Tag Archives | Economic Growth

A Tale of Two Cities

The tale of Bangalore and Chennai’s growth is also the story of Karnataka and Tamil Nadu’s urbanisation.

The Indian growth story has included two actors in the past two decades, Bangalore and Chennai. Along with their parent states of Karnataka and Tamil Nadu, they have been the face of Indian progress, on everything from software to manufacturing to higher education.

Bangalore and Chennai are quite distinct from one another, and this post traces the differences in their urbanisation and their respective roles in their states. Chennai (formerly Madras) was designated as one of four ‘metro’ cities in India from independence, having been the capital of a British presidency before then. Bangalore was a more modest state capital. Till the mid-1980s, Bangalore was almost  two decades behind Chennai in its total population size*. Bangalore has since seen more rapid growth, and in 2011 the city was only a couple of lakh people smaller than Chennai.

BangalorevsChennai1

It is tempting to view population growth as a competition between two cities, but cities urbanise within the context of their states. While both Karnataka and Tamil Nadu are among India’s more urbanised states, but it is here that Tamil Nadu leaves Karnataka far behind. Tamil Nadu is the most urbanised large state in India, with almost half its population living in cities. For context, the Indian average of urbanisation is just one third. In Karnataka, about 38 per cent of its population lives in cities and towns.

Urbanisation and the successful movement of large numbers of people out of agriculture is key to prosperity for Indians, so it pays to examine what Tamil Nadu got right.

One feature of Tamil Nadu’s success is its lack of dependence on Chennai for all its urban growth. In 1991, Chennai was about 30 per cent of urban Tamil Nadu. The state’s largest spurt of urbanisation came between 1991 and 2001, increasing by over 10 percentage points. Most of this growth came from outside Chennai, with Chennai’s share of the state’s urban population steadily declining since 1991.

BangalorevsChennai2

Much of the urban growth in Tamil Naducame from the reclassification of land and the setting up of town panchayats after the 74th amendment to the constitution was enacted. A lot of it also came from other large cities springing up. Today, Coimbatore, Madurai, Trichy and likely Tiruppur all house million+ people each.

Karnataka’s urbanisation, on the other hand, continues to be led by Bangalore. The primacy of Bangalore in the state is paramount, with Hubli-Dharwad and Mysore having a population of barely a million each. Bangalore was over 35 per cent of urban Karnataka in 2011.

Not just that, but almost half of the urban growth in Karnataka came from Bangalore’s growth between 2001 and 2011. In comparison, only about a fifth of Tamil Nadu’s urban growth came from Chennai in the same decade.

BangalorevsChennai3

This stark difference can perhaps be explained by extensive industrial growth in Tamil Nadu, which is conspicuous in its absence in its neighbouring state. From the city of Hosur giving competition to areas on the far side of the TN-Karnataka border to bustling ports trying to compete with Sri Lanka’s, Tamil Nadu has been more successful in providing an alternative to agriculture for large numbers of its people. Kerala’s urban spurt last decade appears to be similar, with habitations becoming larger and denser, as well as more people leaving agriculture as a profession. When and whether this can happen in Karnataka is an open question.

For now, Karnataka and its politics are still frequently dominated by agrarian concerns. The Western Ghats continue to pose a formidable barrier to the development of the state’s ports, with its largest port Mangalore competing with larger ports at Mumbai, Kochi and Goa. Connectivity – perhaps in the form of all-weather roads and tracks across the Western Ghats and high volume ports – may be just be the most potent driver of urbanisation in the state.

As the Karnataka government is trying to figure out how to split the Bangalore city corporation into more manageable pieces, more people should start reflecting on how to get more centres of urban growth going in the state.

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*This is the population of the entire urban agglomeration. Since the Bangalore Municipal Corporation became the Bruhat Bangalore Municipal Corporation in 2006, all urban areas around Bangalore (with the exception of small census towns and Electronic City) have been governed under one municipal authority. Chennai, on the other hand has a metropolitan corporation that is co-terminal with the Chennai district and houses a little over half of the people in the Chennai urban agglomeration. Several other city councils and town councils govern the rest of it.

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Economic growth and luxurious narratives

Faltering economic growth provides an opportunity for fresh ideas on energy policy and climate change strategy.

A couple of weeks ago I attended a seminar on ‘Low carbon growth strategies for Karnataka.’ Here is a collection of my thoughts on the topic and the discussions that took place at the seminar.

India and most of its states enjoyed 8+ per cent annual economic growth for the better part of the last decade. This growth was quite prolific and for many non-economist observers, it appeared to be chugging along on its own steam. A whole host of narratives sprung up from different corners on how sacrificing on a few percentage points on economic growth could help promote their cause and lead to better outcomes overall for India. In the process, there was a certain instrumental maligning of economic growth that was not always evidence-based.

