Sunday, April 13, 2008

Jharkhand: An Opportunity Lost?

Seven years ago today, the new state of Jharkhand was carved out of southern Bihar. The creation of a ‘tribal state’ after years of struggle fulfilled the people’s long cherished aspirations. Amidst the celebrations, there was a new sense of hope: the state was endowed with an abundance of minerals and dense forests; it also had many good schools and universities, and a number of strong non-government organizations which could help improve lives at the grassroots. In the early years after the state’s creation, poverty declined rapidly and per capita growth increased, although somewhat erratically. More children were enrolled in primary schools, and some key health indicators improved significantly - especially the vaccination of children and the prevention of major diseases.

The challenges, of course, were also well known. The state had seen little development over the years, and there was a very high incidence of poverty. The large majority of the people were dependent on agriculture which remained almost uniformly at the mercy of the rains. The state’s economy was also polarized with a sharp rural-urban divide. Initial health and education indicators in the state were also markedly unfavorable when compared to major Indian states as well as the all-India average. These included the health of mothers and children, as well as literacy rates.

But, it remains a cause for concern that seven years after the state’s creation, Jharkhand continues to have one of the highest rates of poverty in India, despite its considerable economic potential. The state has not been able to take advantage of its vast mineral wealth, and continues to remain backward, with poor urban and rural infrastructure.

So, what needs to be done to develop a mineral-rich state like Jharkhand, where the vast majority of the people are poor and dependent on rain-fed agriculture? On this, there are two opposing views. One view holds that the development of the mining sector can usher in a new decade of development in the state. It believes that mining - which in Jharkhand contributes the largest share of mineral Gross Domestic Product (GDP) amongst all Indian states – can provide the natural launching pad for faster economic growth, and generate the resources needed for broad-based social development.

The opposing view holds that the potential risks associated with the mining sector are high. Instead, it suggests that agriculture-led growth can reduce poverty rapidly and contribute to human development. This line of thinking holds that there are high risks associated with the unregulated development of the mining sector in conditions of relatively poor governance. It also suggests that the development of mining can have adverse social and environmental fall-outs. It holds that without a separate capital development fund for mineral revenues that is exclusively earmarked for rural and social development, the prospect of funds being used for other purposes, as well as the chances of corruption, are high. This can have the opposite of the desired effect, and eventually lead to the destruction of livelihoods rather than their creation. Hence, in this view, mining is not the natural launch pad for growth after all; instead, given the adverse conditions of governance, agriculture provides a much safer option.

At the request of the state government, a recent World Bank report titled, “Jharkhand: Addressing the Challenges of Inclusive Development” explored the strengths and weaknesses of the two options. Based on its findings, the report suggested striking a balance between the two strategies and adopting a middle path. It suggested that while mining and broad-based industrial progress could generate resources and lead to growth over the medium to long-term, in the short to medium term it is the agricultural and rural sector that needs to be continuously addressed.

However, for any development strategy to be successful, several issues need to be tackled up front. First, there is a need to focus on institution building and putting systems in place that encourage investment, improve Jharkhand’s image, and reduce the risk of doing business in the state; these are central to promoting growth and reducing poverty. Second, there is a need to increase labor productivity in agriculture where most of the people are employed. There is also a need to increase off-farm economic opportunities in the rural areas, especially through the development of small and medium enterprises (SMEs), as well as to enhance the people’s capabilities to take advantage of these opportunities. Third, each of the economic sectors should be able to grow to its long-term potential, including mining and mineral-based industries. However, efforts to ‘force’ development of a particular sector without addressing the issues of sector governance can backfire, especially in the context of a rather sharp rural/ urban divide, and Jharkhand’s polarized economy.

It is not the lack of knowledge of what needs to be done that is constraining the growth of the state. The challenges - of improving the state finances, addressing administrative shortcomings, and effectively managing the state’s large endowment of forests and mines - are all well known. However, political commitment is needed to make development happen in the shortest possible time. There is need to ensure that the political gains achieved through years of struggle are not lost and start yielding significant economic benefits. It is time that the voices of the left-out majority of the state are finally heard and their problems acted upon, and that a faster and inclusive growth strategy finally ushers in a new decade development for Jharkhand. Then only will the long cherished hopes of the people be fully realized.

Source: The World Bank report on Jharkhand

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