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D. Sampathkumar

WHAT is the level of integration in the great common market, that is India? The good news is that the economy of the states, or at least the manufacturing segment of it, in absolute terms, is more integrated with one another now. But it is not getting integrated at the same rate as the growth in the economy itself. Growth in the states is fuelled more by intra-state commerce than by inter-state commerce.

In the 10 years of economic reforms, the Central Sales Tax (CST) collections grew by a compounded annual rate of 12.9 per cent. Collectively, the states are selling larger volumes of goods to one another, signalling a greater degree of economic integration. The growth has to be seen in the context of rise in the output of the manufacturing sector — the source of central sales tax collections.

The manufacturing sector's output till 1999-2000has grown at a compounded annual rate of 19.8 per cent. The combined output of registered and unregistered units in the manufacturing sector grew from Rs 94, 650 crore in 1991-92 to Rs 274, 603 crore in 1999-00 at current prices.

This implies that while states might be slightly better integrated in absolute terms than they were at the start of the economic reforms, the bonds are not quite as strong now (in relative terms) as they were earlier.

Of course, this raises a basic question. Are CST collections a good proxy for measuring economic integration?

Literature on globalisation among nations measures integration principally by the growth in the volume of trade and investment flows.

In the context of sub-national economies (inter-state, in the Indian context) too one could beneficially adopt such an approach. But statistics on investment flows are a bit hard to come by. One is left with inter-state trade flows as the sole parameter for measuring the degree of economic integration among states. Movement of goods across states, if they involve mere consignment transfers by an enterprise from one branch location to another, is difficult to obtain. The growth in the average lead distances for railway freight movement is one indicator. This hasgone up from 659 km in 1971 to 670 km in 1998.Even a distance of 670 km may not amount to much as a barometer of inter-state commerce.

Most states have end-to-end distances that could easily add up to this number.

We are left with CST collections as a proxy for inter-state commerce. This is increasingly relevant at least in so far as companies that have made fresh investments and availed of tax concessions in the host-state. They would have every incentive to invoice sales at the point of manufacture rather than make a consignment transfer to the destination state and invoice it from there.

The numbers on CST collections at the disaggregated level too offers some interesting insights. Kerala tops the growth rate in collections with a record of 15.7 per cent. But it still ranks low in terms of absolute value of collections with the State placed ninth among the top ten on collections.

But the surprise winner in the growth rate sweepstakes outside of Kerala, is Tamil Nadu. It tops the charts with an annual growth rate of 15.5 per cent, ahead of Maharashtra and Gujarat.Tamil Nadu is acquiring an increasingly a greater stake in the Indian economy than had been the case earlier.

Haryana too has posted an annual growth rate of 15.2 per cent although in absolute value of collections the State ranks way down at Rs 906 crore against Maharashtra, which tops the chart with Rs 1,986 crore. The success of Haryana and Tamil Nadu might have had something to do with the growth of automobile industry.

Bihar has seen its CST collections decline by an annual rate of 8 per cent. West Bengal has fared somewhat better with a growth of just 0.8 per cent. Clearly, these two States are becoming less and less relevant in the common market, that is India.

The insular character of growth of manufacturing economy is a bit of a paradox. Globalisation is supposed to lead to concentration of manufacturing operations. Implicit in that is the belief that the scale economies are linked to increased trade across regions. If growth in manufacturing has happened in the country but not commensurate with the growth in inter regional trade, the explanation could perhaps lie in the fact that there are now greater regional disparities. Such disparities are forcing sub-national economies to increasingly look inward for an outlet to their growing output.

For instance, a Maruti or a Ford would like to sell more cars in Bihar or West Bengal to keep up the momentum of inter-regional trade. But if these two States do not generate sufficient disposable incomes to absorb the ever-enlarging output, they have no option but to look within their own regional economies.

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