The UPA government’s narrative of inclusive growth is perhaps the dominant narrative of the time – essentially saying that many Indians were not able to enjoy the fruits of economic growth and this required a rights-based, redistribution-led approach to make it ostensibly more inclusive. Other narratives in the environmental space include ‘(ecologically) sustainable growth’, low-carbon growth and many more, which while acknowledging that growth was necessary, wanted the growth to have a far lower ecological cost or much lower carbon emissions, even if it sacrificed several percentage points.

With annual economic growth lower than 5 per cent today, many of these narratives feel anachronistic. These “growth-modifier” narratives were only possible because the Indian economy was enjoying a high growth rate. Apart from creating fiscal space in the short run for entitlement and subsidy programmes, high growth also created the narrative space that could house such ideas. This space has rapidly vanished over the last two years but various organisations and campaigns have failed to adapt to changing circumstances. Low-carbon economic growth is one such.

A low-carbon growth strategy for Karnataka appears superfluous for a second reason. It is far from clear whether Karnataka has a growth strategy at all. As The Transition State previously showed, Karnataka has grown more slowly and alleviated less poverty both compared to the national mean and to other higher income states in India. The new government in Karnataka that was formed in 2013 has failed to articulate an economic policy or bring about any large reforms thus far. Advocating for low-carbon growth strategies in the absence of a basic growth strategy seems out of place.

Poverty and Growth - Higher Income States

There is also a false equivalence between low-carbon growth and renewable energy-led growth. Low-carbon growth essentially focuses on climate mitigation and ignores adaptation (this blog would advocate for exactly the opposite,) calling for sectors like energy, transport and agriculture to adopt policies that reduce emissions. Ignoring international climate negotiations and India’s position for the moment, these low emission options are further constrained by misconceptions.

Nuclear energy and LNG are two prominent energy options that are both low-carbon but non-renewable. LNG produces less than 40 per cent of the emissions that coal does per unit of electricity generated and will likely be the leading reason for the United States reducing its carbon emissions over the next decade and more. On the other hand, nations like Germany which are trying to phase out nuclear power have already increased carbon emissions as a part of its Energiewende strategy, instead of decreasing them. The larger battle for climate change cannot be won by taking nuclear energy off the table, even if it is politically correct to do so. Evidence be damned.

Finally, most narratives on energy debates ignore the Indian context. High income countries are mostly those whose energy demands have plateaued, and thus “either-or” questions on energy options are justified. Coal or LNG, nuclear or renewables, wind or tidal, and more. All have associated trade-offs, and nations can choose based on domestic considerations and global pressures.

India’s energy demands are growing as the economy grows, and millions of Indians still do not have access to adequate electricity for domestic use. With an energy elasticity of growth at 0.9-1, it means that a doubling of India’s GDP will require us to nearly double power generation capacity. This is inescapable. So instead of an “either-or” debate, we must ask how we can increase power generation from all sources. How public policies can be designed such that it is easier to do business in the energy sector is an important question. It takes years to set up and operationalise all types of power plants, with bureaucratic and regulatory hurdles lengthening the process significantly. This along with growing political risk have to be managed far better.

Proponents of renewable energy also have a chance to shift from advocating for subsidies to make renewable energy work, and instead think of what policy changes can make it easier to deploy wind turbines, solar farms and more. Faltering economic growth is providing an opportunity for fresh ideas on energy policy and climate change strategy. And the cost of squandering them will be very high.

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Infographic – Growth and Poverty in India

A lot of heat was generated in the Sen vs. Bhagwati debate that took place a few months ago, along with some rays of light. The same followed after the release of the latest poverty numbers. Here’s a look at how Indian states have fared in both economic growth and poverty reduction between 2004-05 and 2011-12.

Poverty and Growth in India - A Story in Five Charts

Gross Domestic Products are the most common estimates of economic growth. GDPs of Indian states (called “GSDP”) matter, but bigger states obviously have larger GDPs. To compare states, one needs to look at GDP per person (“per capita” for those who like to use Latin). It should be noted that GDP per person is different from the average or median income.

In the 2000s, states raced against each other on per capita GDP. While almost all states grew well, not all of them could keep pace with others close to them. The chart below shows you how state rankings have changed between 2004-05 and 2011-12.

GSDP Slopes

Between 2004-05 and 2009-10, the biggest relative gains were made by Sikkim and Uttarakhand, with Punjab, Arunachal Pradesh, Jammu & Kashmir and Karnataka losing significant ground.

If the same chart is made for how states have fared on poverty reduction, a different picture emerges. States have been ordered below based on the percentage of population in the state that lives below the poverty line.

