The recently concluded Global Investors Summit in Uttar Pradesh managed to get the kind of national attention that was once only the privilege of then Chief Minister Narendra Modi’s Vibrant Gujarat.
From 2003, when the first edition of Vibrant Gujarat was held, to now, the Indian economy has witnessed a proliferation of state-level investment summits — Bengal Global Business Summit, Invest Karnataka, Magnetic Maharashtra, Invest Madhya Pradesh, Advantage Assam, Tamil Nadu Global Investors Meet, Invest Telangana, Make in Odisha.
Given that almost every state organises its own summit, it is substantially harder for each of them to stand out. To guarantee that they do, the state has to incur substantive costs. Never mind that getting noticed is no guarantee for actual investments.
For UP’s summit to get noticed, it had to go the extra mile.
Months before the final summit took place in Lucknow, the state government conducted a series of investor meetings or roadshows across twenty countries including Japan, Thailand, Netherlands and Australia. This was followed by roadshows in nine Indian cities, as well as industry-level gatherings across key districts of UP.
This proliferation of investor summits raises two issues. First, while the agenda items of almost all state-level investor summits mimic each other, the underlying economies are gulfs apart. Second, and more significantly, these mask the absence of distinct development models for each state, especially for the relatively backward ones.
An investment summit is a rather gimmicky way to signal a state’s intent towards achieving rapid economic growth and it is no substitute for an actual developmental model.
Also Read: UP Global Investors’ Summit: Renewable energy bags maximum commitment of Rs 4.4 lakh crore
A cry for help
Before one gets into the limitations of investment summits, it is important to understand the constraints faced by India’s state governments and what propels them to host these mega conferences. Consider the case of Bihar or Madhya Pradesh. Both have had what we can classify as ‘breakout’ chief ministers.
Nitish Kumar and Shivraj Singh Chauhan played leading roles in helping their respective states break out of chronic underdevelopment traps. Their states delivered spectacular levels of growth for a good number of years, and then this process abruptly stopped. It felt like they didn’t have a plan that could take their state’s growth story to its next chapter. This is evident in their per capita incomes which are no longer accelerating at the same pace as they did for a period.
Hypothetically, if President Deng Xiaoping had stopped China’s reform process right after facilitating agricultural reforms in the late-70s and early-80s, its fate might have looked like what MP’s does today. Starting from an even lower developmental level than MP, Bihar also finds itself in such a scenario.
Seen from this context of stalled growth these mega-investment summits reflect the state governments’ fundamental constraints — an absence of a developmental model for the next stage of growth.
Most naysayers contend that the summits have no significant value. MOUs are signed for lakhs of crores, but hardly a fraction materialises. And even when it does, it goes to established industrial pockets like Noida (within UP), which does little to resolve the state’s broader investment deficit.
States like UP, Bihar, MP, Rajasthan, Odisha, and West Bengal are stuck in low equilibrium traps and they can’t seem to find a way out. Hence, their decision to hold such summits should be seen as a cry for help.
Also Read: ‘Bihari maange more’, says state industries minister Hussain in push to be biofuel ethanol hub
One shoe doesn’t fit all
Most states jumped on the bandwagon. However, these summits make economic sense only for a handful of them.
Many summits, at least in their rhetoric, claim to attract foreign investments. But actual foreign direct investments (FDI) coming to India tells a different story.
From October 2019 to September 2022, among all the in-bound FDI, 28 per cent went to Maharashtra, 23 per cent to Karnataka, 18 per cent to Gujarat, 13 per cent to Delhi, 5 per cent to Tamil Nadu, 4 per cent to Haryana, and 3 per cent to Telangana. The remaining 6 per cent was spread among 29 states and union territories.
Even the state-level numbers for gross fixed capital formation — domestic investments — tell a similar story. Gujarat, Maharashtra, and Tamil Nadu are far ahead of other Indian states.
Investments generally tend to go to regions or states that already exhibit a steady level of such investments.
A meagre investment summit can’t magically alter the conditions which were disincentivising investments to these states to begin with. More crucially, the issue here is the absence of concrete developmental models.
This absence of a solid developmental framework was reflected in Modi’s speech at the recent investor summits at MP and UP. As the chief guest at both, Modi’s pitch to the investors oscillated from “transformations” taking place at the state level to India being a “bright spot” in a gloomy global economy.
When talking about UP’s potential appeal to domestic and global investors, Modi spoke about every realm of economic activity possible — mobile phone manufacturing, cottage industries, green energy projects, logistics, agriculture and warehousing, defence production, the list went on.
An investor pitch this large is inherently generic and serves little substantive purpose. For a pitch to be meaningful, states like UP and MP need to begin by thinking of a robust developmental model.
Also Read: How Yogi govt banked on ‘UP growth story’ pitch to woo diaspora — MoUs ‘worth Rs 55,015 cr’ likely
Achieving unbalanced growth
When India’s state governments deliberate over the kind of developmental model they should follow, a good place to start might be with the ideas of economist Albert Hirschman. In his landmark work, Strategy of Economic Development, Hirschman advises against adopting a strategy which would involve investing in multiple sectors and industries at the same time, especially given the lack of resources in underdeveloped countries.
He advocated the strategy of “unbalanced growth”. According to it, governments should begin by investing in a few strategic sectors. Hirschman recommends investing in sectors with the most backward linkages — the ones with the most “potential to create demand for other inputs”.
Over time, these sectors would develop and others wouldn’t, creating imbalances in the economy. The government should intervene to correct those imbalances by investing in other sectors – hence, changing its policies. This self-correcting mechanism is a more sustainable way of driving growth, the economist argued.
According to Hirschman, most underdeveloped economies struggle to transform not because of a lack of resources, but because of an inability to make development decisions. Hence, for his strategy of unbalanced growth to work, the state would need to evolve a capacity to make development decisions.
How can some of his ideas apply to the current low per capita state economies of India? Very provocatively, Hirschman argues that if a policymaker has to pick between investing in a factory versus highways, they should choose the former. Once the factory is running, the people associated would eventually demand that the government invest in the required infrastructure — as a part of the self-correcting model. When Hirschman asks the policymaker to prioritise the factory over highways, he is acknowledging the scarcity of resources.
Now the idea is not to wholesale apply this strategy to a state’s economy. UP’s developmental model could involve picking a few sectors with strong backward linkages – and then seeking domestic and foreign investments for them. The government could begin by investing in primary infrastructure necessary for the take-off.
In many relatively backward states, building infrastructure has become a developmental model in itself. This is initially successful, but over a period becomes unproductive. Thus, the scale and location of infrastructure should be closely linked with demands made by the industrial sector itself.
As Hirschman wrote, “Would it not be less risky and more economical first to make sure of such activity (new factories or clusters) … and let the ensuing pressures determine the appropriate outlays for (public infrastructure) and its location?”
Srijan Shukla studies international politics and business at New York University (NYU) and is managing editor of NYU’s Journal of Political Inquiry. He tweets @srijshukla. Views are personal.
(Edited by Theres Sudeep)