Will UP’s Road To $1-Trillion Economy Become CM Adityanath's Claim To Political Glory?

A few years ago, the PM Narendra Modi-led central government had announced its ambition of making India a $5-trillion economy by 2024-25. Even with Covid-19, the economic aftermath of the Russia-Ukraine war and other factors slowing down the $5-trillion train, chief economic adviser V Anantha Nageswaran recently asserted that the number can still be achieved by 2026-27.

Reflecting the same kind of confidence is the most populous state in India which has set a target of becoming a $1-trillion economy by 2027, one-fifth of what the country is eyeing in the same year. With that target in sight, the BJP government in Uttar Pradesh, with CM Yogi Adityanath at the helm, is working towards making the state, which currently contributes 8 per cent to the national GDP, the second-largest economy in India with a special focus on infrastructure. 

The Uttar Pradesh government recently signed a memorandum of understanding (MoU) with Deloitte India, appointing the consulting firm as its consultant to spearhead the state’s $1-trillion economy mission. Deloitte India now has the task of formulating an action plan after conducting thorough studies across sectors. The plan would be reviewed by two committees—one headed by the state’s chief secretary and the other by a group of ministers.

“Now is the time of Uttar Pradesh and taking full advantage of its potential, the state will become the most important base for multi-dimensional development of the country,” CM Adityanath had said post signing of the MoU. 

A string of promises were made before and after the CM and his party returned to power for the second time with a thumping majority in 2022. While the state has managed to get its historically infamous law and order situation under control, it is still among the three most poor states in the country with a per capita income that is not even half of India’s average. 

Uttar Pradesh’s road to $1 trillion would also chart CM Adityanath’s political trajectory in the next few years by becoming a blueprint of how the CM, often seen as a controversial figure, effectively turned around one of the BIMARU states’ fortunes.

The Number Game

Ahead of the assembly elections, the Uttar Pradesh government had said that the state had become India’s second largest economy. It had to later revise its claim after Reserve Bank of India (RBI) data showed otherwise.

As per data from the RBI and National Statistical Office, Uttar Pradesh is presently the third largest economy after Maharashtra and Tamil Nadu. For 2019-20, the state’s gross state domestic product (GSDP—at current prices) stood at Rs 16.87 lakh crore against Tamil Nadu’s Rs 17.97 lakh crore and leader Maharashtra’s Rs 28.18 lakh crore. Uttar Pradesh’s own revised estimate for 2019-20 had pegged the start’s GSDP at Rs 16.89 lakh crore.

For 2020-2021, Uttar Pradesh’s GSDP was initially estimated to be Rs 17.91 lakh crore which was later revised to Rs 19.40 lakh crore. The state government's Directorate of Economic and Statistics pegged the GSDP for 2021-2022 at about Rs 19.10 lakh crore in its advance estimates. For 2022-23, its nominal GSDP is estimated to touch Rs 20.48 lakh crore. To achieve the 2027 target, the state will have to get to a GSDP of around Rs 79 lakh crore, the rupee equivalent of $1 trillion as per the current rate, in the next five years. 

As per Niti Aayog's Multidimensional poverty index (MPI) baseline report based on the National Family Health Survey-4 (2015-16), Uttar Pradesh is among the three most poor states of India. With 37.79 per cent of its population being multidimensionally poor, Uttar Pradesh is just behind Jharkhand (42.16 per cent) and Bihar (51.91 per cent). 

In 2019-20, at Rs 41,023, Uttar Pradesh’s per capita income was not even half of the all-India average of Rs 86,659. At the 2011-12 prices, the state ranks 32 out of 36 states and Union Territories. But that could get better as the state’s unemployment rate dropped to 2.9 per cent in April 2022 from 4.4 per cent in March, as per data from the Centre for Monitoring Indian Economy.

Making Of An Infrastructure Giant 

Uttar Pradesh’s development pitch hinges on an infrastructural push and inspiring investors’ confidence. With a Global Investors’ Summit planned for January 2023, the state government plans to attract investments worth Rs 10 lakh crore in the next two years.

