share of the agricultural sector in the total work force in 1999-2000 stands at 68.9 per cent and this is way above the figures for the whole of the nation, which was 57.4 per cent (10th Five-Year Plan). These figures, along with the dismal performance of the sector, have contributed to the poor socio-economic condition witnessed in the state. The industrial sector accounts for a mere 9.1 per cent of the total work force and this makes one doubt the creation of trickle-down effects generated by the increasing levels of investments. The annual growth rate of output for the period from 1993-94 to 2003-04 was 1.75 per cent and this was significantly lower than the average for the country as a whole which stood at 6.19 per cent (CSO).

 

The Registrar General of India places the social indicators such as literacy rates for the year 2001 at 63.08 per cent in Orissa. This leaves the state worse off than the average for India as a whole (65.20 per cent). When employment trends are compared, the state fares almost at par with the country average with the daily unemployment rates for 1999-2000 being in the range of 7.1 per cent for rural Orissa and 9.5 per cent for urban Orissa in relation to the national averages of 7.2 per cent and 7.7 per cent respectively (source: Employment and Unemployment in India, 1999-2000, Key Results, National Sample Survey Organisation, Ministry of Statistics and Programme Implementation).

 

So why is this hype about Orissa showing revolutionary growth trends when most of the data indicate facts contrary to this general perception? The high profile publicity about investments in the steel sector, with the entry of key players like POSCO and Tata Steel, has been crucial in creating this feel-good factor about better investment conditions. And the reasons for the sudden rush of investments in this sector have been attributed to the long-term reserves of high-quality iron ore, surplus and cheap electricity and easy access to major steel-consuming markets and raw-material sources. With 4,013 million tonnes of iron ore reserves, about 17 per cent of India's reserves are in Orissa. The Orissa government has already signed 43 memoranda of understanding (MoUs) for steel plants including six mega size projects since 2002, with a combined capacity of 58.04 million tonnes per annum, at a projected investment of about Rs 23,000 crore, according to the ministry of steel and mines, government of Orissa.

 

However, a closer assessment will reveal that most of the projects are only in the first phase of implementation and are facing many hurdles. The number of projects that have been approved may require more resources than what the state is endowed with in terms of reserves and infrastructure. Also, there has been increasing levels of dissent from activists and local communities to these projects due to the social and environmental consequences involved. According to a paper on adivasis drawn up by the National Advisory Council (NAC), the number of adivasis displaced by development projects over the last 50 years exceeds 90 lakh, with only 60 per cent of them having benefited from any sort of rehabilitation. The displacement effects and the social consequences also pose serious threats to the actual execution of the projects.

 

A look at the history of Orissa shows a period in the mid-1990s when a similar kind of a bubble was created and the herd mentality had led to numerous announcements by the likes of Tata Steel, Larsen & Toubro and Swaraj Paul's Kalinga Steel which fizzled out at the later stages. The reasons attributed to their failure were the poor infrastructural logistics of the state. If that was the case then, what has made the present scenario any different?

 

A study of the infrastructure index which takes into account the power index, communications index and transport index shows that Orissa’s aggregate of 75 falls much below the national average which is 107. A review of the ‘investment attractiveness and climate’ of various states conducted by the 12th Finance Commission in order to undertake an inter-state comparison among 20 states, ranks Orissa in the 11th position in 2001.
The claims of fiscal improvement do not hold much water in the presence of about Rs 76.18 billion public debt as per the revised budget estimates for the year 2004-05, as given by the ministry of finance of the Orissa government.

 

Under these circumstances, the World Bank decision to choose Orissa as the preferred destination for its funds is understandable. But the reason for this must be the dismal state of the economy and not the false optimism that the World Bank has discovered.

 

Mohan Guruswamy is Chairman, and Maria Mini Jos is Research Assistant, Centre for Policy Alternatives Society, New Delhi

 

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