By V.J. Ravishankar

Lead Economist,
The World Bank, New Delhi

Opinion Piece Special to The Telegraph and Samaj,

August 14, 2008

 Also See: Team Orissa, Gearing up to do business more efficiently

Orissa, one of the poorest states of India, is today poised to make a significant economic turnaround. Its economy has clearly shifted gear and is now on a higher growth trajectory. While no one can deny the debilitating burden of still having 45 percent of its people living in poverty, the long-beleaguered state is today emerging from a period of economic stagnation and deep financial stress. The gross state domestic product (GSDP) has grown at 8.5 percent on average during the Tenth Plan period (2002-07), compared to India’s growth of 7.8 percent. No longer is Orissa the most indebted state of India, a dubious distinction it enjoyed for a long time. Prudent fiscal policies have helped reduce the state’s outstanding debt from 343 percent of state revenue in 2001-2002 to 201 percent in 2007-2008. The annual interest burden has come down from over 35 percent of revenue to less than 25 percent. If optimism be the order of the day, the people of Orissa have a right to it.

The turnaround has been triggered by a number of factors. Policy reforms at the Central and state level have spurred the arrival of industry, the state government’s strong resolve has helped to complete long pending infrastructure projects despite a resource crunch, and its consultative approach has enabled it to take measures not only to enhance its own revenue but also to reduce fat in establishment expenditures.

Having put its fiscal house in order, Orissa is attracting sizeable investments. Orissa has for the last three years been consistently ranked number one among Indian states in terms of private investment projects under implementation, according to the Centre for Monitoring Indian Economy (CMIE), a feat that was unimaginable five or six years ago.  Today, there are around 470 projects under different stages of implementation, which add up to US$ 125 billion, or about seven times the state GDP.  The majority of these projects are expected to be completed before 2013, implying that investments could climb further over the next five years. 

In the past, Orissa used to attract investments for pure extraction of minerals, which would be sent elsewhere for further processing.  Now it is attracting not just mining companies but large manufacturing companies, in steel and electricity, aluminum and other metal industries.  There are also some, albeit very early, signs of economic diversification. In the services sector for instance, Indian IT companies are entering Orissa as traditionally favored destinations become increasingly saturated.   Industrial growth during 2002-07 averaged as high as 15.1 percent, far ahead of all-India rate of 9.2 percent.  The services sector grew at 5.6 percent, much slower than India but still better than Orissa’s own past; within which trade and transport grew faster than the rest of the country. Agriculture, traditionally beset by drought and floods, grew at only 2 percent per year, as slow as the rest of India.

The potential multiplier effects of ongoing investments can be huge on employment and incomes, making it wholly within the realm of possibility for the state to touch double-digit growth – provided of course that it harnesses the benefits well and ensures their equitable distribution among its people. 

As a result of its recent economic turnaround, Orissa’s per-capita income, which progressively fell behind the rest of the country during the past five decades, has begun to catch up. Average spending level in rural Orissa is still low, but it is moving up more rapidly than ever before. The latest National Sample Survey data show that rural families in the southern region of the state – one of the poorest parts of the country without the mineral deposits of the north – are now spending up to 25 percent more on basic necessities like food, clothing, and schooling for their children, compared to just five years ago. 

Orissa’s challenges

Such signs of change have sparked both hopes as well as anxieties.  Optimists hope that Orissa will catch up and cross the All-India average in per-capita income by 2020. The anxiety is largely about whether hitherto disadvantaged groups, including the Scheduled Tribes, will benefit or be hurt by rapid industrial growth. The anxieties need to be managed well in order that the hopes can be realized.  This is one of the key messages of the World Bank report titled Orissa in Transition, due to be published soon. 

The Report, while highlighting the change, also points out that Orissa is still the second poorest state in the country with one of the lowest levels of urbanization. The scheduled tribes (STs) – who make up a sizeable 22 percent of the state’s population and 40 percent of the poor – continue to lag far behind the others. Most of these people live in villages or habitations whose geographical isolation underlines their poverty. Rural electrification is among the lowest in the country, some 18,000 villages and 5 million households have yet to get electricity, learning levels in schools are low, and the burden of ill health is high. The NSS data show that regional disparities have narrowed a little but the interior is still significantly behind the coastal districts. The story on gender disparity is also similar. 

Infrastructure too is far from adequate. Capacity constraints in rail are increasing congestion on roads, and limited port capacity is diverting cargo from Paradip in Orissa to Haldia in West Bengal and Vishakhapatnam in Andhra Pradesh. The state has yet to capitalize on its large coastline facing South East Asia.

However, the state government has more money now than five years ago to invest in roads, irrigation, education and health.  Much needs to be done to ensure that this money is spent efficiently and achieves the purposes it was intended for. The recently-completed Detailed Implementation Review (DIR) of the World Bank funded Orissa Health Systems Development Project revealed some weaknesses in the use of public funds for healthcare. The state government responded to this with concern and is taking significant actions to remove the weaknesses in the systems. The open and consultative approach the state government is forging to accompany its new policies holds out hope of a culture of greater transparency and accountability taking root, leading to better human development outcomes.

Despite these challenges, the magnitude of the transition underway needs to be appreciated.  According to the CMIE’s projections, even the direct impact of ongoing investments would lead to a doubling of the industrial work force in Orissa over the next five years.

Given recent economic acceleration and fiscal improvements, the time is now ripe for the state to consolidate the gains of the past and devote public resources to building infrastructure, and reducing further the gaps between people – between rural and urban, between the interior and the coast, and between the scheduled tribes and the rest of the population. Policies concerning land and other natural resources will need to be modernized to unleash the full potential of agriculture, fisheries and forestry on which an overwhelming 85 percent of the state’s people depend.   As Orissa strives to build for the future, it can take productive lessons not only from others but also from its own recent successes in turning around its finances and shifting gear to a higher growth path.

V. J. Ravishankar, is the lead author of an upcoming World Bank report ‘Orissa in Transition’