By Nageshwar Patnaik in Bhubaneswar, October 29, 2017: In less than two decades, Odisha – once known as a sluggish, ultra-poor and highly debt stressed state – has transformed itself from a laggard state to a state on a ‘Take off’ stage of growth in its economy.

Political stability in the state in the last two decades and Odisha’s resource base has virtually made it the eastern gateway to a vibrant economy. The output growth in Odisha has remained above the output growth of India at constant prices during FY 1999-2000, 2003-04, 2008-09, 2013-14 and 2016-17. Double-digit growth in 2003, spurred by investment in metal industries, has had a multiplier effect throughout the economy (Chart-1).

“The economic growth has no doubt remained impressive in the state during the years beginning with 2003-04. Up to 2002-03 economic growth in the state was largely stagnant with around 3 percent and from 2003-04 it has picked up and on an average it works out to 7 per cent between period from 2003-04 and 2016-17. However, growth over the period reveals a fluctuating trend and this is due to multiplicity of factors: natural, institutional and technological”, economist and former director, Nabakrushna Choudhry Centre for Development Studies.

It is needless to say that economic growth is the most powerful instrument for reducing poverty and improving the quality of life. Higher economic growth in Odisha in recent years has resulted in significant decline in the incidence of poverty and increased progress in nutritional and food security status among the people.

While the incidence of poverty has fallen sharply by 24.61 percentage points between 2004-05 and 2011-12, (perhaps the sharpest in the country during the period), the state has performed better in reducing Infant Mortality Rate and Stunting among the children as compared to other states between 1990-2015. Per Capita Income has been increasing consistently since 1999-2000 (Chart-2).

Though there has been significant reduction in the incidence of poverty in the state, poverty in absolute numbers continues to remain high and also is increasing due to population growth and lack of accessing opportunities. “As it is worked out elasticity of poverty with respect to per capita income remains very low- 0.084 in the state indicating very little percolatin ofo growth to the poor. This suggests for more concerted efforts to reduce poverty through improving efficiency in institutional delivery mechanisms”, Prof Panda remarks.

At current prices, Odisha’s per capita income during 2017-18 is likely to touch the level of Rs 92727 against the national average of Rs 126,249, according to Odisha Economic Survey, 2017-18. The per capita of income of India is expected to be 1.3 times higher than Odisha.

Structurally the state economy has undergone significant changes. The share of primary and predominantly agriculture sector in the state’s GSDP has fallen and that of secondary and tertiary and services have gone up. No doubt the annual growth rate of secondary and services sector is higher over the primary sector. However the primary sector has been slowly picking up in recent years. The annual growth rate of the primary sector which was hardly 1 percent during 1990s (up to 2002-03) has increased to around 3 percent between 2003-04 and 2016-17.

“As a result of all these changes, the rise in per capita NSDP has been found faster in the state over the all-India average,” Prof Panda explains.

Covering 35% of geographical areas as the net cropped area and dependence of more than 60 per cent of state’s workforce on it of their sustenance, agriculture in Odisha is closely connected to development of the rural poor. The depleting share of agriculture sector to GSDP showed signs of recovery with rise from 18% share in 2011-12 to 21.6 per cent in 2018-17.

Consequently, farmers are, by and large, a distressed lot. Agriculture is still reeling under the subsistence nature of operation, relatively small size of landholdings, high incidence of indebtedness, inadequate and poor irrigation infrastructure, limited access to credit, weak market linkage and natural disasters.

If we look at Odisha’s production figures, it has hovered around 85 lakh MT (median figure) since 2003-04 till now. Agriculture production has fluctuated from year to year, and many years have seen negative growth. Paddy accounts for 92% of all agricultural produce in the state.

Farmers in Odisha are relatively poor discouraging them to grow capital intensive commercial crops like cotton, sugarcane or soybean. A large majority of them don’t even own farm land. They till others’ land as sharecroppers. Without access to formal credit from banks, even for growing paddy, they have to borrow from moneylenders at extortionate interest rate as high as 40%. Absence of Tenancy Act increases manifold their vulnerability since even if they suffer crop loss due to natural calamities, they are compelled to pay to the land owners a verbally pre-agreed share of crops or its monetized value. Compulsion to sell paddy at rates far below input cost compounds their misery.

Debts keep on mounting and the cumulative distress, when it becomes unbearable, compels them to take their lives. As per National Crime Records Bureau (NCRB), over 5,000 farmers have lost their lives due to agrarian distress since 2000. The number may appear small in comparison to some other states like Madhya Pradesh or Maharashtra but it should still cause serious concern to any government.

The transformation of an agrarian economy takes place first into an industrialised economy and thereafter into a service dominated one. However, in case of Odisha – the state’s development process seems to have bypassed the industrial sector. The share of industry sector in the state’s net state domestic product [NSDP] has been 28.4 per cent and that of manufacturing a dismal 8.6% during 2001-12.

