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The growth conundrum

Balanced regional growth that economic planners aim to achieve has proved elusive. Despite well-intended policies to disperse economic growth across geographic areas, inequalities persist. The World Bank makes a timely intervention in this larger economic policy debate through its latest World Development Report, “Reshaping Economic Geography”. The application of the concept of ‘economies of scale’, articulated by Nobel Laureate Paul Krugman, is a b uilding block for this new economic geography. The report’s main message, that economic growth “will be unbalanced,” may sound out-of-tune with public policy prescriptions but, as it hastens to add, “development can still be inclusive.” Herein is the new challenge. The new approach is a change in policy with the focus on “economic integration.” Rather than carry the burden of creating economic growth spatially, the report suggests integration at three geographic levels — local, national, and international. This would mean not only refashioning the role of governments but also the provision of location-based incentives to attract industry to economically backward regions. Reframing debates on urbanisation, territorial development, and international integration calls for a change in the current development policy-orientation.

For India, with its disparities between and within States, a message from the WDR is that relying mainly on targeted incentives for industry — as India did for decades — will not help the lagging States catch up with those having better living standards. In post-1991 India, however, States have vied with one another in attracting industries through incentives. A case in point cited in the report is Sriperumbudur in Tamil Nadu, home to Hyundai’s car manufacturing plant. An alternative model would involve revisiting a large set of inter-connected economic policies relating to institutions, infrastructure, and state-interventions to reshape economic geography, while ensuring inclusive development. India’s focus on infrastructure creation and the role of the state more as a facilitator of economic activity than as an economic production agent is a pointer to possible reconfiguration. In a wider context, this long-term prescription to cure inequities calls for a larger role for markets, stronger governance, and evolved economic policy-making. However, for a country like India with striking inter-regional inequalities, the redistributive role of the central and State governments should continue to be more direct for economic growth to be regionally inclusive.

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