Why Yogi will find it difficult to do magic in Uttar Pradesh

The UP Economy has been struggling for many years now.

In 1996-97, UP’s per capita GDP was Rs 7476, Odisha’s per capita GDP was Rs 6548

In 2016-17, UP’s per capita GDP was Rs 50942, Odisha’s per capita GDP was Rs 77311

In fact, even in the last one year Uttar Pradesh has been struggling. When it comes to State revenue growth, it was ranked 11th amongst all States. Given its base, it should have done much better (MP for example was second and Odisha 6th)

While the rest of the economy boomed, UP has languished at the bottom with Bihar. While many argue that UP’s governance is the main issue, one can argue that there were other issues at play. Here are 3 main reasons why UP has struggled in the last 20 years

• Distance from Sea Coast: Countries and States without a Sea coast on an average tend to struggle in this modern world of trade. This is because it is easier to produce goods and transport to other countries. In China 8 out of the 10 poorest States are landlocked States. in India, 5 out of the 6 poorest States are landlocked.
• Location: Most of the States around UP are poor – Madhya Pradesh, Bihar, Rajasthan, Chhattisgarh and Jharkhand. It also shares a long border with Nepal which is also poor. Some parts of UP touch affluent states like Delhi, Haryana and Uttarakhand. The districts adjoining these States tend to be much better off. When a manufacturer opens a factory, they looks at 3 things, local market, surrounding market and export market (apart from labour and material. Given the poverty levels, apart from the NOIDA-Ghaziabad side, rest of the markets are far.
• Fertility Rates: The fertility rate of the bottom 10 per capita states in China was almost 50% higher than the top 10 per states. In India too, low fertility rates are a good predictor of better per capita growth

This is also one reason why Bengal economy struggles. While it meets the criteria on Sea Coast and Fertility rates, its location is a major issue (surrounded by poor States). Haryana on the other hand being a small state near a large market (Delhi) was able to build first a solid manufacturing base and now is a king on services.

It is not to argue that all is lost, the people of UP are extremely talented, the emphasis on education is high (compared to other states) and there have been genuine governance issues for a long time since 1990 which are now getting solved

What can UP do get out of this trap?

Many of the moves made by CM Yogi are correct. Attracting best manufacturers, providing stable law and order, skill development, reducing corruption, ease of doing business and so on. He has also been focussed on improving education and healthcare in the State. There are two major missing links – One, increasing the size of the UP consumption market and two, managing fertility rates.

UP is already a very large consumption market. Example, 14% of bikes in India are sold in UP. What the Govt should try doing is pushing this up to 20% through a variety of consumer focussed incentives. The more it drives consumption of such categories in UP, more likely that new factories will prefer setting up in UP and employ people there. Larger factories would mean scale which also means lower cost which means more scope to expand. The Samsung unit in NOIDA is one such example

Coming to Fertility rates, UP is at 3.1 in 2016. This is way way above what the state’s growth can support. UP should target hitting a fertility rate of 2.1 in the next 6 years. If it can achieve this, it will have a material impact on the State

A combination of moves already made, encouraging consumption and driving down fertility rates will make UP a growth engine for India in the next 5 years.