TamilNadu Economy - A critical review

I had attended a speech by Mr.Venkatesh Athreya, a prominent economist on July 14th 2006. The speech dealt with state of Tamil Nadu economy then. I feel that the speech is still relevant today and this is a platform for discussing it. Not that I advocate to all the views, but some do make sense.

The summary of the speech (in a transcript format) is as follows:
I will start my speech with some statictics related to Tamil Nadu. As you know states in India are larger than many countries in the world. Tamil Nadu, with its population of around 6.5 Crores (England's Population) and an area of 1,30,000 sq.km is larger than many developed European countries. It is three times the size of France. Also, the hill,sea, birds, animals and a pretty literate population forms potential productive resources for the state. Despite all this, poverty does persist in our state. We are not here to find answers to this but just to know the reality through a scientific perspective. The questions that will be arised need to be discussed in further debates.

In the last 10 years, accepting a standardised measure for economic status of a country has come under lot of discussion. But, GDP has been accepted by most of the economists as that measure. The GDP of a country is defined as the market value of all final goods and services produced within a country in a given period of time. This does have some pitfalls. For example, Leisure, non-market production, etc., do not come under GDP calculation. Also, some negative(debatable) things do come under calculation of GDP like say higher production of cars in a country would mean higher GDP, but negativities caused due to smoke emission from all the cars is not deducted from GDP.Also, for a state we have accepted SDP as an indicator for health of a state's economy.

The state's SDP figures and breakup can be obtained by visiting the site tn.gov.in. From the SDP of TN over the past 10 years, I have made some observations:
1. In the last 10 years, SDP has increased at a rate of 4%. Is 4% a good enough rate? When we observe other states like Kerala,WB,etc., this is a lower growth rate. The Indian economy as a whole has grown by 6% over the past 10 years. So this growth rate is not excellent, to say the least.
2. But, this 4% is higher than the SDP growth rate of 3% in the 10 years preceding to that. What all have been the components of the growth rate? In the 80's, agriculture contributed to the SDP more while we see a constant decline in contribution of agriculture and industries to the SDP in the past 10 years. The growth has come through Services sector.Agriculture has stagnated in the 90's. When we see the land for production of food grains over 5 year periods, inthe period between 1976-80 it was 45.65 lakhs hectares which decreased to 25.65 hectares in the period spanning 2001-05. This shows a decline of 20 lakh hectares or 50 lakh acres decrease in land used for food grain cultivation. But Production hasn't decreased in the same proportion due to higher productivity. From 64 lakh tonnes in the 1976-80 period, it has reduced to 60 lakh tonnes in 2001-05. But Population has been increasing and a decline in production of food grains is not helping them. Productivity levels have also decreased from 2.3 lakh tonnes/hectare in 1995-00 to 2.2 in 2001-05. So area,production and productivity are all looking downwards.If you see the share of Agriculture,Industry and Services in SDP, it was 26%, 34% and 40% in 1980-81. In 2004-05, it is 12%, 30% and 58% respectively. Any developed country would have had similar increase in services sector share.

So, What is the problem here? The problem is 55% of the workforce in our state is still involved agriculture.In a country like US, 2% of workforce involved in agriculture is producing 10% of GDP. So, without increasing agriculture productivity, you can't start looking beyond agriculture. Alternatives to agriculture also seem to be less(For example, Fishery is also stagnant).The share of industry has also reduced in the last 25 years. Industry involves Manufacturing, Power, Gas , Construction among others. Manufacturing output has also reduced very badly. Also, if you see into manufacturing, the unorganised sector has grown and the decline has been from organised sector. So, sectors that do not have any protection for labor are growing. You might say I see Hyundai and Honda factories around chennai, Cotton business seems to be shining and all. But, if you keenly observe these industries are doing well in very few cities like Chennai,Thitupur,etc., In Trichy, there are no industries except BHEL(Bharath Heavy Electricals Limited) today. There are not many industries in Madurai and thirunelveli. All this investment in the industries is also catering to elite demand(like cars,silk sarees,etc.,)

Now, lets look at increase in share of services bit more critically. Everything that does not fit into agriculture and industries have been put into services. So Shoe polish and selling flowers on the roads is also a service. There seems to be a large increase in low productivity jobs. Also, a large increase in speculative sectors like real estate. Only a small elite of high productivity segments like IT and Biotech are growing and their share is not too high.My Final take on Tamilnadu economy. With 55% labor force in agriculure, without increasing the productivity there, we can't move forward.

The economic reasons for this pathetic state of agriculture in the state is:
1. Governments static Budget deficit as reason and decreasing subsidies.
2.Uncontrolled Import leading to decline in prices at which farmer's output is being bought.
3.No loans from Banks/High interest rates on loans.
4.Decrease in allocating money for Rural development (IRDB almost closed).
5.PDS also almost closed.