An international airport is being constructed in Ayodhya and the chief minister has also held meetings to discuss the possibility of harnessing hydrogen fuel cell technology for power generation and the Ayodhya Dam development. Adityanath has also set ambitious targets for the public works department which has been tasked to complete the beautification and widening of 10,000 km of roads, construct 16,500 km of roads, 200 railway overbridges, 1,000 mini-bridges and 300 bridges in the next five years in a phased manner.

“Our state has more national highways and expressways than any other state does in the country…There were only three airports earlier [before Adityanath came to power in 2017] but now, we are building 17. The largest airport in Asia is also coming up at Jewar which will be completed on time. Now, flights from Uttar Pradesh are available for almost every destination,” Uttar Pradesh’s deputy CM Brajesh Pathak had told Outlook Business in a previous interview. 

As far as the hard macros go, there seems to be a change in the way Uttar Pradesh is performing right now compared to several other states, says N.R. Bhanumurthy, vice-chancellor, Dr. B.R. Ambedkar School of Economics University, Bengaluru.

In the third edition of Uttar Pradesh Investors Summit held in June this year, top industrialist Gautam Adani committed an investment of Rs 70,000 crore and the Adani Group is set to invest Rs 24,000 crore on road and transport infrastructure and Rs 35,000 crore on multi-modal logistics and defence sector. It is also in the process of building South Asia’s largest ammunition complex in Kanpur.

In the 2018 edition of the summit, Reliance Industries’ Mukesh Ambani had committed to invest Rs 10,000 crore in the state through Reliance Jio over three years. Jio has already invested Rs 20,000 crore in the state in rolling out its 4G telecom venture.

Last year, the Tata Group announced that, in partnership with Airbus, it would deliver 56 C-295 military aircraft to the Indian Air Force. The likely site for the Tata and Airbus manufacturing plant was reportedly going to be in Uttar Pradesh.

“Big investments seem to be going to the state. There is a very visible improvement in the roads infrastructure. There are several highways and airports that the state is building. All these are helping them to build a slightly better brand compared to how the state was perceived in the past,” says Bhanumurthy. 

He says that growth is assumed to better other social indicators as it can lead to better living conditions and more upward mobility. Investments create more jobs in the pockets where they are happening and everything together gives a better life to people, he says.

Having said that, Bhanumurthy adds, “As far as the social sector goes, they may take longer to show improvement. Things like poverty, health indicators and education will not change overnight.”

Easing Business Woes To Attract Investment

While several projects have been announced in Uttar Pradesh, the major bulk of private sector investment in India is still concentrated in states like Gujarat, Tamil Nadu and Maharashtra, among others. In the first half of FY21, Tamil Nadu attracted the majority of investment among Indian states, as per a CARE Ratings report. About 16 per cent of the total investments happened in Tamil Nadu. 

In a bid to attract investors, in May 2020, right in the middle of the pandemic, the Uttar Pradesh government suspended most of its labour laws for three years to facilitate ease of doing business. 

The 2020 ordinance retained only three provisions—the Bonded Labour (Abolition) Act, 1976, Employee Compensation Act, 1923, and Building and Other Construction Workers’ Act (Regulation of Employment and Conditions of Service), 1996. The Trade Unions Act, Factories Act, Minimum Wages Act, Contract Labour Act, Industrial Disputes Act, Working Journalists Act, Payment of Bonus Act, Employees’ Provident Funds and Miscellaneous Provisions Act and Inter-State Migrant Workmen Act no longer apply.

"For encouraging new investments, setting up new industrial infrastructure and benefit of existing industries and factories, it is imperative that they are provided temporary exemption from the existing labor laws in the state. Therefore, it is important that existing labor laws in Uttar Pradesh are relaxed for a period of three years. To this end 'Uttar Pradesh Temporary Exemption from Certain Labour Laws Ordinance, 2020' has been introduced," the government had then said in a statement.

“States with natural resources have a natural advantage of attracting businesses. Ease of doing business is important for getting investments. To ascertain whether a state is conducive to business, several factors have to be studied—like how the labour codes are in a state, how good or bad are its physical infrastructure and how educated are its labour force. States which can address these have a natural advantage in getting investment whenever it comes,” says Devendra Pant, chief economist, India Ratings and Research.

