A Common Market Bodes Good For Southern States

Updated: Mar 31 2003, 05:30am hrs
When Ms Mallika Srinivasan, chairperson of the infrastructure sub-committee of CII, called for a Southern Regional Forum for Economic Co-operation with infrastructure as a beginning at the recently held infrastructure summit SUMINFRA in Chennai, she was basically attempting to give life to a dormant concept in a practical manner.

The idea of southern states working towards increased economic co-operation has been in the air for well over a decade now. In early 90s, CII had proposed what was then called PAKKT (acronym for Pondicherry, Andhra Pradesh, Kerala, Karnataka and Tamil Nadu). But the concept, to date, remains on paper as the state governments in the region have failed to take it seriously, despite obvious advantages.

To turn the idea into reality, the governments of the southern states should sit together and create a common market by removing everything that inhibits trade between them - be it in the form of taxes such as entry tax or measures that restrict free movement of goods. Also, they can co-operate in developing infrastructure in the most viable and economical manner by sharing resources, wherever possible. In short, they have to stop thinking in terms of individual state (when it comes to sharing resources and enhancing trade) and start thinking as a region.

If they do so, the benefits are many and what will emerge is a huge market which is seamless and investor-friendly. Such a market would definitely enable them compete more effectively with each other to attract investments at a rate faster than what is happening today. Also the states would have better bargaining power when it comes to allocation of resources.

They would be in position to get the Central government to transfer adequate funds in a manner that suits their immediate priorities which can be different from the rest of the country. For example, souths immediate requirement is developing the physical infrastructure while norths emphasis would be on the social infrastructure.

Intense competition that is currently on between the states in the region to attract investments is possibly precluding any move in this direction. Almost all the states in the region are competing for the same investment pie viz. IT, ITES, Biotechnology etc.

Also many contentious issues especially those relating to sharing of river waters have resulted in significant animosity between the states at government levels. These apart, politicians have to mature to the level of segregating political affiliations and economic good.

Today, the region presents itself as four states with varied sometime contradictory policies and tax structure. Levies such as entry tax and restriction on free movement of goods act as a deterrant to inter-state sales while adding cost to the industry. Introduction of VAT will, to a large extent, even out the tax rates but a lot needs to be done to present the region as a common efficient market.

On the infrastructure front, the potential is enormous. Instead of each state investing in similar facilities, they can share the same. The surplus power in the region can be shared and power projects on a very large scale can be set up in future to produce cheap power. On the contrary what we are seeing today is a large number of small IPPs with little economies of scale generating high cost power.

Similarly, the states have been investing a lot in ports. By coming together they can lobby for upgrading an existing port into a large transhipment port in which all the states in the region can invest. The minor ports can then be made feeder ports. At a time when every investment has to justified in terms of rate of return this would prove to be the ideal way.

A beginning can be made by getting the state governments to realise the economic benefits that would arise by taking advantage of the synergies that exist between them. CII says it is planning to hold a series of workshops shortly to drive home this point.

In fact, tourism can be the starting point as this is the least contentious issues. Experience elsewhere indicates that starting with areas that are prone to strong disagreements result in a premature death of any good concept.

The southern states can evolve a co-ordinated package that will take tourists to all the important destinations in the region. Rather than spending individually to promote respective destinations South India can be projected as a tourist hot spot with a variety be it back waters, pilgrim centres, places of historical importance etc. Once a common package is drawn then the supporting infrastructure can be put in place.

If this succeeds, the same logic can be extended to other aspects of infrastructure and some day, the level of maturity and understanding among the states may enable them to handle many politically and emotionally sensitive issues such as sharing river water etc.