Orissa, one of the poorest states in India, is today poised to make a significant economic turnaround. Its economy has shifted gears and is now on a higher growth trajectory.

While no one can deny the debilitating burden of having 45 per cent of people living in poverty, it is also true that the long-beleaguered state is gradually emerging from a period of economic stagnation and deep financial stress. The gross state domestic product has grown at 8.5 per cent on an average during the tenth plan period (2002-07), compared to India’s growth of 7.8 per cent. No longer is Orissa the most indebted state of India, a dubious distinction it enjoyed for a long time. Prudent fiscal policies have helped reduce Orissa’s outstanding debt from 343 per cent of state revenue in 2001-02 to 201 per cent in 2007-08. The annual interest burden has come down from over 35 per cent of revenue to less than 25 per cent.

The turnaround has been triggered by a number of factors. Policy reforms at the Central and state levels have spurred the arrival of industry. The state government’s resoluteness has helped complete long pending infrastructure projects despite a resource crunch, and its consultative approach has enabled the government to take measures to maximize revenue and reduce expenditure.

Having put its fiscal house in order, Orissa is attracting sizeable investments. Orissa has, for the last three years, consistently won the first place among Indian states in terms of private investment projects under implementation, according to the Centre for Monitoring Indian Economy. This feat was unimaginable even five or six years ago. Today, there are around 470 projects under different stages of implementation that add up to US$ 125 billion, or about seven times the state GDP. The majority of these projects are expected to be completed before 2013, implying that investments could climb further over the next five years.

In the past, Orissa used to attract investments for extraction of minerals, which would be sent elsewhere for further processing. Now mining as well as large manufacturing concerns — steel, electricity, aluminium and other metal industries — are flocking to the state. There are also some, albeit very early, signs of economic diversification. In the services sector for instance, Indian IT companies are entering Orissa as traditionally favoured destinations become increasingly saturated. Industrial growth during 2002-07 averaged as high as 15.1 per cent, far ahead of the all-India figure of 9.2 percent. The services sector grew at 5.6 per cent. This may be slower than the India rate but is still better than Orissa’s own performance in the past. Trade and transport have also grown faster than in the rest of the country. Agriculture — traditionally beset by drought and floods — grew at only 2 per cent per year, as bad as the rest of India.

The potential multiplier effects of the ongoing investments can be huge on employment and incomes, making it possible for the state to touch double-digit growth, provided it harnesses the benefits well and ensures their equitable distribution among its people.

As a result of its recent economic turnaround, Orissa’s per-capita income, which progressively fell behind that of the rest of the country during the past five decades, has begun to catch up. Average spending level in rural Orissa is still low, but it is moving up more rapidly than ever before. The latest National Sample Survey data show that rural families in the southern region of the state — one of the poorest parts of the country without the mineral deposits of the north — are now spending up to 25 per cent more on basic necessities like food, clothing, and education for children, compared to their expenditures only five years ago.

Such signs of change have sparked hope as well as anxiety. Optimists are hoping that the state will catch up and cross the all-India average in per capita income by 2020. The anxiety is largely about whether hitherto disadvantaged groups, including the scheduled tribes, will benefit or be hurt by rapid industrial growth. The anxieties need to be managed well so that the hopes can be realized sooner than later. This is also one of the key messages of the World Bank report titled Orissa in Transition.

The report, while highlighting the change, also points out that Orissa is still the second poorest state in the country with one of the lowest levels of urbanization. The scheduled tribes that make up a sizeable 22 per cent of the state’s population and 40 per cent of the poor continue to lag far behind the others.

Most of these people live in villages or habitations whose geographical isolation underlines their poverty. Rural electrification is among the lowest in the country; some 18,000 villages and 5 million households are yet to get electricity. Education levels in schools are low while the burden of ill health is considerably high. The NSS data show that regional disparities have narrowed a bit but the interior is still significantly behind the coastal districts. The story on gender disparity is also on similar lines.

Other infrastructure too is far from adequate. Capacity constraints in rail are increasing congestion on roads, and limited port capacity is diverting cargo from Paradip in Orissa to Haldia in West Bengal and to Visakhapatnam in Andhra Pradesh. The state is yet to capitalize on its large coastline facing southeast Asia.

However, the state government has more money now than five years ago to invest in roads, irrigation, education and health. A lot needs to be done to ensure that this money is spent efficiently to achieve the purposes it was intended for. The recently completed Detailed Implementation Review of the World Bank-funded Orissa Health Systems Development Project revealed some shortcomings in the use of public funds for healthcare.

The state government responded to this with concern and is taking significant actions to remove the weaknesses in the systems. The open and cooperative approach the state government is forging to accompany its new policies holds out hope of a culture of greater transparency and accountability taking root, leading to better human-development outcomes.

Despite these challenges, the magnitude of the transition underway needs to be appreciated. According to the CMIE’s projections, even the direct impact of ongoing investments would lead to a doubling of the industrial workforce in Orissa over the next five years.

Given the recent economic acceleration and fiscal improvements, the time is now ripe for the state to consolidate the gains of the past and to devote public resources to building infrastructure. The reduction of the gaps between rural and urban, between the interior and the coast, and between the scheduled tribes and the rest of the population should also be a priority.

Policies concerning land and other land resources need to be modernized to unleash the full potential of agriculture, fisheries and forestry on which an overwhelming 85 per cent of the state’s people depend. As Orissa strives to build for the future, it can take productive lessons not only from others but also from its own recent successes in turning around its finances and charting the path to higher growth.