Orissa has transformed itself from a seriously lagging state to a state in transition

Contacts:

In Delhi: Nandita Roy 91-11-24617241

nroy@worldbank.org

New Delhi, May 20, 2008: From being the poorest and the most fiscally-stressed state of India in the mid 1990s, Orissa today has made remarkable progress, lifting some 3 million people out of poverty and marking the strongest fiscal turnaround of all Indian states over 2000-06. This recovery means that the state now has freed much more resources to invest in better healthcare, education and basic infrastructure and services for its people.

Significantly, over the past seven years, the state’s primary fiscal balance has been converted from a deficit of 5.9 percent of Gross State Domestic Product (GSDP) to a surplus of 2.8 percent – a correction by 8.7 percentage points.  

The forthcoming World Bank study, Orissa in Transition: From Fiscal Turnaround to Rapid and Inclusive Growth, whose main findings werereleased today, highlights that the poverty headcount ratio, after rising during 1993-99, has declined significantly during 2000-2005 by more than 8 percentage points in rural areas and 2.5 percentage points in urban Orissa, compared with 5 and 2 percentage points respectively in India as a whole.

“What is most heartening about Orissa’s economic transition is that growth has been most rapid in the southern region, which was one of the poorest parts of India,” says V. J. Ravishankar, Lead Economist and principal author of the study .  “Compared to just five years ago, rural families in these areas are now spending up to 25 percent more on basic necessities like adequate food, clothing, and schooling for their children. This turnaround carries important lessons for the rest of India as it seeks to ensure inclusive growth for all. We at the World Bank look forward to continuing our support to Orissa in facing its remaining challenges.”

Indeed, Orissa, with over 45 percent of its people still living in poverty, faces several challenges. It is the second poorest state in the country and its large population of scheduled tribes live in isolated areas, with minimal access to basic infrastructure and services. Although, according to latest available National Sample Survey data on household consumption expenditures, large portions of the state’s population, including scheduled castes, have improved their incomes since 2000, the poorest 40 percent of the population has gained much less than the better-off 60 percent. Most of the state’s scheduled tribes are part of this poorest 40 percent and continue to lag behind. However, according to the Study, if the state can consolidate the gains of its fiscal turnaround, and devote more public resources to development, it may be able to address these challenges effectively.

The World Bank study points out that the state’s accelerated growth since 2000 has been across sectors and can hence be potentially more robust and sustainable. According to official data on GSDP with 1999/00 as base year, most of Orissa’s economic sectors have grown faster than all-India since 2003-04, with industry (mining, manufacturing, electricity and construction) growing at around 20 percent annually and services at close to 10 percent. Even, agriculture, which was beset by recent drought, has now recovered and is keeping pace with the rest of India, growing at an average of 2 percent. 

The State today has a US$ 125 billion portfolio of 470 ongoing investment projects that are projected to generate an additional GSDP of US$ 35 billion; this alone is twice the size of Orissa’s GSDP in 2006. This level of investments suggests that Orissa may experience a period of even more rapid growth in the future. 

Among the factors that have helped the turnaround, the Study highlights the importance of adopting a consultative approach to fiscal correction, and of a strong government resolve to accelerate project completion in the face of a resource crunch. These, coupled with policy reforms at the Centre have helped Orissa achieve accelerated economic growth. The Study points out that the state government’s Zero-Based Investment Review which focused on outcomes, the completion of long-pending infrastructure projects (especially roads and bridges) and the government’s focus on anticorruption and transparency have also had a positive impact on the program.

“The most important lesson from Orissa’s fiscal reform success is the need to take the public into confidence,” says V. J. Ravishankar. “Today, such an open and consultative approach is needed on the question of industrialization and modernization of Orissa,” he adds.    

The Challenges Ahead                                        

Despite this phenomenal fiscal turnaround and economic acceleration, challenges remain. While some inequalities have narrowed, the scheduled tribes continue to lag behind. Geographical seclusion with negligible out-migration has limited their access to new income earning opportunities, the Study says.

Severe infrastructural gaps, unless addressed, will hinder Orissa’s progress. Capacity constraints in the railways have diverted goods traffic to roads and similarly constraints in port capacity have diverted cargo to ports in other states.

In order to sustain such rapid growth and to make it more inclusive, especially for the geographically secluded tribal communities, the study suggests unleashing the potential of agriculture, fishery and forestry, on which most of the poor depend. This requires policy reforms to address problems of excessive trade intermediaries in agriculture and forest produce, lack of connectivity, and a ban on land leasing that has resulted in informal and illegal share-cropping arrangements, which are harmful for the cultivators.

Much also needs to be done in education and health service delivery. At existing learning levels in elementary schools, a large section of youth will grow up without the skills necessary for employment or higher education. Recent studies show that students in Grade Nine have only mastered the learning skills required at Grade Four. Innovative and flexible approaches to healthcare delivery will be also required in order to deliver critical health services to geographically isolated villages.

Orissa has entered the second phase of reforms. Addressing infrastructure gaps should be its most urgent priority for sustaining rapid growth. Addressing human development needs require institutional changes as a prior condition for allocating additional public resources. An 11^th Five-Year Plan focused on infrastructure, followed by one devoted to human development, could take Orissa to its ambitious vision of becoming a better-than-average Indian state by 2020 with poverty at or below 10%, the study points out.

The study, Orissa in Transition: From Fiscal Turnaround to Rapid and Inclusive Growth, was conducted over 2007.

The World Bank has been supporting the reforms and development program of the Government of Orissa since 2001, through technical assistance, policy based loans and credits (US$ 350m during 2004-08), and investment projects in energy, health, and water resources management (US$ 360m during 2002-07).  New projects under preparation include investments in state roads, tank irrigation and rural livelihood support through women’s self-help groups (totaling US$ 430m).