Boosting GDP in a downturn- generating regional growth in India

Lord Heseltine’s recent report on securing economic growth from the regions and a Plan B for the Coalition may have a benchmark in India. The report suggests new Local Enterprise Partnerships that take up the role of the scrapped Regional Development Agencies and bring together local actors to boost growth. His report also recommends a sharp increase in infrastructure spending, funded by pension funds where appropriate.

The ‘Kerala model of growth’ has long been a feature of development economics. The favourable business climate in the region has helped attract a much greater rate of FDI than in other parts of India- this has been put down to a number of key factors.

First, mature local political conditions- in addition to a high literacy rate, Kerala scores well in surveys of human and gender development. Built on a planned, ’Kerala model’ of political activism and participation, relations between political parties are close and coalition politics work well… There have been no strikes (at all!) in the past 12 months, incredible for a country such as India with a strong trade union movement rooted in the historic struggle for independence.

Second, the local government has placed a key focus on healthcare and education, reducing birth rates and creating a more sustainable demographic profile. There is also an infrastructure of primary health centres, funded through local micro-donations and the growth of the private healthcare system so that 8.2% of families now have private health insurance (a normal good?).

Finally, Kerala has marketed entrepreneurial opportunities abroad through an “Emerging Kerala” campaign. A high speed rail corridor has been announced, connecting smaller cities to the state capital, Kochi, boosting labour mobility. The continuing focus has been one of city expansion and the development of a ‘climate for growth’, much as Lord Heseltine’s recommends in the UK.

Just as the last Labour government’s economic policy focused on generating growth in the financial sector in London and the South East, with the associated tax receipts arguably spent on generating public sector jobs in the North, key Indian cities such as Mumbai and Delhi generated corporate and sales tax revenues and areas such as Kerala, Gujarat and Karnataka attracted overseas FDI. This allowed central government spending to focus on alleviating poverty in the poorer states of Orissa, Uttar Pradesh and Bihar. However, a key driver as the Indian economy slows down has been the power of regional government, with a local growth model and a focus on political power and mobilisation at a micro level.

A few useful video resources here: the Adam Smith Institute shows a more neo-classical view about Heseltine’s proposals here and a new metro train and other initiatives as part of Emerging Kerala.