Uttar Pradesh has the advantage of natural resources from a geo-economic perspective. The Gangetic plain is one of India’s most fertile areas. At present, in Uttar Pradesh’s GSDP, agriculture’s contribution stands at 23 per cent, manufacturing at 27 per cent and services at 50 per cent. Uttar Pradesh’s industries are based on agriculture, forest and minerals. The handloom industry is one of the largest industries of the state which ranks third as far as the cotton textile industry is concerned with about 73 cotton mills. As the largest producer of sugarcane in the country, it runs 24 state-controlled cooperative sugar mills.

To become a $1-trillion economy, the manufacturing sector has to grow five times—from the current Rs 5.6 lakh crore to Rs 27.6 lakh crore. Agriculture would have to grow by two-and-a-half times to increase its contribution to Rs 11.8 lakh crore from the present Rs 4.7 lakh crore while services need to grow four times to bring up its value to Rs 40 lakh crore from Rs 10.3 lakh crore currently. 

Power To Fuel Investment

Apart from focusing on infrastructure, to achieve large-scale industrialisation, it is also important to have power sector reforms. Despite four big reforms in the last 15 years, state-owned distribution companies (DISCOMS) are operationally and financially down in the dumps. 

The Ujwal DISCOM Assurance Yojana (UDAY), launched by the Ministry of Power in 2015, helped the states for a while but most states started failing to meet their targets and continuing in losses after the scheme ended in FY20. 

The loss-ridden Uttar Pradesh Power Corporation Ltd (UPPCL)’s commercial and technical losses will increase when demand for power goes up. UPPCL is also struggling to deal with rampant power theft and inefficient collection systems. Under the Revamped Distribution Sector Scheme, the Uttar Pradesh government sought financial assistance worth Rs 50,000 crore from the Centre in December last year. Currently, the UPPCL’s average aggregate technical and commercial losses are 29 per cent which the DISCOM has promised to bring down to 16 per cent.

At 38.24 per cent, Agra DISCOM has the highest losses followed by Varanasi (32.32 per cent) and Lucknow (31.76 per cent). Kanpur and Meerut DISCOMS have relatively lower losses at 15.94 per cent and 19.52 per cent, respectively.

“The good thing about Uttar Pradesh is it had a revenue surplus for a long time. They are trying to amend their policies to achieve sustainable growth in the medium to long term. But to attract investment, it is important to have power infrastructure in place. There is also social infrastructure, like an educated labour force, that is necessary (for formal sector jobs). With all other conditions remaining constant, a state with better power sector reforms and better roads infrastructure will attract more investments,” says Pant.

Remnants Of Jungle Raj 

Another important factor for economic growth of a state is its law-and-order situation. For a business to survive and prosper, it is necessary to have conducive social conditions for smooth operations. 

In the Outlook Business interview, Pathak said that the Uttar Pradesh government has adopted a zero-tolerance policy towards crime and taken strict action against rioters, mafia elements and other anti-social (elements) under the provisions of the Goonda Act, National Security Act and Gangster Act. 

“In fact, our government has given all the necessary resources and freedom to the state police administration to deal sternly with crime, which has sent shivers down the spine of the criminals across the state..We have made it abundantly clear that there is no place for criminal thinking in the state. If need be, we will even enact new laws to keep the law and security situation under control in any situation,” he added.

Earlier this year, CM Adityanath had said that no communal riots had broken out in the state since he took over in 2017 while attacking the erstwhile SP and BSP regimes for unrest during their tenures. 

“There seems to have been an overall improvement in the law-and-order situation in Uttar Pradesh. The overall governance mechanism has also seen considerable improvement. That seems to be helping them in terms of how they spend public finances compared to in the past,” Bhanumurthy says.

At the same time, its high-handed dealing with people suspected of aiding any civil unrest has also been criticised. The bulldozer model of quick delivery of justice by undermining judicial processes has been widely condemned.

As the government pushes for widespread infrastructure creation, it is to be seen whether CM Adityanath will continue being the taskmaster to actually deliver on his $1-trillion economy promise and carve a niche for himself as a solid leader who can drive real change.