The conventional wisdom is that southern India is extending its development lead over north India, especially the “Bimaru” states of Bihar, Madhya Pradesh, Rajasthan and Uttar Pradesh.
But in recent years, growth has picked up momentum in the North, and the pecking order is in for an overhaul. And the answer to the question we posed in our headline — can the North overtake the South — is yes, according to Ruchir Sharma, head of emerging markets at Morgan Stanley Investment and author of newly-released book Breakout Nations.
South India, says Sharma, is no longer where power-packed growth is taking place, noting that the axis of rapid economic growth is shifting to the North. “Between 2007 and 2010, the average economic growth rate of the southern states decelerated from 7 percent to 6.5 percent, while that of the northern states accelerated from 4.5 percent to 6.8 percent,” he notes in an extract from Breakout Nations reproduced by Outlook magazine.
That’s in sharp contrast to what has been happening since the 1980s, when economic growth was led by the South, propelled mainly by the technology and outsourcing industries in states like Karnataka and Tamil Nadu. “Predictably, this produced a certain arrogance in the southern states, where it became commonplace to look with alarm and pity on the failure of the populous northern states to keep up,” he writes. Now, times are changing.
Sharma believes the shift in growth momentum from south to north has happened primarily because of the election of better leaders in the north. His showcase economy is Bihar, which went from being a total economic write-off to leading growth contender after Chief Minister Nitish Kumar assumed office in 2005. “Bridges and roads got built, Bihar started to function, then to fly. Now its economy is growing at 11 percent, the second fastest in India, and Nitish is lauded as a model of what a straight leader can accomplish in a crooked state,” he says.
To buttress his point further, he says that in 2010, six Indian states grew faster than 10 percent. None of them was from south India. Growth has slipped, even as south Indian states experienced a decline in the competence of their leaders, he notes.
There are also scathing comments on the ability of the Congress to bring about economic change. Sharma quotes a Credit Suisse report that says over the past 20 years many Indian states have undergone rapid growth spurts, but only once under a Congress party chief minister. “This helps explain why the Congress is now the main governing party in only two of the 10 major Indian states, down from eight in the 1980s and all 10 in the 1960s. Meanwhile, there are dozens of examples of economic growth led by rival parties.”
So, why is the north bounding ahead of the south?
Apart from better political leaders, Sharma points to three reasons:
One, the north’s economic isolation has actually worked in its favour. ‘The global credit boom of the last decade passed them by, which meant the crisis that followed didn’t leave them broke, and they have room to borrow to build new enterprises”.
Two, the global commodities boom has also worked to their advantage, since they are home to rich reserves of coal and iron, and most of India’s new steel and power plant projects.
Three, the north has an undisputed demographic edge: half of India’s under-15 population resides in just five underdeveloped states—Uttar Pradesh, Bihar, Madhya Pradesh, Rajasthan and Orissa. Literacy rates are also rising faster in the north. Of course, as Sharma notes, a growing pool of young workers can be “a huge advantage, but only if a nation works hard to set them up for productive careers”.
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