However, the performance of agriculture sector is largely influenced by recurrent natural calamities. In order to counter their harmful effects on agriculture, the expansion of irrigation facility, improving the water use efficiency of the existing irrigation systems, changing the prevailing land tenure system, providing better scope and opportunity in developing allied activities are imperative.

All these will lead to reap higher return from agriculture and allied activities which will act as catalyst in making economic growth faster in the state, Prof Panda remarks.

Since a large majority of industrial activities is under informal sector, the contribution of manufacturing to GSDP is less. This suggests encouragement and support services in terms of developing infrastructural facility, procurement of inputs and knowhow, marketing of finished products etc., by the state. Quality improvement needs to be emphasized to make the product competitive. In view of the wide developmental disparities existing at inter-district levels, dispersal of industries and business activities has to be encouraged through developing network of transport and communication, Prof Panda suggests.

This brings us to the question whether Odisha can become a developed state in the country by 2025? Going by the structure of the state’s economy, its financial development, and its manufacturing prowess, a developed Odisha by the targeted year will remain a distant dream.

Chief minister Naveen Patnaik went a step further by saying, “Our aim is to make Odisha No.1 state in the country”.

Developed states usually have a high component of gross state domestic product (GSDP) comprising the industrial and services sectors. Odisha does have a predominant services sector, but much of it is not in what might be termed the “modern” segment of the economy. Besides, the manufacturing sector is still lagging much behind the developed states.

However, there has been a paradigm shift and the industry led economy of Odisha is quite visible with manufacturing and mining sectors contributing sizeable 16.23 per cent and 7.72 percent share to GSDP in 2017-18. The state appears to be in an enviable position to step up industrialisation with an enabling policy frame work coupled with the necessary institutional arrangements, liberalised policy, single window system, E-Biz projects, technological interventions and so on.

Despite the failure or two mega steel projects by ArcelorMittal and Posco to take off, the Odisha government has received investment commitments worth more than Rs 2 lakh crore from 74 companies in various sectors, including electronics, food processing, metals and minerals.

Even on the troubled question of infrastructure, the state’s progress has picked up.

More than the economic structures and systems, the question of income levels and social indicators is key to categorise the state as developed one. “A record 8 million people have been moved out of poverty. Five million women are the part of mission shakti movement leading to social and financial empowerment. We are the leading State in proving land rights to our tribal population. Our growth rate is higher than the national figures. Our social sector interventions are the model for the entire country. We are one of the leading States in attracting investments. Our capital city Bhubaneswar topped the smart city challenge”, chief minister Naveen Patnaik said recently.

On a comparative basis, according to a report by the Union Finance Minister Arun Jaitley, Odisha is the third highest in infant mortality rate with 53 deaths per 1000, while having the highest death rate (8.5) against the then national average of 7.0. And all these statistics go completely against every excuse any government could provide for the lack of development in the state.

The human development index is a composite of three indicators: Per capita income, levels of schooling, and life expectancy. On the first of these, Odisha’s per capita income puts it in the “lower income” category. To cross into the “higher income” category would mean more than doubling per capita income. Reaching the average for per capita income of developed states would mean a further doubling and more, and is a very distant prospect.

Economic growth can be sustainable without creating job opportunities as they are inter-related. As such, Odisha having achieved high growth in the recent past, the work-participation rate in the state has recorded an improvement from 37.50 in 1991 to 38.80 in 2001 and 41.80 in 2011. More so, the Census 2011 data reveal the state’s work participation rate is higher over the all-India average of 39.80. In view of the structural transformation taking place in the economy there is only find a modest shift of workers from farm to non-farm activities. The intensity of unemployment among youths between the age-group of 15-29 years continues to remain very high.

Prof Asit Mohanty of XIMB- the leading B-school says, “In the new millennium, the policies of the Government reflect fiscal discipline, optimal resource allocation, certainty of funding, along with wider economic and social enterprise such as poverty reduction and more efficient public investment. The emphasis of policy interventions have been to bring in more happiness in the state through inclusive growth and balanced development.

To achieve the status of a developed state by 2025, present growth rate of Odisha is not good enough. Growth can generate virtuous circles of prosperity and opportunity for achieving higher and sustained growth. However, under different socio-economic conditions similar rates of growth can have different impacts on poverty and broader indicators of human development.

The problem of poverty in Odisha as well as other states can only by addressed by undertaking greater investment in the masses of poor people. This can happen if government spends a significant amount of its investment expenditure on human development, that is, on promotion of education and health of the poor.

The Naveen Patnaik government has done exactly that by consistently increasing expenditure in social sector, but it needs to be further boosted up to break the shackles of endemic poverty in Odisha.