Backyard of UNDERDEVELOPMENT

A recent World Bank report points out that adverse perceptions about entrenched corruption and law and order are among the major bottlenecks for the development of UP
Pradeep Kapoor Lucknow

The BSP government has been demanding Rs 80,000 crore from the UPA government as a special package for the development of Bundelkhand and eastern UP. Now, Chief Minister Mayawati has made the issue political. She launched an attack on the UPA government for not releasing the amount for UP. She had used the same issue in the Lok Sabha polls to corner the Congress. But, poll results proved that she was unsuccessful in reaping benefits using this card.

Now, the ground reality in UP has been exposed by recent reports prepared by the World Bank and Planning Commission. A recent World Bank report points out that adverse perceptions about corruption and law and order are among the major bottlenecks for development of UP. The report, Unleashing industrial growth potential of UP, has highlighted the constraints on industrial development and factors retarding investment in the state.

The report points out that major bottlenecks include power, anti-competitive practices and tax rates and adverse perceptions about law and order and corruption. The other hurdles are tax administration, transportation, economic and regulatory policy, macro instability, skill and education of workers, business licensing, customs and trade, access to land and telecommunication.

The report highlights the problems of infrastructure and its quality, particularly in the power sector and road sector plagued by poor maintenance and low-village connectivity. The regulatory burden is higher. Starting a business in UP requires 16-20 approvals, many of which have to be renewed. It takes 42 days to start a business involving a cost of 43 per cent per capita. Similarly, registering a property takes 43 days and enforcing a contract 850 days. Taxes at 81 per cent of profit are relatively high in UP.

The latest report from UP's planning department showcases a roadmap for rapid development of UP following a directive by Prime Minister Manmohan Singh. Mayawati had approached the UPA government in 2008 for allocation of more funds after which the PM issued the directive. This report points out that UP is not perceived as an attractive investment destination. The state has not been able to attract much investment from outside, whether domestic or foreign. Investors in major export industries like IT, gems and jewellery, textiles and engineering have avoided UP. It's share in the total proposed investment in the industrial entrepreneurs' memoranda in the country between August 1999 and November 2007 was a meagre 5.3 per cent. The inflow of foreign investment into the state has also been less. UP could get a paltry sum of Rs 2,254 crore between January 1997 and 2006 as FDI approval was a meagre 1.04 per cent.

According to the report, there is a widespread perception that poor governance and rampant corruption are among the major causes of poverty, backwardness and low human development in UP. The quality of bureaucracy has been adversely affected by frequent transfers and short tenures which has demoralised officials. Its capacity for impartial service to the people has been undermined. Bureaucrats and senior officers in the administration don't take policy decisions for the long term.

Significantly, the Planning Commission report indicted the UP government by observing that law and order situation in the state is far from satisfactory. Discussions with entrepreneurs revealed that corruption and law and order problem are among the important factors which impede the flow of investment. Poor governance particularly affects the weaker sections which are at the receiving end of the system. Cases of atrocities against women and Dalits are higher in UP compared to other states.

The report pointed out that the financial infrastructure in UP is inadequate as revealed by various indicators such as number of bank branches per lakh of population, per capita credit and credit deposit ratio. Agriculture credit system in UP is in shambles. The cooperative credit structure is extremely weak except in a few districts in west UP. The primary agriculture cooperative credit societies are mostly sick. The central cooperative banks, too, are not in a healthy condition.

Policy framework has failed to create an environment conducive to investment promotion and economic growth. Rigidity in land labour and product markets impedes investment and restricts economic activity. The land market is not active. UP is among the few states which has been reluctant to bring about changes in the Agricultural Produce and Marketing Act. There are restrictions on procurement, processing and marketing of agricultural produce. All these regulations have stifled the growth of agro-processing industry.

Quality of public services has also got flak from the Planning Commission. Education and health sectors have left much to be desired due to staff shortage, facilities and funds. The problem has been aggravated by large-scale absenteeism of teachers and medical staff.

A major issue with the policy making process has been instability. Often policy declarations of the previous governments are either rescinded by the next government or remain unimplemented. The most important factor identified by the report is the slow growth rate in UP. The levels of per capita plan expenditure has not only been low in absolute terms but have fallen short of the average plan expenditure of all states. UP is unable to mobilise adequate resources due to low income levels. Central plan assistance has been below average throughout the plan period. The state has not been able to attract substantial investments by central PSUs as it does not possess any technical, economic or locational advantage.

UP's share in bank loans has declined from 5.15 per cent in 2001 to 3.0 per cent in 2006. Bank credit-deposit ratio is much lower than the national average. Its share in loans from long term lending institutions like IDBI, ICICI and REC has been quite low - between 2 and 3 per cent only. The poor performance by financial institutions in UP reflects a poor investment climate and low demand for credit.

This story is from the print issue of Hardnews: AUGUST 2009