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Richest and the Poorest States in India – Why is economic growth across the Indian States uneven?

Richest and the Poorest States in India – Why is economic growth across the Indian States uneven?

Relevance

  • GS 2 || Governance & Social Justice || Human Development || Inequality

Why is the issue?

  • Economic development is often an uneven process. The existence of global inequality bears evidence to the unequal rates of development in different parts of the world
    • Countries such as Brazil, China, South Africa Vietnam, and Sri Lanka have developed much faster than India, Pakistan, and Uganda over the past 50 years.
  • It is therefore not surprising that development within countries is also uneven, both in developed and developing countries.

India’s regional unevenness

  • The progress of the country depends on the progress of each of its states.
  • Since India’s regional development has been particularly uneven, even by developing country standards. Since the 1960s, India’s regional growth performance has been polarised, characterized by a high-income club and a low-income club.
  • The Economic Survey pointed out that while the health trends across states are converging, the income and consumption pattern shows a sharp divergence.
  • Rich club
    • The rich club constitutes states such as Gujarat, Maharashtra, Punjab, and Haryana, with the more recent additions of Tamil Nadu and Karnataka.
  • Poor club
    • The low-income club includes Orissa, Bihar, Rajasthan, Madhya Pradesh, and Uttar Pradesh, amongst others. Worryingly, the composition of these clubs has remained largely unchanged over the last four decades.
  • Mobile group
    • There is also another ‘mobile’ group of middle-income states that have gone in and out of a fortune.
    • For example, West Bengal was a rich state in the 1960s but went into decline in the 1970s and 1980s. On the other hand, Tamil Nadu has seen persistent improvement in living standards and today counts as a rich state.

Reasons for Disparity/Inequality/ Unevenness

  • Natural Resources
    • India’s various regions are endowed with a variety of natural and human-based resources.
    • Some states, for example, West Bengal, Jharkhand, Odisha, and Chhattisgarh, are endowed with resources.Others, such as Punjab and Haryana, have better mineral resources and better irrigation facilities.
  • Government Polices
    • Defective planning processes were inherited from colonial rule in the post-independence era.
    • Despite pro-backward areas policies and programmes, significant economic and social inequalities exist among different States
    • Following the period of economic reforms, inter-state disparities in GSDP growth have increased.
    • Red tape, corruption, a difficult business environment, and political and administrative inefficiency
  • Man-Made / Historical Factors
    • Neglect of some regions and preference for others in terms of investments and development Infrastructure resources.
    • Historical factors dating back to the Mughal era and becoming prominent in the British era have also been considered to contribute to inequities in the region.
  • Economic factors
    • High input cost due to inadequate infrastructure and lack of demand-driven market.
    • Infrastructure like a robust transport system is inefficient in poorer states.
    • For the rich club, the states of Gujarat and Maharashtra on India’s west coast are industrially driven and most of their products are exported.
    • Punjab and Haryana, on the other hand, are India’s ‘bread basket’, producing more than 50 percent of India’s rice and wheat.
  • Industries
    • Gujarat and Maharashtra are also industrially differentGujarat produce textiles and machine parts, while Maharashtra focuses on automobiles, aerospace, and farm equipment. 
    • Some South Indian states have entered the rich states’ clubnotably Tamil Nadu, on the southeast coast. It is not contiguous with the other rich states, but like the other four, is based on manufacturing, particularly
    • There are, however, no geographical linkages with either Gujarat or Maharashtra.
    • Karnataka in the southwest has also developed an independent growth engine of consulting in finance and information technology for the international market but demonstrates little connectivity with other regional industries.
  • Agriculture activity minimal in poor club
    • States in the poorer club including Uttar Pradesh (north, sub-Himalayan), Rajasthan (far-west, desert), Madhya Pradesh,Bihar and Orissa (contiguous states in the north-east), and sub-Himalayan states in the far-east – have some agricultural activity, but their contribution to the national GDP is minimal.
    • Clearly, with no engine of growth, there is no economic mechanism by which these states can connect and benefit from a spillover effect.
  • Geography
    • Climate, waterways, terrain, and soil are all important factors in development.
    • For example, coastal states have done well due to developed ports and waterways for trade in comparison to inland regions.
  • Social factors
    • The poor and illiterate sections of less developed regions has a high fertility rate thus growing population.
    • Incapacity of the states to harness rich demographic dividend due to less developed job market.

