Mr. Girish
Managing Editor of BFSI Vision

The Quixotic Measurement of the Wealth of States in India

I am puzzled by the facile way we generate data and jump to conclusions. In today’s edition of Mint, the front page news was “The wealth of States in India.” I was expecting a very illuminating essay on how we can understand wealth creation in India and how that wealth is distributed across states. This is an issue I am trying to understand – does industrialization bring about economic development of the people of a state. I wanted to understand how states fare in this framework.

Alas, I was in for a big disappointment. Of all the things, Manas Chakravarty goes on to define wealth as the growth in bank deposits. How short sighted can we get. If we go by this standard, we see that states like Gujarat Punjab and Tamil Nadu are losing. Their bank deposits are going down. Therefore these states are not creating wealth. Inter alia implying that growth – industrial or agricultural; investment driven or consumption driven does not create wealth. What matters is - are the people depositing money in banks. If they are then they are creating wealth. I think Barak Obama and Xi Jinping should bury their differences and take lessons from the author. And not encourage both, investments and consumption, but encourage people to put money in Banks.

Even a kid with a minimal understanding of economics will tell you that depositing money in bank is equal to giving it away. The real interest rates in the economy are negative. My kid, who is all of 15 years tells me to not to keep money in the banks. And if we listen to such sage advice and pull money out and put it into other asset classes, we are not doing the right thing. The bottom line – if you want to be wealthy – keep money in the bank.

If we buy this argument - rising deposits means wealth – we need to jettison the entire argument of development. Gujarat, arguably the most development oriented state and Gujaratis – again arguably among the wealthier lot are really not so. Gujarat is not a wealthy state. See falling bank deposits. I also see the likes of Manish Tewari and Mani Shankar Aiyer claiming the Gujarat model has failed. No less a newspaper than Mint has published proof of this on their front pages.

I would have looked at consumption to determine if states are wealthy. I would look at the basket of consumption. I would look at the number of people who go on Holidays. I would look at the wages. I would look at the percentage of population who are having their own businesses. I would look at the infrastructure in the state. I would look to gold purchases, investment in equity markets. There are countless other indicators that one can think of. All they could come up with is “Bank Deposits” Guys get real. If you do not know or do not want to do a little bit of hard work, please do not do it at all. For heaven’s sake, do something else. Play cards, go for a vacation. Do not trivialize wealth creation.