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Wednesday, Jun 28, 2006

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Different Indias

That different regions, indeed different States and districts, of India are at varying stages of development is known. Disparities that arise on this score have been the subject of studies in economic literature.

The latest to go into the implications of the gaps in performance is a Working Paper ("Mind the Gap: Is Economic Growth in India Leaving Some States Behind?") brought out by the IMF. Almost book-size at 192 pages, it is a `must-read' for policy-makers in India.

Bihar, Madhya Pradesh and Uttar Pradesh, which are already the poorest and account for 40 per cent of the country's population, are going to be burdened with an additional 400 million in the next 50 years. Their share of jobs in the organised sector is only 25 per cent, making it problematic for things to get any better with capital and investment bypassing them.

According to the IMF study, about 55 per cent of outstanding bank loans in India in 2004-05 were to borrowers in the five richest States of Maharashtra, Gujarat, Punjab, Haryana and Tamil Nadu, whereas borrowers in the five poorest States of Bihar, Madhya Pradesh, Orissa, Rajasthan and Uttar Pradesh numbered a mere 15 per cent of the total.

Further, over half of the foreign direct investment inflows into India in recent years have gone to five largely prosperous States. No wonder, then, that the richer States have been about 50 per cent more effective in reducing poverty, for each percentage point of growth, than the poorer States.

Among the other findings: The pace of job creation in middle- and high-income States has far outstripped that in the poorer ones.

States with leaner and smaller governments have generally grown faster than relatively high-spending ones.

States with a greater initial dependence on agriculture and/or industry also grew more slowly than States in which services played a larger role.

This paper deserves to be considered by the Cabinets at the Centre and in the States.


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