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India: Regional Disparity in Growth (#7)

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First Post – India: Regional Disparity in Growth (#1)

CONCLUSION

Freedom is not just the freedom to speak, write or to rule on our own. The real freedom lies in economic freedom.

J. Jayalalitha, Chief Minister, Tamil Nadu, August 15, 2016

We see that existence of regional economic inequalities in India can hardly be questioned, although the extent is debatable. Inter-state differences in levels of incomes are stark and persistent. There is a considerable concentration of the poor in specific regions. It seems that our economic growth has been regionally more differential than equitable. Poverty is emerging as more inter- and intra- regional with areas of rising economic well-being accompanied by stagnating economic zones. (Chakravarty, 1987)

While central governments have to criticized for overlooking this growing inter-state disparity, states too have a lot to explain for inter-district disparities. At both the levels, there has been the considerations of electoral politics, political expediency, lack of center-state synergy and lack of political consensus on long-term goals. While structural factors of Constitutional separation of responsibilities between the center and states explain this tension, we cannot overlook the dominance of one party for a substantial period of time – which would lead to the expectation of greater synergy. This is belied in the practice.

Since liberalisation, the divergence has become larger which suggests that economy, as it was pre-1991, was conducive to the polarizing influence of market forces and globalisation. Clearly, the ‘national cake’ has grown since the first Five Year Plan was launched. However, the share of some regions and persons have remained stagnant or worsened while other have flourished. This has social, economic and political implications for the policymakers in the course of national development.

If the trend toward divergence continues, and poorer states lag further behind richer ones, this is sure to put strain on our federal polity with its recently centralizing tendencies. Only ad-hoc measures, depending on short-terms political and electoral preferences, will exacerbate this already delicate disparity. Ideological, rather than practical and strategic, considerations – such as leaving things to market forces alone or controlling every aspect of economy, will only compound the problem. There needs to be a synergy between the forces of market and state as there should be between central and state governments.

Please understand, Your Excellency, that India is two countries in one: an India of Light, and an India of Darkness. The ocean brings light to my country. Every place on the map of India near the ocean is well off. But the river brings darkness to India—the black river.

“The White Tiger” by Aravind Adiga

India: Regional Disparity in Growth (#4)

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First Post – India: Regional Disparity in Growth (#1)

INDICATORS OF REGIONAL DISPARITY (#2):

  • Population below Poverty line:

While India as a whole has reduced poverty, in terms of headcount, by more than half, this reduction has been highly uneven. We can see this unequal reduction in the period 1973-2000, like Goa (90%), Gujarat (70%), Kerala (78%), Jammu & Kashmir (91%), Punjab (78%), Haryana (75%), Andhra Pradesh (67%) reduced poverty at a much faster rate than others like Arunachal Pradesh (35%), Assam (29%), Bihar (31%), Maharashtra (53%), Madhya Pradesh (39%), Orissa (28%), Nagaland (35%), Uttar Pradesh (45%).

Data source: Department of Planning, Govt. of NCT of Delhi

We also find that the states like Bihar, Uttar Pradesh, Madhya Pradesh and Orissa which initially had the most headcount poverty continue to do so, although in lesser number. Incidentally, these states also find themselves lower down the ladder in terms of per-capita GDP. On the other hand, states with a relatively higher growth rate and income like Goa, Gujarat, Kerala, Punjab also have low headcount poverty. Interestingly, some states like Karnataka and West Bengal have reduced poverty only moderately while showing significant growth in per-capita GDP.

A committee under by the Planning Commission was set up in 1997 to identify 100 most backward and poorest districts in the country. It found that 74 of the 100 poorest districts come in the region of erstwhile united UP, Bihar and Madhya Pradesh (labelled as BIMARU states).

Connectivity of these districts with the rest of the economy are grossly inadequate, in terms of transport i.e. roads & railway networks, and access to banks. This deters the private sector, making development largely dependent on public funds, which are sparse. Floods have been a regular feature in Bihar, UP, and Orissa, further contributing to their backwardness. (Debroy & Bhandari, 2003)

Headcount below poverty line is not an ideal measure of poverty because people thin buffer, not counted in BPL may find themselves back into poverty with shocks like disease, bad farm produce etc. Also, there are problems of inclusion when relatively well-off counted themselves into BPL population. However, it cannot be ignored given the sheer population below the designated poverty line.

  • Literacy Rate:

Literacy is important because of its many positive externalities in terms of health, economic and social mobility. The literacy rate has increased across all states, rich and poor irrespective of their starting point, to almost 70% in 2011. However, disparities within states remain with rural areas still falling behind urban regions. According to the 2001 census data, the top 10 districts in terms of literacy of persons, male and female, belonged mostly to Kerala and Mizoram. On the other hand, the bottom 10 districts belonged to Bihar, UP, Jharkhand, Orissa and Chhattisgarh. This reflects the nature of educational priorities of fiscal policies in the states.

Data source: Planning Commission, Govt. of India

At a district level, Singh et al (2014) find that road connectivity mattered more for growth in initially poorer districts, and literacy mattered more in initially richer districts in terms of their economic value. This suggests that demand for skilled labor is more in richer districts while demand for unskilled labor is more in poorer regions.

Male-Female Literacy Gap:

While Delhi, Himachal Pradesh, Punjab and West Bengal reduced their female literacy gap, Rajasthan, Uttar Pradesh, Madhya Pradesh and Bihar saw an increase in this gap. In fact, Rajasthan has the highest literacy gap in the country at 32 percentage points. All the north-eastern and southern states showed a decrease in literacy gap as can be seen in the plot above. In fact, Kerala decreased the gap to a single digit number, attaining highest female literacy in the country.

Data source: Directorate of Economics and Statistics, Govt. of Gujarat
  • Rural-Urban Divide of Inequality:

Maharashtra, Tamil Nadu and Gujarat followed by Punjab, Karnataka, Andhra Pradesh and West Bengal have maintained a higher percentage of urban population than Bihar, Assam, Orissa, Arunachal Pradesh, Himachal Pradesh etc.

Gini coefficient in size distribution of per capita consumption expenditure (1959-2003)

Source: Indira Gandhi Institute of Development Research, Mumbai, 2006

The urban inequality in consumption is always, though varyingly, larger than rural inequality. While there is a noticeable decrease in consumption inequality in rural areas, there does not seem to be any noticeable long-term change in urban inequality. Urban growth too has polarised around a few big industrial centres and the problem of finding productive employment in the backward states, particularly in their backward districts, has become far more serious. Migration of unskilled labor is also a big factor in increasing urban inequality.

While consumption expenditure has certainly increased in all states, difference in urban-rural mean consumption has diverged. Except for Bihar and Maharashtra, where the Urban-Rural Mean Consumption ratio has slightly decreased, all states have witnessed an increase in this ratio post-reform, with the national average of the difference increasing from 67% to 87%. (IGIDR, 2006)

Fifth Post – India: Regional Disparity in Growth (#5)