Regional Inequality and Convergence in Economic Growth in India

Abstract

The accentuation of regional income inequality, particularly during the period of liberalization and globalization in India, has been a major policy concern for Indian policymakers. After nearly 20 years of performance in a neoliberalized environment, the debate continues about whether excessive reliance on market creates development distortion by aggravating inequality. Against this backdrop, this chapter makes a renewed attempt to evaluate the growth performances and the trends and patterns of inequality in the per capita net state domestic product (PCNSDP) of India. This chapter also examines the nature of convergence of PCNSDP of Indian states using panel data framework for a period of nearly 40 years (1970–1971 to 2009–2010).

Appendix

4AI: Construction of Industrial Infrastructure Index and its Regional Variation in India

Infrastructure and Urbanization are two important keywords which play a significant role in explaining regional variation. Since the industrial sector has its bearing on the overall country, the creation of appropriate infrastructure must improve the productivity of the industrial sector, thereby improving the economic growth of the region and the overall nation as a whole. The present study makes an attempt to elucidate the industrial infrastructure of states by constructing an index called the industrial infrastructure index (IID) . The variables that are used to construct this index are-

• 1. Percentage share of secondary sector in PCNSDP in a particular state (PSSES)

• 2. Road length per lakh population in a particular state (RL)

• 3. Per capita consumption of electricity in a particular state (PCELEC)

Using the deprivation method and applying PCA (methodology explained in detail in Chap. 3) the weights of each individual variable have been determined. The index has been computed for the period of 1980–1981, 1985–1985, 1990–1991, 1995–1996, 2000–2001, 2005–2006 and 2008–2009. The performance of the states according to the IID has been portrayed in Table 4.23.

Table 4.23 Performance of states in terms of IID during 1980–1981 to 2008–2009. (Source: Authors’ calculation)

It is observed from the table that no significant improvement has taken place during the period in reducing disparities in industrial infrastructure across states. The ranks computed from the indices reveal that states like Assam, Bihar, Madhya Pradesh, Orissa, Uttar Pradesh and Jammu and Kashmir remained almost stagnant in develo** infrastructure over the whole period. States like Gujarat, Punjab, Haryana, Karnataka and Tamil Nadu remained at the top in IID for the overall period. The important thing is that states like Himachal Pradesh and Andhra Pradesh improved greatly whereas states like West Bengal and Maharashtra slipped from their position. The interesting point is that the position of West Bengal has been deteriorating, especially after 1990s.

4AII: Construction of Urban Amenity Index and its Regional Variation in India

According to many researchers, urbanization has had a very significant role in creating an unequal atmosphere within a region as well as within a country. The rural–urban gap within a region has become a headache for policymakers especially after the 1990s. Since all the positive and beneficial effects of liberalization and globalization were first grabbed by the major metropolitan cities and big urban areas, they have become the major centres, getting the cream of all types of developmental efforts in the country. Thus, in order to examine how far urbanization explains and controls the strong divergence observed in PCNSDP across states for a long period of time, we have constructed an index, namely, the Urban Amenity Index (UAI) and used it as explanatory variable for testing conditional convergence of PCNSDP.

For constructing Urban Amenity Index (UAI), the variables used are

• 1. Percentage of urban population in a particular state. (PUP)

• 2. Percentage of urban households with safe drinking water (PHSD)

• 3. Percentage of urban households with an electricity connection (PHELEC)

• 4. Percentage of urban households having toilet facility (PHTF)

• 5. Percentage of urban households having pucca houses (PHPH)

Using the same methodology as before, i.e. constructing the dimension index and multiplying them by the weights (obtained from applying PCA methods), an index for each state has been constructed for each particular period.

The relative performance of states in the Urban Amenity Index over the years is tabled in Table 4.24.

Table 4.24 Performance of states in urban amenity index. (Source: Authors’ calculation)

Table 4.24 representing UAI reflects the performance of states according to qualitative basic services provided in the urban areas in a particular state. It is well known that without the provision of basic services, development cannot be possible. In addition, the high degree of urbanization is linked with a high level of economic activities leading to improvement of PCI. From the ranking structure of UAI observed from the table among 16 Indian states during the period from 1980–1981 to 2007–2008, it is revealed that a certain alteration in the ranking position of the states has taken place during the period. For example, states like Kerala, Karnataka, Maharashtra and Tamil Nadu have made a remarkable improvement in position from 1980–1981 to 2007–2008. Kerala jumped from its position of 14th to 5th, Karnataka also improved from 9th to 4th, Maharashtra from 5th to 1st and Tamil Nadu from 8th to 3rd position from 1980–1981 to 2007–2008 respectively. On the other hand, states like Bihar, Uttar Pradesh and West Bengal made a poor performance in respect of UAI as Bihar deteriorated from 12th to 16th, the lowest place attained in 2007–2008. Moreover, the rank of Uttar Pradesh slipped from 10th to 12th position and West Bengal lagged behind from 6th to 12th during the period of 1980–1981 and 2007–2008 respectively. Interestingly, the major fall in ranking position occurred in case of Punjab from 1st to 8th position during the period of analysis. Apart from the fact that states like Orissa, Rajasthan, Madhya Pradesh, Manipur and Andhra Pradesh did not experience any significant change in ranking during the whole period, the interesting result is that Gujarat has been able to maintain its 2nd position consistently from 1980–1981 to 2007–2008 .

Thus, overall, it can be said from the two indices (IID and UAI) that the performance of Gujarat is remarkable. This performance in these two important areas will definitely lead it to attain higher economic growth during the period. Another interesting feature that has come out from the results is that in case of provision of basic services in urban area, the southern states have achieved a noteworthy improvement. However, the backward states have lagged far behind during the period in all respects. Moreover, West Bengal here requires special attention because, despite being in the upper developed region during 1980s, this state has deteriorated comparable to near lower developed regions in terms of the performance of the above two indices (Tables 4.25, 4.26, 4.27 and 4.28).

Table 4.25 Total variable explained of IID. (Source: Authors’ calculation)

Table 4.26 Component matrix of IID. (Source: Authors’ calculation)

Table 4.27 Total variable explained of UAI. (Source: Authors’ calculation)

Table 4.28 Component matrix of UAI. (Source: Author’s calculation)