Towards a new economic-geography for states

With millions of workers desperately returning to their native hometowns and villages, after being stripped of their dignity and means of livelihood, the pandemic has made many states receive a large influx of these workers into their own territories. This has also thrown a set of possibilities for states (like Uttar Pradesh, Bihar, Madhya Pradesh, Chhattisgarh etc) to reprioritise their socio-economic outlook for the time to come.

Economic geography, as a sub-field in economics, often receives a lot of policy-attention in discourse on studying international trade, allowing nations to maximise their economic potential and production in certain commodities and services with comparative advantage, for gains in trade.

In a pre-Covid world, urbanisation, as a process, was seen concentrated in economic centres, projected as hotspots for attracting domestic/foreign capital, and becoming destinations for exports, creating more employment, making millions to migrate into these spaces from far-away rural corners.

It seems there is now a pressing need to revisit this dynamics of an urban-biased, economic geography to bring the focus back on developing more proximate economic hotspots within states, where states invest in building their own comparative advantages, creating more opportunities for local populations. This is critical at a time when supply-chains of commodities, and even labour movements, are likely to disengage from far metropolises and move much closer for production-distribution-consumption needs.

The question is: How can a state - at the bottom of the development pyramid - maximise this crisis-opportunity for transforming its economic policy-making framework and allow its own population to gain in social and economic terms?

There are five areas which states (with low GSDP and per capita incomes) can focus upon.

Firstly, by ploughing in deeper structural reforms in areas of factor markets (land, labour, enterprise, capital, tech-penetration) to provide a crowding-in effect for private investors to bring long term investments within states. This will not happen by simply focusing on one factor of production alone.

There has been a lot of discussion around the temporal suspension of (pre)existing labour laws in states like UP, Maharashtra, MP to attract more investment. However, state administrations are erring in doing ad-hoc suspensions or removing laws that actually take away agency -- and security -- of workers from them and give greater autonomy and bargaining power to employers. This only exacerbates worker exploitation.

At a time when almost 30% of the organised workforce is unemployed, and millions within the unorganised, contractualised workforce lack adequate social safety nets, a reorientation of existing labour laws need to safeguard worker interests as against abandoning them altogether. Further, factor market reforms in land, capital markets, tech-policy need to be complemented with others to give enterprises a broader set of incentives to invest in.

Secondly, states with embedded comparative advantages in production and distribution of certain commodities - or services - given their socio-economic, socio-cultural capital networks, need to leverage these to scale.

For example, if a state produces the best quality textile products in apparel, or manufactures the best quality carpets for exports and has MSMEs engaged in this, there is a strong case to be made for viable firms to get more advantages of scale through targeted fiscal (tax or indirect tax-related) incentives and targeted credit lines from financial institutions. This can help these firms scale up their production as demand picks up.

Similarly, if an agrarian state offers strong potential for scaling up production and supply of certain vegetables, pulses, cash crops etc, incentives need greater alignment to make agriculture and allied activities a more profitable, and for farmers to gain market-access in proximate (nearby) locations of produce, making their process of distribution, or point of sale easier. I have argued earlier how distant market-networks made the supply-chain management of essential food crops rigged with price distortions which adversely affected the principal source - the farmer.

Advisory team

Thirdly, with perhaps a state-focused economic advisory team to the CM, states need a three-to-five-year state-employment policy to ensure that everyone within the state who wishes to work has a job with a basic social-safety net. This helps bring rates of involuntary unemployment down and addresses other scenarios of high frictional unemployment, more underemployment in existing sectors.

A medium to long-term fiscal plan focused on employment generation, having more regularised public data on employment, and promoting worker-intensive sectors of occupation will offer locals with opportunities for better subsistence and livelihood-especially those who reverse migrated to their villages and may now prefer staying and working closer to home.

Fourthly, imbibing lessons of effective decentralisation and in building social capital from Kerala’s model. This is vital particularly for poorly developed states which need sustained public investments in building their human capital, through greater public spending in healthcare, education, social service delivery (say mother-child care support, family planning support/counselling, unemployment insurance, and basic nutritional access to the poor).

Kerala has championed in these basic areas along with other states like Tamil Nadu in the South, Goa in the West and Sikkim in the North-East. The fifth aspect is closely related to the fourth, and is in connection to decentralising governance, allowing greater decision- making power and financial autonomy to local communities and women-led groups. This has been seen in states like Kerala, Tamil Nadu, Himachal Pradesh where there is improved administrative governance at local levels, more efficient micro-finance institutions, self-help groups etc.

Greater investment in social capital catalyses and empowers local community members to feel part of the governance process and strengthens the state-citizen contract. Additionally, it creates a robust feedback loop on policy-implementation locally, allowing the executive, legislative branches to take cognizance of concerns and respond to them more directly.

When a national crisis strikes --as it did with this pandemic --it often reorders the governance and social planning architecture of a state, particularly in terms of (re)allocating resources. This crisis offers states an opportunity to do just that and the opportunity must not be missed.