Impact of the unevenness

  • Hampering overall growth of the nation
    • This scenario has worrying implications for India’s economic growth and regional development.
    • While India has experienced unprecedentedly high GDP growth rates for the past 15 years, growth seems to have been fuelled from a few sectors of the Indian economy, and even worse, only a few states.
    • The regional GDP is estimated to contract by 7.7% in2020, which stayed above 6% annually in the past five years. 
  • Increases poverty
    • India’s uneven economic growth, therefore, threatens to exacerbate regional poverty.
    • Much of the poverty was concentrated in rural areas and low-income states as per NITI Ayog.
    • Subsidiary economic activities (industry, finance, services) emanating from the growth hubs must be developed to provide employment and welfare more consistently across the country.
    • In 2020, India contributed 57.3% of the growth of the global poor.
    • The Pew Research Center with the World Bank data estimated that ‘the number of poor in India, based on an income of $2 per day or less in purchasing power parity, has more than doubled to 134 million from 60 million in just a year due to the pandemic-induced recession’.
  • Unemployment
    • India’s growth hubs are not connected either geographically or via a particular engine of growth.
    • With only a handful of growth hubs with no spillover effects, the distribution of employment across the states is highly skewed, leaving pockets of poverty in the poorer states.
    • India’s unemployment rate has increased sharply to 7.11 percent in 2020, the year of the COVID-19 outbreak, from 5.27 percent in 2019.

Way ahead

  • The gap between rich and poor cannot be resolved without deliberate inequality-busting policies,and too few governments are committed to these.
  • Poverty estimates play a role
    • These are not just important for academic purposes but are also crucial to track the impact and success of various government policies, especially social welfare schemes that are intended to eliminate poverty.
    • With every fifth Indian still below the poverty line, the country needs to take huge strides to alleviate poverty. For most states, though, it did not seem the priority, going by the poverty scorecard in the SDG Index 2019-20 released by the NITI Aayog just before 2019 ended.
  • GDP cannot be the scorecard
    • Economic justice, environmental sustainability, and improvement of the dignity of all citizens must be measured too, and these must improve much faster.
    • The present ‘top up the top’ model of India’s economic growth, with hopes of trickle-down, is not delivering these.
    • Political leaders, administrators, and business leaders must work together, with a shared vision, to build an Indian state that is good for all citizens,especially the poorest.
  • Increasing literacy
    • By increasing the literacy levels and also providing basic health amenities, to a certain extent, the disparities could be reduced.
    • Female literacy is the best antidote to the rising total fertility rate (TFR) and female labour participation as an effective way to boost per capita incomes.
    • TN’s literacy rate was below 20% in the 1950s. Tamil Nadu’s Literacy rate was 36% in 1961 and today its 80.09 and for Karnataka its 75.36%
  • Solving problems specific to the backward regionNaxalism, patriarchy, discrimination based on sex and caste.
  • Scientific and technological developments – Prudent interlinking of rivers; internet access through innovative projects like project loon, the prospect of cloud seeding in drought-prone areas; education; e-health, etc.
  • Skill development – less than 5% of laborers in India have any skill certification; more attention to skill development particularly in less developed states.
  • ARC Recommendation ought to be followed and implemented on the ground
    • The Union and State Governments should develop a formula for block-wise devolution of funds to more disadvantaged areas.
    • Governance needs to be strengthened in the most backward areas of a state.
    • A system that rewards states (including developed states) that achieve significant reductions in intrastate disparities.
    • Additional funds are required to construct core infrastructure at the inter-district level in less developed countries and backward regions.

Mains model questions

  • In India, the economic disparity between the Rich club and poor club s skyrocketing. Critically discuss the causes and consequences of this trend.

References