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Wonder about state-wise economic performance in India? NCAER's new project should help.

Canada brief: Focus on zones

For those sold on the idea that the competition -- wrought by greater federalism ---between Indian states would reveal which policies yield better results, the past few years have been sorely disappointing. Neither is it clear whether any state has achieved any significant economic breakthrough, nor whether other states would even bother following any such 'success model'.

The scarcity of state-level economic data has been a major hitch. Independent thinktanks, though rare, do exist. But they have always been short of funds. It is in this context that analysts ought to welcome the Canadian $500 million grant the National Council of Applied Economic Research (NCAER) has received from the Canadian International Development Agency (CIDA), to assess state-level economic performance in India and come up with new macroeconomic modeling tools.

Will anything come of it?

Sure will, if the determination of Suman Bery, director general, NCAER, is anything to go by. CIDA may be run by the government of Canada, which remains the G-7's best-performing economy, with a soaring 'loonie' (the Canadian dollar) and attractive government bond yields (boasting sumptuous spreads over their American equivalents). And Canada may have enviably varied experience in dealing with economic threats (from mad cow disease, SARS and what not). But that doesn't mean the grant comes with hints and nudges. Bery makes it abundantly clear that this an NCAER project, and NCAER places a premium on its credibility as an independent research body.

Still, this is not to imply that no data whatsoever is available on Indian states. The gross state domestic product (GSDP) figures are available with the RBI, for example, as also data on the fiscal scenario. Barring some exceptions (Tamil Nadu, Madhya Pradesh and Maharashtra), it isn't a pleasant sight - as you might guess. After all, foreign analysts are forever warning Indian policymakers that taming the central government's fiscal deficit is not going to do much good without a similar reining in of state deficits. Together, the holes in the central and state-level books amount to more than 10 per cent of India's GDP, a proportion that strikes most observers as foolhardy.

The debt-swap scheme announced by the Indian Finance Minister, in his 2003-04 Union Budget speech, should relieve the states of their interest burden to an extent. After all, the spreads between interest rates on current debt deals and those on instruments issued years ago have widened considerably. It's almost unfair not to get a chance to replace high-cost debt with low, as the Finance Ministry has proposed.

But there's much to be done beyond that, especially since fiscal deterioration in fiscally irresponsible states can be quite sudden and suffocating, given the volatility of our times. And that's not all. For any close-tracking of the states' economic performance, one would need a lot more information than one can access, frankly. NCAER has work to do. Economic Man doesn't live by spreads alone.

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