No Sign of Growth Convergence for the State

Dr Amarendra Das

Odias always boast of their glorious past and the ruling political parties thump chest on the remarkable progress made during their reign and blame the preceding government’s misrule. However, the fact remains that Odisha perpetually gets a red card in all the economic and social indicators.

In this article I examine the growth convergence of the state with the national economy as a whole. For this purpose, I use the available time series data for the state published in the economic survey of Odisha for the year 2015-16 and macroeconomic aggregates data published by the Reserve Bank of India it its annually published report Hand Book of Statistics on Indian Economy in its website.

For the growth calculation, I have used the Gross State Domestic Product (GSDP) and Gross Domestic Product (GDP) data at market price in the base year 2004-05. I am constrained to use this data for the new GDP/GSDP series  is not available for long period.

Odisha with 155,707 square kilometers land mass shares around 4.7 per cent of the geographical area of the country. In 1951-52, the share of Odisha in the total population of the country was 4 per cent and this has gradually declined to 3.5 per cent in 2011-12.

Keeping in view the share of the state in the total landmass and population of the country we should expect at least 4 per cent share in the total income (GDP) of the country. Given the rich resource endowment of the state, especially minerals, forest and water, we should expect more than 4 per cent share in the GDP of the country.

Odisha had 4.4 per cent share in the country’s GDP in 1951-52 and gradually it declined steadily to reach 3 per cent in 1987-88 and subsequently a low of 2.2 per cent in 2013-14.

Similarly, if we compare the state’s share in the Net Domestic Product (NDP=GDP minus the depreciation of physical capital) this has steadily declined from 3.6 per cent in 1951-51 to 2 per cent per cent in 2013-14. The decline in the share of Odisha in the national output/income conveys that the economic growth of the state has lagged behind the national average during last 65 years.

This calls for a comparison of the growth rate of Odisha with the national average. Between 1950-51 and 2013-14 Odisha economy recorded annual average trend growth rate (TGR) of 3.6 per cent. During this period the national GDP grew at an average rate of 4.8 per cent implying a shortage of 1.2 per cent growth rate for the state from the national average.

Between 1955-56 and 2000-01 the growth rates for the state fluctuated widely and at least in 15 years GSDP of the state recorded negative growth. National GDP, however, recorded marginal negative growth only in two years during the same period.

If we compare the decade wise growth of the state with the national average, only during two decades i.e. during 1960s and 2000-14 average growth rate of Odisha slightly exceeded that of the national average. In all other decades the growth rate of the state economy fell short of the national average. In 1950s the national economy grew at an annual average rate of 4 per cent and the state economy grew at 1.8 per cent. During 1960s the national output grew at an average of 3.5 per cent and that of Odisha grew at 3.7 per cent. During 1970s the GDP of the country grew at an average rate of 3.4 per cent and the state economy grew at an average rate of 2.6 per cent.

1980s witnessed a structural change in the Indian economy. Due to fast growth of public expenditure of the country and gradual liberalization of the Indian economy the national GDP crossed the Hindu rate of economic growth (average 3.5 per cent) and recorded an average of 5.4 per cent growth. During this period although the growth rate for the state also got momentum, it could not match with the national average and recorded an annual average growth of 4.6 per cent.

Broad based liberalization of Indian economy in 1990s added further momentum to the GDP growth and recorded an average growth rate of 5.8 per cent. However, during this period Odisha’s economic growth slowed down to 4.3 per cent.

In spite of this, Odisha economy witnessed the structural change in 1994-95 when the share of agriculture declined and that of service sector surpassed the contribution of industry and agriculture. In the subsequent years Industry sector surpassed the contribution of agriculture and has been converging towards the service sector. Thus, the present economy of the state is largely driven by the service sector, followed by the industry and agriculture.

In early 2000s Odisha economy entered into a high growth trajectory.  During 2000-14 Odisha economy recorded an average growth rate of 7.7 per cent which stood higher than that of national average of 7.6 per cent. If we look at the year wise growth rate of the state and India during this period, Odisha recorded higher growth compared to national GDP between 2003-04 and 2008-09. However, with the onset of global financial crisis both national and state economies have witnessed a slowdown in the economic growth. From 2008-09 onwards Odisha’s economy has been witnessing much slower growth as compared to the national economy.

The slow growth of Odisha economy has widened the gap between the national average per capita income and that of the state average. In 1951-52 the per capita net state domestic product of Odisha was 90 per cent of the per capita net domestic product of the country. In 2013-14, the per capita income of the state has dropped to 57 per cent of the national average per capita income. If we use the new GDP/GSDP data series the per capita income of the state in 2016-17 at Rs 61, 678 is only 75 per cent of the national average per capita income of Rs 81,805.

From all the evidences available, we observed that Odisha’s economy has been consistently lagging behind the national economy. Although the state witnessed high growth during the period 2003-04 to 2008-09, it could not sustain after that. Following the onset of global financial crisis, the growth of the state has declined much more as compared to the national average. In order to raise the state’s position at national level, the state needs to chalk out a long term and sustainable growth strategy.

 –The writer is Assistant Professor in Economics at NISER, Bhubaneswar