The centre of economic dynamism is shifting from the south and parts of the west to the major population centres of the central and northern heartland. If the corruption issue has discouraged many businesses from investing, there are many exceptions in provinces where competent new governors are actually cleaning up the local business scene, and where the consumer culture is exploding. In the 1980s, when India first began to reform, economic growth increased from 3 per cent to 5.5 per cent, propelled mainly by the emergence of technology and outsourcing industries in Karnataka and Tamil Nadu. Back in 1981, incomes in the most-developed states were 26 per cent higher than those in undeveloped states, and that gap had grown to 86 per cent by 2008.
Telecom subscribers grew by 68% in Bihar in the last five years. In Tamil Nadu and Andhra Pradesh it was about 40%. The national average was 43.7%.
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. Southerners saw themselves as harder working, better educated, and more ready to compete in the world. Bihar became the butt of southern jokes that India could end its running territorial dispute with Pakistan by giving up Kashmir, so long as Pakistan took Bihar too. Bihar was the only state that not only sat out Indias first growth spurt but also saw its economy shrink (by 9 per cent) between 1980 and 2003.
Soon thereafter things began to change, and in recent years the north has been growing faster than the south. Between 2007 and 2010, the average economic growth rate of the southern states decelerated from 7 per cent to 6.5 per cent, while that of the northern states accelerated from 4.5 per cent to 6.8 per cent.
The rise of the rest in India resulted from a number of factors, perhaps most important the election of better leaders.
In a recent analysis, Credit Suisse showed that over the last 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.
The most striking example comes from Bihar, a state that V.S. Naipaul once described as the place where civilisation ends. Chief minister Nitish Kumar stormed into office in 2005 on a wave of voter frustration with the general chaos, and launched an aggressive campaign to bring order and common sense to a lawless territory. Bridges and roads got built, Bihar started to function, then to fly. Now its economy is growing at 11 per cent, the second fastest in India, and Nitish is lauded as a model of what a straight leader can accomplish in a crooked state.
Meanwhile, India as a whole was going the opposite way, as the formerly dynamic southern states seemed to a hit a wall of complacency. The economy in six Indian states grew faster than 10 per cent in 2010, but none of them were in the south. Even when Indias growth dipped to 6.9 per cent in the fiscal year ended March 2012, the northern states as a whole showed a slight year-on-year acceleration, with the bulk of the deceleration attributable to the west and the south.
The southern states have also seen a decline in the competence of their leaders, and growth has fallen accordingly: over the past 10 years, Karnataka, Andhra Pradesh and Tamil Nadu have seen growth rates slip, in some years to about half their previous double-digit pace. Some southern Indians explain this away by saying that they already had their big boom, but this is hardly the way to follow China. In China, the rich southern states experienced a boom for three decades, not just one, and have reached annual per capita income levels of $15,000-20,000 while Indias southern states still have a per capita income only slightly above the national average of $1,400.
To an extent, isolation set up the remote states in the northern and central parts of India for success: the global credit boom of the last decade passed them by, which meant the crisis that followed didnt leave them broke, and they have room to borrow to build new enterprises. The global commodities boom has also worked to the advantage of these regions, which are home to rich reserves of coal and iron, and most of Indias new steel and power plant projects. Nitish Kumar and other new leaders are taking the simple steps required to start growing from a poor baseparticularly building new roads and wireless telecom systems.
Literacy rates are rising faster in the north than the south, evidence that the new leadership is taking advantage of their demographic potential: half of Indias under-15 population resides in just five underdeveloped statesUttar Pradesh, Bihar, Madhya Pradesh, Rajasthan and Orissa.
The North Face | Ruchir Sharma
