The possibilities and limits of the Tamil Nadu model

Drawing attention to the sharp differences in incomes across developing countries, the Nobel-winning economist Robert Lucas had suggested that we should see these differences as possibilities.

- Pramit Bhattacharya

“Is there some action a government of India could take that would lead the Indian economy to grow like Indonesia's or Egypt's?” Lucas wrote in an oft-cited 1988 paper (the Indian economy was considered a global developmental laggard then). “If so, what, exactly? If not, what is it about the ‘nature of India’ that makes it so? The consequences for human welfare involved in questions like these are simply staggering: Once one starts to think about them, it is hard to think about anything else.”

Looking at the stark differences in incomes and human development indicators across Indian states, similar questions come to mind: Is there something that Uttar Pradesh could do to grow like Tamil Nadu or Maharashtra? If so, what exactly? If not, why not? Such questions have gained greater salience as interstate disparities have widened in recent years.

Some economists and policy wonks seem to have found an ideal growth “model” in the state of Tamil Nadu. With manufacturing accounting for a quarter of the state’s economic output, Tamil Nadu is seen as a desi version of Vietnam. Former chief economic advisor Arvind Subramanian has argued that the Tamil Nadu model could be adopted by other states to improve their industrial performance. Venture capitalist-turned-philanthropist Ashish Dhawan has also made similar arguments, praising the role of the state government in hand-holding new investors.