Daily Editorial Analysis for 17th December 2022

The arithmetic for Tamil Nadu as a $1 trillion economy

GS Paper 3: Growth

Important for

Prelims exam: About Tamil Naidu Economy

Mains exam: Measures by Tamil Naidu to boost economy

Why in News?

The Chief Minister of Tamil Nadu has set Tamil Nadu the goal of becoming a trillion-dollar economy (by 2030).

Key Points

• Tamil Nadu’s GDP this year is expected to be equivalent to $0.31 trillion.
• To reach the goal set by the Chief Minister, Tamil Nadu has to triple the size of its economy.

About Tamil Naidu Economy

• Tamil Nadu is the second richest and largest economical state in India and is the most industrialised state in the country.
• More than 60% of the state is urbanized, accounting over 10.6% of the urban population in the country, while only comprising 6% of India’s total population.
• Services contributes to 55% of the economic activity in the state, followed by manufacturing at 34% and agriculture at 11%.
• Government is the major investor in the state, with 52% of total investments, followed by private Indian investors at 29.9% and foreign private investors at 14.9%.
• It has been ranked as the most economically free state in India by the Economic Freedom Rankings for the States of India.

Agriculture & Livestock

• Tamil Nadu has historically been an agricultural state, while its advances in other fields transformed the state into being an industrialized and innovation based economy, leading to competition for land and its resources.
• Agriculture is heavily dependent on the river water and monsoon rains. The perennial rivers are Palar, Cheyyar, Ponnaiyar, Kaveri, Meyar, Bhavani, Amaravathi, Vaigai, Chittar and Tamaraparani. Non-perennial rivers include the Vellar, Noyyal, Suruli, Siruvani, Gundar, Vaipar, Valparai and Varshali.
• Tamil Nadu is the highest producer of bananas and coconuts in the whole country.
• It is also a leading state in production of other crops such as sugarcane, cotton, kambu, maize, rye, groundnut and oil seeds.
• At present, Tamil Nadu is India’s 4th largest producer of rice behind West Bengal, Uttar Pradesh and Punjab Tamil Nadu is the home to Dr. M. S. Swaminathan, known as the “father of the Green Revolution” in India.
• The state is one of the major producers of turmeric in India.

The World Bank & Tamil Nadu

Tamil Nadu is the Bank’s largest partner state in India. With six single-state projects and several centrally-sponsored multi-state projects active here, Tamil Nadu’s share in the Bank’s India portfolio is close to $ 1.2 billion. In line with the government’s strategic objectives, the Bank’s investment lending program focuses on growth and poverty reduction through infrastructure development (roads, urban development, water management), human development (health systems), and rural livelihoods.

Possible scenarios

• At the outset, the possibility of achieving the status of a trillion-dollar economy by 2030-31 has to be ruled out. It requires a nominal annual growth rate of 18.2%, and on the assumption of inflation of 5% a real growth rate of 13.2%.
• It requires a nominal annual growth rate of 18.2%, and on the assumption of inflation of 5% a real growth rate of 13.2%

• The Table presents the results for the scenario which may be considered achievable, given the required effort. In this scenario, the target is achieved in 2033-34, and for this the required real rate of growth will be 9% per cent.
• The exchange rate is assumed to depreciate from the present level to ₹100.38 per dollar, that is, a depreciation of 2% per annum.
• The nominal rate of growth required will be 14% and with an assumption of 5% inflation, the real rate required is derived as 9%.
• The higher the exchange rate depreciation, the higher will be the required nominal and real rates of growth.
• Under this scenario, the per capita income of the State in the terminal year will be $13,400, which will be a shade higher than the per capita income of $13,205 required to classify a country as a developed country as of now.

The strategy

• The government and all other stakeholders need to draw up a suitable strategy of development.
• In agriculture, the State needs to shift towards the cultivation of highly remunerative and less water-intensive crops.
• The food processing industry needs to be given priority attention to prevent excessive production going to waste.
• The emerging sectors such as biotechnology, pharmaceuticals, logistics and advanced information technology need to be identified and detailed plans chalked out.

• To sustain a rate of growth of 9%, the investment rate required will be 36% of GSDP on the assumption of an Incremental Capital Output Ratio (ICOR) of 4.
  • This will have to be financed by domestic savings supplemented by a flow of resources from the rest of India and other countries.
  • Tamil Nadu must be made the investment destination by creating an appropriate environment.

Fiscal balance

• A strong growth over a sustained period can happen only in a stable economic environment.
  • This implies both price stability and fiscal stability.
• Some econometric results show that with 14% nominal growth, the State should work towards a fiscal deficit of less than 3% so that the debt-GSDP ratio stabilises around 18%.
• The Fiscal Responsibility and Budget Management (FRBM) Review Committee had indicated a normative level of 20% for all States.

Conclusion

The most likely scenario is a nominal growth of 14% per annum over the next 10 years which will take Tamil Nadu to become a trillion-dollar economy by 2033-34.