Poverty ratio Slopes

There appears to be a lot more dynamism in poverty reduction, perhaps because there are several states that are much closer to each other. Between 2004-05 and 2009-10, the biggest relative gains in poverty reduction relative to each other were made by the states of Andhra Pradesh, Rajasthan, Maharashtra, Himachal Pradesh and Orissa. While no state’s poverty headcount increased in this time period, the relative underperformers were Assam, Delhi, Jammu & Kashmir, Jharkhand and Karnataka.

Note that the states of Arunachal Pradesh, Goa, Manipur, Mizoram, Nagaland, Sikkim, Puducherry and Tripura were removed from this list as their 2004-05 poverty numbers were based on poverty lines of other states (like Assam and Maharashtra) and hence the numbers are not comparable to the 2011-12 numbers. Some news stories and opinion pieces had erroneously talked about how several northeastern states had worsened in poverty. Such observations are sadly mistaken.

The two charts from earlier tell us only about relative performance of states – using their closest competitors as benchmarks. However, absolute performance on growth and poverty reduction matter just as much, if not more. The next few graphs examine just that: examining the growth in GSDP per person, and reduction on poverty in percentage points between the years 2004-05 and 2011-12.

Poverty and Growth - States

The above graph shows a clear correlation between economic growth and poverty reduction.Higher the growth, higher is the poverty reduction observed. The only major outlier to this is the National Capital Territory of Delhi – which is so because Delhi started with a low poverty rate of 13.1 percent in 2004-05. The graph also clearly shows that the high poverty reduction, high growth state of Uttarakhand is far removed from all the other states.

On Uttarakhand, many are quick to jump to the conclusion that this high “reckless” growth caused the disaster earlier this year. What we can conclude from data is that Uttarakhand grew exceptionally well in the past decade and reduced poverty equally rapidly, but failed to reduce any vulnerability it had to natural disasters. Had an event like the Kedarnath disaster happened a decade ago, there would be a lot fewer residents, tourists and property to be affected as greatly.

The next two graphs look at comparable groups of states: large, higher income states and lower income states of India.

Poverty and Growth - Higher Income States

When both growth and poverty reduction are looked at in concert, Maharashtra and Andhra Pradesh come off as the best perfomers, well above the national average on both parameters. It is also noteworthy that while Gujarat grew faster than Maharashtra in terms of its GSDP during the 7 year period under consideration, Maharashtra did slightly better on a per person basis.

Following on the previous charts, Punjab and Karnataka’s poor performance comes as no surprise. Karnataka grew quickly in the early 2000s with the IT boom, and hasn’t quite been the same since. Punjab’s agrarian prosperity also seems to have peaked, with insufficient dynamism in services or manufacturing sectors to sustain high growth.

Poverty and Growth in India - Lower Income States

Odisha had the highest rate of poverty reduction in India of all states, and is among the top performers alongside Bihar, Rajasthan and MP among the lower income states. Chattisgarh grew well, but failed to reduce poverty as much as the other lower income states, and Jharkhand did poorly on both fronts.

Economic growth is clearly necessary but not sufficient for poverty reduction. Our conversations on economic growth have to evolve from “Growth or Something else” to “Growth AND Something More“. What can be observed over each of the last three charts is the absence of states on the “Low Growth, High Poverty Reduction” quadrant. Evidently, there are many states who grew well, but failed to provide sufficient public goods for significant poverty reduction. However there are no states that managed to reduce poverty to a great extent without strong economic growth during the mid 2000s. What has been well known in economist circles is confirmed again for Indian states.

Between 2004-05 and 2011-12, the Indian economy grew at an average rate of about 8.5 percent (CAGR, Compound Annual Growth Rate), and thus at 6.7 percent per person. Indian states were spread around this number. In 2013 the growth rates have fallen to about 5 percent nationally – and there are no signs of going back to an 8 percent growth rate in the near future. It is not difficult to imagine how abysmal poverty reduction will be over the next few years. We may end up failing another generation of India’s poor.

Postscript. There are some caveats to keep in mind, while interpreting the performance of individual states. First, while poverty reduction and growth are compared across the same time period, there can be a lag between the two. New wealth generated can take time to percolate through the economy. Second, GSDP numbers are generated by state economics and statistics departments based on central guidelines. The competence and independence of different states’ economics departments can vary a lot, and it is possible that GSDP numbers from some states could be overestimated.

Third, there are many discrepancies between poverty ratio numbers calculated from NSS surveys from  2009-10 and 2011-12. States such as Bihar show little poverty reduction between 2004-05 and 2009-10, but phenomenal decrease in the next two years. While 2009-10 was a drought year and might have underestimated the overall reduction in poverty, the planning commission needs analyse and provide clarifications on the latest state-level poverty numbers presented. However, these caveats do not affect the overall observation that there are no Indian states that grew poorly but reduced poverty greatly.

Many thanks to Dr. Mukul Asher for discussions that helped shape this piece.

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