Posted by: Vikram | August 26, 2015

Indian states and the global economy

After independence, India embarked on a centralized, state-driven program of industrial development, with economic decision making power resting with government officials and policy makers in Delhi. However, after 1990 this pattern changed, and economic growth both accelerated and grew more diffuse in its spread. States found themselves with considerable room to develop their infrastructure, policies and drive economic development. Considerable literature exists on how different states and regions have fared economically, and the social and political implications of these changes. But today, we will be focused on how Indian states have interacted with the global economy, and participated in foreign trade.

India is still a minor player in world trade, although it has seen rapid growth in this area in the last decade and a half. In 1990, India’s share of exports in the world was only 0.5%, and this increased to 1.2% in 2009. In contrast, China’s share grew from 1.8% to 9.6% in the same time period. However, we will focus on exports from various states, since they do present a varied picture, and also reveal the relative strength and sophistication of industry and business across states.

Apart from trade in goods and services, the other major point of interface between Indians and global capital is via the export of labor and remittances. India has been a leading recipient of remittances for a number of years, with remittances reaching $ 70 billion in 2013-14. Like exports, remittances show a varied picture across states, revealing the differences in how well different states are connected with international recruiting networks.

We start with a state wise breakdown of total merchandise exports, seen in Table 1. Clearly, two states on the Indian West Coast, Maharashtra and Gujarat account for nearly 50% of exports from India. Together with the South Indian states, they produce about 75% of India’s merchandise exports. Despite more of India’s population residing in its Northern and Eastern states (65%), most of the economic dynamism is shown by states in the West and the South (35%).

In fact, over the last two decades the East’s share in exports has declined from 15% to 6.6%. We see clearly in such statistics, the roots of labour migration within India from East and North to the West and South.

By looking further at sectoral compositions of the exports, we can assess the relative strengths amongst the leading exporting states. We look at state export rankings for general manufactured wares, information technology goods, pharmaceuticals, transport equipment and petroleum products. Table 2 summarizes these rankings giving values of exports in each category from leading states in billions of dollars.

merchandise_exports

Same source as Table 1

We see that Gujarat has used its geographical location to good effect and developed a major petroleum processing and petrochemicals manufacturing industry. In addition, the state has well developed textile and pharmaceutical industries. Maharashtra features in nearly all sectors as a leading state indicating its diversified industrial portfolio. In the IT goods sector, Maharashtra is the top state with the South Indian states following it. This might be surprising given that cities like Bengaluru, Hyderabad are perceived to be the bigger IT centres in India.

We now move to exports of services, which actually account for a large share (56%) of India’s exports than merchandise. Observing Table 3, we see that this is because most of the IT earnings for the South Indian cities come through IT service, not product exports. Haryana and UP also make an appearance because of the IT companies in Gurgaon and Noida. And even here, Maharashtra ranks second with Mumbai and Pune being leading software services centres.

Next up are remittances. Table 4 lists the leading states by remittances received. As many might have guessed, Kerala leads in this category, getting more than $13 billion dollars in remittances. In fact, remittances constitute about 35% of Kerala’s GDP, indicating a high dependence on such earnings. This blog had earlier referred to Dubai and other Middle Eastern cities as the ‘metro’ of Kerala. Interestingly, remittances also constitute a significant portion of the GDPs of Goa (19%) and Punjab (13%).

Observing Punjabi cinema, one notices that a large number of Punjabi movies and songs feature a protagonist with rural Punjabi roots moving abroad to economic centres in the West. Such cinema appears to be grounded in the actual movement of Punjabi labour to markets in the West. Comparing with Haryana, however we see a clear difference, Haryana’s economic growth has been driven by establishing industry for domestic and international consumption, leveraging its proximity to Delhi. Punjab on the other hand has relied on its diasporic networks to export labour abroad.

Clearly Maharashtra, Gujarat and Kerala, all on the west coast of India are the states most tied to the global economy. Particularly in the case of Maharashtra and Gujarat, their established lead in industrialization and international contacts should help create a lasting period of economic growth.

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Responses

  1. Great post, I would just make a couple of points:

    1) Even before 1990 there was a differential pattern amongst the states -some down to policy eg southern states investing heavily in primary education, some down to politics – like the labour unrest in West Bengal but a lot of it was also down to how individual states managed an effective industrial policy within the license raj system – Aseema Sinha’s book “the Divided Leviathan: The Regional roots of Developmental Politics in India” is very good on outlining this point. For various reasons, certain state govts were much more hospitable to private enterprise and built up institutional systems and geared the state-level bureaucracies towards fostering industrial development regardless of whatever govt was in power – Maharashtra and Gujarat were typical examples in this regard.

    2) South India is more of an outlier than is suggested in the study you cite; as if you take decennial growth rates of industry and manufacturing into account; they really are ahead of the rest of India, excluding Maharashtra.

    3) There are also internal imbalances here; as Aakar Patel pointed out in a great article, the decision not teach English till relatively later in the curriculum has impacted on English proficiency in Gujarat; which is an important base for service sector exports – one reason why Gujarat has been effectively excluded from the IT-export boom that Maharashtra and the southern states have enjoyed.

    4) The relative lack of industrialisation in Punjab – a rich state by any standards is something which has puzzled scholars; explanations given vary from the over-investment in agriculture and land to the lopsided control of industry between Hindus and Sikhs, to the problems of the state’s industrial policy. I haven’t seen anything convincing as yet to really explain it.

    • Thanks Conrad. Wanted to bring out in detail how different the economies of South/West India are compared to East/North via foreign trade.

      Regarding your points:

      1) Yes, I agree. There were major differences even before 1990. Although given the diversity of the country, not just in terms of institutions but also climate/geography that was to be expected. The interesting question raised here would be just how much of a ‘rebalancer’ can the Indian state be. I cant see what instruments it has to bring growth in the landlocked Northern states to the level seen in the South and West. West Bengal and Odisha might join the bandwagon on their own, and Odisha actually looks more promising on this front right now.

      2) Agree fully. As an aside, I thought these two stories from rural India, one from Kerala, one from UP (both by Sainath) bring out how comprehensively different the post-independence experience has been,
      https://ruralindiaonline.org/articles/sherpur-big-sacrifice-short-memory/
      https://ruralindiaonline.org/articles/kalliasseri-in-search-of-sumukan/

      3) My next post is going to be on this, English and wages earned correlate strongly in India. Going to base it on this paper: http://www.uh.edu/~achin/research/azam_chin_prakash.pdf, in particular see map on page 32.

      4) Punjab’s case is particularly stark if we compare with neighbouring Haryana. I think access to Delhi has been a major difference because Delhi does provide a large pool of educated and skilled workers for industry.

  2. OF possible interest here:

    http://www.livemint.com/Opinion/PKIxuP6LcC5PzxSED90XGP/Where-are-Indias-factory-jobs.html


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