Understanding regional economic growth in India

Abstract

India accounts for a meager 2.4 percent of the world surface area yet it sustains a whooping 16.7 percent of the world population, a little over 1 billion people residing in 29 states and 6 union territories. The variation across these states and territories is enormous in regard to physical geography, culture, and economic conditions. Some states have achieved rapid economic growth in recent years, while others have languished. The goal of this paper is to try to make some sense of the differential economic performance of India’s states, especially under the forces of globalization in the 1990s. The paper may most profitably be read as a companion to the paper by Demurger, Woo, et. al. (2001), on regional differences in China’s economic performance. To address the question of regional performance, we narrow our focus to the 14 most populous states, which excludes the Himalayan states, the Northeastern states, and the 6 union territories. The included states have a combined population of 897 million, accounting for approximately 90% of India’s population, and 2.7 million km2, accounting for 83% of India’s total land area. These states are listed in Table 1, and shown in Figure 1. As we can see from the table, the variation in economic performance is large. The per capita state product varies from the poorest state, Bihar, at 1010 rupees per month and population of 82 million, to the richest, Maharashtra, at 4853 rupees per month and population of 96 million. Growth performance has been equally varied, with the slowest growth in state per capita income in Orissa, at 1.2 percent per year during 1992-98, compared with the fastest growth in Maharashtra, at 7.3 percent per year. The differential performance across states has begun to raise important policy questions within India. To what extent are the differences a manifestation of global economic forces acting upon India, especially during a period of economic liberalization, and to what extent do they reflect differences in economic policies at the state and union level? Will market reforms tend to make the rich states richer in relative terms, with the poor states lagging ever farther behind, or will market reforms lead to economic convergence across states? Specifically, are the poorest states (especially the so-called BIMARU states of Bihar, Madhya Pradesh, Rajasthjan and Uttar Pradesh) condemned to fall further behind the front runners, at least in relative terms? Several studies of high-income market economies undertaken during the 1990s, for the U.S., Japan, and regions within Western Europe, found evidence for strong convergence among regions (see Barro and Sala-I-Martin, 1995, Chapter 11). We find little evidence of comparable convergence among Indian states, similar to the findings for China. This raises an important question as to why some countries or regions demonstrate inter-regional convergence while others, like China and India, do not. In China and India, it appears that geographical variation across regions may block or slow the convergence of incomes. The paper is organized as follows. In Section II analyzes the results of convergence among Indian states during the period 1980-98. In Section III we analyze the economic performance of the states under study. In Section IV, we discuss different aspects of regional disparities focussing on some health, education, demography, and geography related variables. Concluding remarks are presented in section V. Show more