Atmanirbhar Bharat: India will grow when its heartland develops

By TV Mohandas Pai & Nisha Holla

India’s migrant crisis is a consequence of the large economic divergence between the northern and eastern states and the more developed states in the south and west.

In turn, surplus labour and lack of skills have resulted in low savings and staying power for poor migrants. With the lockdown, and now, the gradual lifting of the lockdown, many are returning to their home states in the heartland at great personal risk.

The long-term solution is high-growth employment opportunities in every state. Otherwise, migration will ensue again in a year or so with a reversion to status quo. Additionally, if the highly populous heartland grows slower than the rest of India, it will continue to impede the national ambition of step-function change towards a middle-class society. India only grows when its heartland develops.

Demographics and economic growth

Uttar Pradesh and Bihar are among India’s most populous states, with an estimated 23.7 crore and 12.3 crore people, respectively (estimated from CRS data). Total Fertility Rates (TFR) are also high-Uttar Pradesh at 2.74 and Bihar at 3.41-compared to the 2.18 India-average (Source: NFHS-4 in 2013–15). Both states will continue to have young populations as the rest of India ages faster. This is both a significant competitive advantage and an economic challenge.

UP is fifth by state economic output in 2019–20-at Rs 16 lakh crore GDP. However, on a per-capita basis, UP is on the low end at Rs 69,425, above only Bihar at Rs 48,093-a consequence of inferior planning and historical bad governance. India’s per-capita GDP is Rs 1.49 lakh-three times that of Bihar and double of UP. Bihar needs a focused agenda and strong leadership to bridge the divide to the national average. UP has an industrial legacy that CM Yogi Adityanath is revitalising via long-overdue reforms.

India today has a population of approximately 138 crore, Rs 205 lakh crore GDP in 2019–20 and a per-capita GDP of Rs 1.49 lakh. If we remove UP and Bihar (together 26% of the population), we arrive at 102 crore population, Rs 183.4 lakh crore GDP amounting to Rs 1.8 lakh per-capita. The large Rs 31,000 per-capita difference demonstrates how important it is to develop these two states. Otherwise, they will continue weighing India’s growth down.

Shift from agriculture to high labour-utilisation sectors

In both states, the lack of thriving industry and services sectors has created overdependence on agriculture. India has been shifting workforce out of agriculture at the rate of 1% per year since 2000. In UP and Bihar, this shift must accelerate to 2.5% per year. The excess workforce can be given high-growth opportunities in the following areas:

Labour-intensive manufacturing: UP and Bihar must set up high labour-utilisation industries like garment manufacturing, assembly of automobiles, electronics, machinery and others. Distributing industrial clusters throughout will give everyone access to employment opportunities near their villages and towns. With India’s push towards high-speed roads and railways, these industrial clusters can be efficiently connected to ports for export markets. Flatted factories can be rapidly built and launched, and are a quick way to provide employment to the returning migrants.

Construction: State governments can commission large projects for roads, freight corridors, water storage, industrial facilities and flatted factories, tourism, and others. Construction can employ many low-skilled and unskilled people, especially the returning migrants.

Tourism: Tourism, along with ancillary sectors like air travel, restaurants and hotels, employs crores of people. UP and Bihar are cradles of Indian civilisation and have many archaeological sites that can be preserved and developed into tourist magnets-on a par with Rome or Jerusalem. Both states can develop tourism as a major economic sector and provide mass employment.

Healthcare infrastructure: Each district in these states must have high-grade healthcare facilities with one 500-bed multidisciplinary hospital and a primary health centre in every taluk/tehsil. Each hospital can have an ambulance service to provide rapid response to every citizen in the district. These facilities can provide employment for doctors, nurses, medical staff like radiologists, pathologists, and ward boys and other posts.

Agriculture revival

UP and Bihar have considerable tracts of fertile land for agricultural production. However, due to fragmentation and excess workforce dependence, the size of the agriculture sector in Bihar was only Rs 59,400 crore in 2017–18, growing at a three-year CAGR of 8.7% (Source: RBI). In the same period, UP’s was Rs 2.13 lakh crore, growing at 11% CAGR. Compare this to Madhya Pradesh’s agri-sector, at Rs 2.3 lakh crore and growing at 20%, which provides a great model for UP and Bihar to improve agri-growth.

It is estimated that 25% of the workforce is sufficient for agriculture. When the excess workforce is shifted out, the sector can revive with land consolidation, deployment of technologies like drip irrigation and greenhouses, and digital platforms so farmers can improve quality and command better prices for their produce. Implementation of the proposed Atmanirbhar reforms can enable farmers to double their income. But this is only possible if the excess workforce is shifted.

Urbanisation and infrastructure development

Per 2011 census, India was 31% urban, whereas UP was 22% and Bihar a mere 11%. In the modern age, development comes from urban areas. Keeping citizens in villages without adequate employment opportunities is unsustainable for personal and economic growth. Instead, census towns can be developed into urban growth engines.

Bihar has a small number of 120 census towns that can all be developed, while UP has 670, of which 500 could be developed. They can be equipped with high-speed connectivity, industrial clusters within 15-km of the town, schools and colleges, hospitals, and utilities. A focused urbanisation agenda in census towns with the ensuing infrastructure development will have immense feed-forward effects for providing mass employment.

Human capital development

21st century growth is driven by the knowledge economy. Without human capital development through skills, vocational training and higher education, we risk leaving entire populations behind.

Bihar’s gross enrolment ratio (GER) in higher education is only 13.6 in 2018–19. Considering it has 12 crore people and a high TFR, the state has a substantial under-educated youth population. It is imperative to focus on increasing GER to 30-plus by 2030 through rapid brownfield expansion and the use of digital platforms to provide mass e-education. Simultaneously, a large skilling drive to impart manufacturing and other skills can assemble a productive workforce.

Uttar Pradesh is in a better position. With a GER of 25.8 (just below the India-average of 26.3), 16 lakh graduates a year and one of the largest higher education systems in India, UP has built a pipeline. The state can now focus on improving graduate quality who may find good jobs within UP if a development-focused agenda is implemented. More than half of UP’s graduates are women-providing them with good employment opportunities near their hometowns will double the workforce and make UP a premier example of women empowerment.

In conclusion, India cannot grow unless UP and Bihar grow faster than the rest of the country. Sadly, 15th Finance Commission’s allocations are inadequate for this purpose, as are state revenues. This requires special funding and support from the central government. Developing the heartland will be a massive step towards Atmanirbhar Bharat.

Pai is chairman, Aarin Capital Partners, and Holla is technology fellow, C-CAMP

Originally published at https://www.financialexpress.com on June 4, 2020.