Joining Major League Via Growth Poles

Updated: Nov 17 2003, 05:30am hrs
India is still not in the global major league where it rightfully belongs. Our trade share is miniscule and even in services, we are at 19th place. We attract a trickle in terms of FDI, and have a reputation of being a difficult country to do business with due to our high transaction costs. We dont have any airports comparable to those in Southeast Asia and al-though telecommunication facilities have improved, we are burdened with interrupted power supply and poor roads. A large number of people still live in abject poverty and acc-ess to basic health and education is still a challenge for a vast majority. These problems remain even with our economy exhibiting sufficient buoyancy in terms of GDP growth in recent years.

Economic solutions needed to move us in the major league are known, and have been debated over the years: Red-uction in fiscal deficits, transactions costs and tariff rates, maintenance of a realistic ex-change rate, stepping up of growth and sustaining it, improvements in infrastructure to a level found in developed countries. But we encounter difficult trade-offs in solving some of these issues tariff reduction and revenue considerations, a competitive exchange rate and inflation. Hence, we are slow in reaching our objectives. The economic debate will go on.

However, any serious observer of India notices a distinct vibrancy, not easily captured under conventional economic analysis. Certain forces are generating a momentum of growth hitherto unknown. The private sector and some innovative state leaders are moving ahead without constantly approaching the GoI for concessions. Karnataka, Andhra Pradesh and Tamil Nadu are keeping pace with some of the East Asian tigers. Megacities in these states are being transformed into growth poles, contributing immensely to growth and foreign exchange earnings; some of them are becoming household names in the world. Growth poles such as Bangalore, Chennai and Hy-derabad have sprung up and are attracting a lot of external investment and attention. Bangalores contribution to the Indian economy is enormous. In terms of services exports, Bangalore dominates with around 40% of Indias exports ($8 billion). In terms of merchandise exports, it is estimated that Bangalores contribution is around 12-15% of Indias exports ($6 billion). Bangalore displays the basic characteristics of a growth pole, ie, an urban agglomeration with good infrastructure, logistical facilities, service and utilities that serve as the centre around which several specialised industrial clusters develop. Other megacities like Chennai and Hyderabad are rapidly moving in that direction. In the north, Delhi-Noida is emerging as a growth pole. There are positive externalities associated with growth poles, ie, growth poles create dynamic economic clusters around them Hosur, Ramanagaram and Mysore around Bangalore, Gurgaon around Delhi-Noida are a few examples. Stand-alone clusters like Tirupur and Surat are making an enormous contribution to our exports with a small population base. In the current year, exports, mainly of hosiery, from Tirupur accounts for $800 million. It has a population of just about 250,000.

An innovative strategy to firmly place us in the major league would be to finetune and improve the existing growth poles, promote new growth poles and develop several economic clusters like Tirupur and Surat all over India. Ten growth poles like Bangalore and 50 clusters like Tirupur would fetch us $110 billion of exports as against Indias current level of exports of $50 billion! The idea is to act as a catalyst in a natural process which has gained a momentum of its own. There need not be any debate. There are no trade-offs.

How do we do it We should follow the East Asian examples of Penang in Malaysia and Cebu City in the Philippines. Pragmatic policy and dynamic cooperation between private and government stakeholders have led to both these cities emerging as specialised export-oriented clusters. The success of the Shanghai-Suzhou growth pole in China, that is currently exporting $182 billion worth of goods and around $12 billion worth of services, provides another important example to Indias policymakers on the potency of a growth pole.

For successful growth poles we need the following:

* First world infrastructure with special focus on infrastructure that connects them to the world airports, telecommunication system and access to efficiently handled ports;

* Strong supply chain that allow low inventory management expenditure;

* Access to cheap capital goods;

* Production networks that allow firms to specialise and subcontract;

* Access to markets through good,cheap information networks and transport facilities for shipping out goods;

* Reliable access to utilities, ie, electricity, water etc;

* Ready and flexible supply of cheap, unskilled and semi-skilled labour;

At the next stage of cluster and pole development, we require:

* First world services like banking, IT, insurance, legal services, consulting, etc;

* Strong academic institutions that are proactive in research, and private industry based research facilities that are allowed to invest and collaborate with centres of academic excellence;

* Networks among researchers, managers, etc, within the cluster as well as with other high-tech clusters around the world.

Based on the above criteria, we notice that even our top growth pole, Bangalore, has some way to go. The process of creating dynamic poles and clusters can be accelerated by joint efforts of state governments and the private sector. Another crucial dimension will have to be attracting sufficient investment of financial and human capital from the Indian diaspora. A beginning could be made in the south to transform Bangalore-Hyderabad-Chennai into a diamond triangle of growth. If Krishna, Naidu and Jayalalithaa get their acts together and make this a reality, the economies of Karnataka, AP and Tamil Nadu will be comparable to those of Malaysia and Thailand. If other states follow suit, India will be comparable to China as an economic powerhouse.

The writer is senior advisor, international trade, CII and former economic advisor, ministry of commerce