Column: Urbanisation begets talent

Written by Mahesh Vyas | Updated: Apr 3 2014, 08:43am hrs
States began competing with each other soon after liberalisation in the early 1990s. Instead of attracting the attention of New Delhi to invest into industries in their states, the governments of Maharashtra and Gujarat focused on attracting private enterprise. Tamil Nadu followed soon and so did Karnataka. These states have gained a lot in terms of accelerating their economic growth from their initiatives to attract investments.

Agrarian states such as Punjab and Haryana have not been very keen participants in the race to attract private investments. Agriculture has been an area of protection, not competition. Competition has focused a lot less on the quality of life offered to inhabitants of a state. Competition to attract superior human capital, of course, has been completely absent. Its always been about attracting financial capital and not human capital.

We know a little about the migration of low-skilled labour from labour surplus states such as Bihar to Punjab and even Kerala. But, we know little about the migration of high-skilled labour. It would be interesting to measure the migration of high-skilled labour into IT hubs, for example, over the past two decades. It takes the Census office a long time to release migration data. But, when it arrives, it would be interesting to see the movement of human capital across states in the 2000s. This was the period when the IT boom was in full bloom, when Bangalore and Gurgaon became labour magnets and when urbanisation expanded immensely.

Did the so-called success of the Gujarat model lead to greater migration into the state This is perhaps, the ultimate measure of the success and therefore attractiveness of a state. The best reflection of the success of the American model of growth is its attractiveness as the ultimate destination to the most ambitious people in the world. The question within India is, do the most ambitious peoplewhether in business or in cultural expositionfeel that Gujarat would be the ultimate destination of residence Would an ambitious family of small-town India prefer to send their children to Ahmedabad rather than Delhi, Mumbai, Bangalore, Chennai or Hyderabad for a better future

Delhi and Mumbai were always attractive destinations for human capital and they continue to be so. Kolkata was an attractive destination to the impoverished neighbourhood, but it seems to have lost out following the long rule of the Communist government in the state that wasnt too kind to private capital. Bangalore, Gurgaon, Hyderabad, Chennai and, to a smaller extent, Pune became the new destination to young human capital. The attractiveness of these cities reflected policies of the respective state governments to attract financial and human capital. The southern states have focused a lot on modern labour intensive investments, particularly into information technology. And, their cities have benefited from this policy. The story of other cities as attractive destinations for youthful ambition is not yet documented.

Unfortunately, data on migration into cities during the last decade are not available, at least as of now. If such data becomes available with a few characteristics of the quality of human resources migrating, it would tell us a lot about the relative attractiveness of states, about its openness and its ability to absorb diverse cultures along with diverse skills.

The data on migration should be particularly interesting because the urbanisation data show substantial divergence between states. While urbanisation has increased over the past two decades, the inter-state variation in urbanisation has also increased. Apparently, the more-urban states have become even more urban and the rate of urbanisation of the states that had a low urbanisation level twenty years ago fell to relatively lower levels. Urbanisation among the larger states has increased from 24% in 1991 to 30% in 2011. But, the standard deviation (i.e., the dispersion of urbanisation between states) has also increasedfrom 8.9% to 11.6%. More importantly, the ratio of the standard deviation to the average (the coefficient of variation) has gone up from 0.37 to 0.39. Urbanisation in Bihar has declined over the last two decades, from its already very low levels. And, Kerala has increased its high urbanisation levels of 1991 to an even higher level by 2011.

If urbanisation is not converging then, migration data will provide many explanations of this divergence. There is some explanation of the rise of urbanisation in the conversion of large villages into towns. There has been a big increase in what are called as Census Towns. But, the story of competition between states and its impact upon the attractiveness of a state is explained a lot more by the data on inter-state migration.

Competition can lead to divergence of state income levels. Rich states can become richer and poor states can become poorer over time in a competitive environment. There has always been a difference between the income levels of states. Has this difference increased during the period that states started competing against each other for investments

Divergences in state income have increased since 1990-91. The inflation-adjusted per capita income of the major states has diverged over the period 1990-91 through 2012-13. Such an increase in divergence did exist earlier as well. But, the rate at which the divergence increases doubled in the 1990s compared to the rate at which they increased in the 1990s. And, in the 2000s it increased further by 50%. The coefficient of variation of the per capita income of the major states increased from 0.2725 in 1980-81 to 0.2931 in 1990-91. It then increased to 0.3356 in 2000-01 and then to 0.4152 in 2012-13.

Growth during the 2000s has been much higher than in the earlier decades. And, the growth has been a lot more uniformly high across states. Yet, even these more evenly distributed growth rates have contributed to an increase in disparities in state incomes.

It would be facile to say that increase in divergence is because of competition. But, it is likely that competition among states did play a role in this divergence as divergence did increase during the time when competition increased.

Competition between states has almost always been about the sops or facilities for private investment. It has been a lot less about the quality of life offered by a state. The quality of life is expected to improve as the state domestic product rises. But, the most elementary test of such a hypothesis is whether people are happy to migrate to such states. Can a state in India become as attractive as a place of domicile to the rest of the Indians, as the developed world is to most of the developing world Growth in state domestic product does not answer this question. We must wait for the migration data to start investigating this question.

All data sourced from statesofindia.cmie.com

The author is managing director and CEO, Centre for Monitoring Indian Economy P Ltd