Contradictory stories of economic transition from three states

Despite lagging behind Kerala at the beginning of the last decade, Tamil Nadu currently has the highest per capita real income, divided by the Real Net State Gross Domestic Product (NSDP). The average person in West Bengal is halfway to economic prosperity compared to the two southern neighbors, though on an equal footing with them in the early 1990s.

Although both Kerala and Tamil Nadu have become relatively wealthy, they are like chalk and cheese in terms of their means of prosperity. Kerala shipped directly from agriculture to services, largely skipping manufacturing expansion. In contrast, Tamil Nadu has followed a time-tested economic transformation path by consolidating its productive sector and entering into highly skilled services.

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The story of three states

Manufacturing is a quarter of the gross value added in Tamil Nadu in 2018-19, but only 13% in Kerala. The previous manufacturing was led by high-tech sectors such as automobiles and low-tech sectors such as textiles. Unlike Kerala, West Bengal once had a formidable manufacturing base similar to that of Tamil Nadu, but now productivity is only 15% of the state’s economy. The trio have increased manufacturing share in their economy since 2004-05, but West Bengal has the lowest growth.

The service sector dominates Kerala, accounting for over 60% of its economy with a focus on tourism, education and healthcare. Furthermore, the share of government-led services in the Kerala economy is the highest among the three states. Due to the large share of non-agricultural sectors in their economy, Kerala and Tamil Nadu will have 67% and 52% of the population living in urban areas in 2019, respectively, according to estimates by the Ministry of Health and Family Welfare. With only 35% urbanization, West Bengal is less urbanized.

In the ongoing research with Soumya Dhanraj and Sanklap Sharma of the Madras School of Economics, we calculate the Consumer Durability Index (CDI) for major Indian states using unit level data from the National Family Health Survey 2015-16, taking into account 20-16 ownership. Consumer durability and vehicles. The share of the population in each state is poor (less than 25 per cent of the All India CDI value), low to medium (between 25 and 50 per cent of that value), above medium (75 per cent between 50 and 50) and affluent (75 per cent) More than a century).

By this measure, more than half in Kerala and 26% in Tamil Nadu are ‘rich’, while in West Bengal only 13%. In Kerala an individual is the result of internal payments lost into the local economy from those who have left the state for better economic opportunities in other areas, even if they have a real NSDP and its neighbors. On the other hand, only 1.7% of Kerala’s population, and 8.3% of Tamil Nadu, but over 26% of West Bengal are durable and poor in terms of vehicle ownership.

The Kerala Development Model, with its ‘Education and Health First’ approach, ensures high levels of human development and continues to top the United Nations Development Programme’s Human Development Index for Indian States. Although Tamil Nadu has grown rapidly over the years to join the top HDI states in the country, West Bengal has not done well economically or socially.

Although successful, Tamil Nadu also has unresolved issues in terms of basic infrastructure: water availability and low levels of piped sewage, etc. Also, according to estimates based on the Periodic Labor Force Survey 2018-19, both Kerala (20%) and Tamil Nadu (12%) have the highest unemployment rate among young people (20-29 years). Urban areas, reflecting adequate jobs, meet the aspirations of their educated youth.

What is the future for these three?

Although Kerala is successful in terms of equality of prosperity and well-being, Tamil Nadu is in a good position to face the post-Kovid world. The two engines of Kerala’s prosperity — tourism and payments — can see the permanent negative impact of the epidemic. The state has been particularly vulnerable to the threat of relative stagnation like Punjab in recent years. Punjab, which led India on average real incomes in the 1980s, lags behind due to its inability to create non-agricultural jobs and over-reliance on pay. Kerala needs to improve local capacity for labor-intensive services such as manufacturing and expertise and healthcare.

Tamil Nadu has expanded its production capacity in its export industries, be it information technology (and IT-enabled services), automobiles or textiles to produce local work. However, Kerala needs its people to migrate and send money or tourists to enter to create economic activities. Also, with strong manufacturing bases, Tamil Nadu can cater to India’s growing domestic market. West Bengal and Tamil Nadu have more to gain from learning from experience.

Each of these three Indian states has unique challenges and opportunities. How their policymakers deal with them largely determines the fate of their people.

Vidya Mahambare Professor of Great Lakes Institute of Management, Economics, Chennai

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