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India's 'Poorly-Performing' States

Working papers

Written by Andrew Shepherd

India’s strong tradition of inter-state comparison and competition, with its rich state level statistical data, provide an unparalleled opportunity to compare the opportunities and difficulties states present to development assistance. The allocation of aid is extremely uneven across the states; like private investment and even public expenditure, greater quantities of aid per capita tend to flow to the persistently richer states, with some exceptions. Given the poverty reduction objective of most aid, this is potentially a perverse outcome. When performance over time is examined statistically, the persistently poor states are not uniformly the poor performers, although there is perhaps a greater tendency towards across the board and over time poor performance among Indian states than there is among developing countries as a whole. This was especially the case in the 1990s for three states, Bihar, Orissa and Uttar Pradesh. However, there is a widespread stereotyping or labelling process at work which equates poor with poor performing, which is not correct overall, and contributes to the perpetuation of persistent poverty and inter-state inequalities.

There has been a reluctance to work in the ‘difficult aid environments’ of persistently poor states, with some exceptions in terms of states and agencies. In general aid agencies have been willing to work in states where performance over time on key indicators may be poor, but where political stability and security is good, where financial and public accountability is stronger, where state leadership presents a dynamic picture, and where progress is more palpable. The argument is that returns to aid are greater in these states, though this remains to be demonstrated. Arguably, aid, which is financially marginal in India as a whole, should seek as a primary goal, to contribute to combating growing inter-state inequalities and to lifting the level of development in the persistently poor states. The Government of India has clearly recognised the problem of persistently poor states, as well as the role of aid in working with poor states. In developing a special plan for Bihar, it has also recognised the need to remedy state failure once it has happened. What it has not yet recognised is the critical nature of preventing state collapse well before it happens. This is a role the remaining aid agencies in India could assist the government to play.

The World Bank, India’s largest donor, has more or less followed the general aid allocation pattern: over the period 1980-1999 very little aid per capita went to Bihar or West Bengal; Rajasthan, Assam, Madhya Pradesh and UP gained four to five times as much, while far more substantial amounts (by a factor of up to 17 times) went to AP, Gujarat, Haryana, Karnataka, Maharashtra, and Tamil Nadu. Orissa is the only persistently poor state to receive a moderate amount of aid per capita. In the last three years the Bank has further bucked the trend by developing a substantial programme in UP.

What matters to aid agencies allocating aid to Indian states? The analysis suggests that security matters; political instability combined with insecurity has deterred aid to UP and Bihar in particular; state leadership can play a very significant positive or negative role: AP’s charismatic and modernising leaders have wooed and provided attractions for both aid and private investment, while Bihar’s ‘peasant’ leadership have repelled. Finally, states where the efficacy of the bureaucracy is perceived to be high are also favoured, because the fiduciary risk is lower and because better results are more achievable.

Donors’ strategies towards Indian states become more coherent in the 1990s, with growing support to particular sectors and states, and moving towards providing budget support to states perceived as having enough commitment to reforms. This factor apparently over-rode others in the aid allocation process: thus AP was consistently allocated the most aid per capita, even though the authority of the state did not extend throughout the state; by contrast insecurity combined with lack of reform orientation to deter aid to Bihar almost entirely. Effectiveness in economic management also outweighed effectiveness with respect to poverty reduction – greatest in West Bengal and Kerala, where relatively little aid has been given. However, the states which have performed worst on poverty reduction are also in general those where commitment to reform has been perceived to be least.

The same states are generally characterised by continued upper caste dominance of politics. Only one such state has performed well on poverty reduction (Rajasthan), while the states which have reduced poverty are generally those which have included lower caste representation oraccommodated lower caste interests in the political system.

While significant aid has been focused on the social sectors since 1990, aid has played an insignificant role vis a vis the substantial centrally supported poverty reduction programmes and social protection, with the exception of contributions to famine relief and disaster mitigation. Arguably these schemes, together with centrally supported social sector expenditure, have tied India together, and contributed to the political underpinnings of revenue-starved state governments. Not only have they helped to legitimise state governments, but they have also acted to reduce inequalities and integrate society. In the long term, the quality of implementation of such development activities has a strong bearing on the extent to which states remain legitimate and are able to exercise authority. There is considerably greater  scope for donor involvement, in partnership with the Government of India, in states which perform poorly on poverty reduction or human development, in addition to those where effectiveness has improved because of political change.

While juridical sovereignty issues have exercised little influence over the pattern of aid allocation to the Indian states as a whole, the state of Jammu and Kashmir has been little aided, despite obvious needs and obvious in-conflict assistance capabilities of some of India’s donors. Tensions and military hostility between India and Pakistan over the disputed Kashmir Valley, however, led to a number of donors reviewing, even suspending, their aid programmes to India, and the recent decision of the Government of India to reduce the number of aid donors to India, may have partlyresulted from the way in which aid was used in this dispute.

As in the other country case studies, the persistently poor Indian states had worse ‘starting conditions’ and greater economic and natural ‘structural constraints’ than other states. Arguably, the processes and resources to deal with the constraints, and to raise their level of achievement towards the better performing states, have never been put in place. This, combined with the policy, governance and political factors discussed above, underlies the likely failure of these some of the states to contribute positively towards the Millennium Development Goals.

The consistent relative neglect of persistently poor states in India by donors contributes to the negative labelling which underlies their poor performance over time. Donors could choose, more than they do, to counter this labelling. This would undoubtedly require not only a more accurateanalysis of actual performance to counter the now strong images of states as good or poor performers, but also new approaches to aid strategies in the persistently poor states. These can benefit not only from the rich international debate which has  begun on these issues, but also from the lessons of India’s own rich history of differential state performance. Understanding betterwhat went into the improved performance of India’s better off states will help identify promising trajectories for the persistently poor states.

Andrew Shepherd, Ed Anderson and Nambusi Kyegombe