Telangana's economy has shown impressive growth since its formation, with its GSDP surpassing national averages.
However, challenges remain, such as the need to strengthen its industrial base and address income inequalities across districts.
The state's future growth depends on balanced sectoral contributions and resolving water resource disputes with Andhra Pradesh.
It is not uncommon to find some economic concepts, for some unknown reasons, get undue importance in both academic and general discussions. One such economic concept is growth rate.
The fundamental question that arises in the mind of an analytical person is the extent to which the estimates of growth rates reveal the true picture of the performance of an economy. Even if it has no impact on citizens, a single percentage point change in the overall growth rate of an economy stirs a political tussle — a decline triggers violent government criticism by opposition parties and a rise prompts ruling parties to take credit. But both are unjustified.
Irrespective of changes in the growth rate, the public will be happy if they get their essential items of consumption at a reasonable prices. Therefore, hurriedly jumping to conclusions on the basis of limited data is not advisable. To make right judgement, a deeper analysis is called for.
One authentic indicator is ‘basic goods’ that directly or indirectly enter into production of all goods. Therefore, all basic goods are required for the growth of an economy.
If an economy consists of three basic goods A, B and C growing at 8, 7 and 6 per cent respectively, then the general thinking is that the overall growth rate of the economy is 7 per cent. This is not true.
In fact, in an inter-dependent system, the growth rate of slowest growing good determines the overall growth rate of the economy. This means in our example, the low growth rate of Good C will reflect the overall growth rate of the economy, constraining it to 6 per cent, since some amount of Good A and Good B will remain unused.
Often, misleading opinions are published by writers who are either ignorant or have vested interest to present the wrong picture. Readers should therefore exercise caution and be aware of the correct way to analyse these figures.
Telangana was formed about a decade ago following a long struggle. So, it is the right time to review the performance of the state and discuss its future prospects.
The origin history of Telangana raises questions like the rationality and sustainability of the merger of two regions with wide differences in levels of development into a single state, viability of smaller states, food security of such state, among others.
Gross State Development Products (GSDP) is like a thermometer that measures the overall health of the economy. It is heartening to note that in 2022-23, GSDP of Telangana was Rs 13.27 lakh crore. The more important thing to be noted is that the growth rate in GSDP of Telangana since its inception was higher than the national GDP growth rate.
Initiatives both on the demand and the supply side have played a crucial role in the growth process of Telangana state. On the supply side, policies like TS-iPASS, T-PRIDE, TS-IDEA, TS-Global Linker have promoted productivity and, thereby, output.
On the demand side, a wide range of welfare schemes like Dalit Bandhu, Rythu Bandhu, Kalyana Lakshmi and Aasara Pension have not only increased the purchasing power of the people, and thereby improved their level of living, but also enhanced their capacity to invest.
The contribution of Telangana to the GDP of India is about 4-5 per cent, while its share in population of India is less than 3 per cent. Even in terms of constant prices, similar pattern is observed.
Interstate analysis of GSDP fails to reflect the ground reality when the states differ substantially in size (measured in terms of population). In such a situation, it is rational to make an analysis in terms of per capita income. The per capita income in Telangana in 2021-22 was Rs 2.7 lakh which happened to be the second highest among the 13 general states.
Further, the per capita income in Telangana since its inception is higher than the per capita income in India. The trend in the growth rate of per capita income of both Telangana and India for the period 2014-15 to 2022-23 exhibits a V-shaped curve due to the COVID-19 pandemic.
The analysis of growth rates indicates that the per capita income in Telangana is likely to double only in 5-6 years, while it would take 8-9 years for the per capita income of India to double.
According to the development theory and the experience of many developed countries, in the initial phase of the process of development, the primary sector led by the agriculture sector accounts for a major share of the national income.
In the later stages of development, the secondary sector led by major industries contributes a lion’s share to the national income and it is only in the final stages of development that the service sector dominates the scene.
Contrary to expectations, the share of the agriculture and allied sector since the inception of Telangana is around 16-18 per cent of GSDP, while that of the industrial sector ranged between 19-22 per cent. The share of the tertiary sector is over 60 per cent.
To examine the prospects of future growth of the Telangana economy, one has to consider some of the important aspects. First, there is need to strengthen the industrial base of the Telangana economy. The contribution of the industrial sector to the GSDP of Telangana is much below the expectation.
Therefore, it is essential to build the required infrastructure for the development of major and basic industries to accelerate the growth of the Telangana economy. Mere expansion of the service sector without a strong industrial base will not ensure steady growth of the economy.
It is disturbing to note that the agricultural sector contributes only about 18 per cent to GSDP, while 46 per cent of workers depend on agriculture for their livelihood. This implies that a large section of the population have a small share in the State Income which needs to be corrected by enhancing the skills of the workers engaged in the agricultural sector.
Then, it is important to bridge the district-level income inequalities. As noted earlier, the per capita income in Telangana is consistently higher than the national per capita income. However, it is disturbing to note the wide variation in per capita income across the districts in the state.
For instance, the per capita income in Ranga Reddy district was about Rs 6.7 lakh, while it was as low as Rs 1.3 lakh in Hanamakonda district. It appears that the current growth process is taking place in and around the Hyderabad Metropolitan Area at the cost of far away districts.
In other words, the backwash effect is stronger than the spread effect. To have inclusive growth, it is essential to identify potential growth centres in different districts.
Further, sharing of river water resources provision of irrigation is a crucial measure to accelerate the growth of the agriculture sector. All efforts must be made to take water to the unirrigated area. This calls for a quick and amicable settlement of disputes between Telangana and Andhra Pradesh regarding the sharing of river water.
Finally, Telangana is the only state in south India which is land-locked. Therefore, for the promotion of exports, it is necessary to develop internal container depots.
S Indrakant is visiting professor of Economics at CESS, Hyderabad. A Mahendran is an assistant professor of Economics at VIT University, Vellore.
Views expressed are the authors’ own and don’t necessarily reflect those of Down To Earth.