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S. D. Naik

If the widening regional disparities and the growing rural-urban divide are not arrested and reversed soon, they will not only continue to pull down the overall economic growth rate, but also lead to serious social strife in the country. It is time policy-makers viewed the situation with a new sense of urgency and initiated measures to contain the damage, says S. D. Naik.

A RECENT World Bank Report on India (Sustaining Reform, Reducing Poverty, 2003) as also the UNDP's Human Development Report 2003 have expressed grave concern over the widening inter-state disparities and the growing urban-rural divide in India.

The World Bank Report says that development has been uneven and, as a result, poverty is getting concentrated in the slower growing states of Uttar Pradesh, Bihar, Madhya Pradesh and Orissa. The report adds: "Accelerating growth and poverty reduction in India cannot be achieved without also accelerating growth in India's lagging states."

The UNDP's Human Development Report (HDR) bemoans that India contains regions of intense poverty relieved little by overall national growth. It points out the enormous disparities across India's states with extremely high gaps in literacy between low social classes and the rest of the population.

Female literacy, the key to so many other social indices, is as low as seven per cent in Rajasthan and nine per cent in Madhya Pradesh, among low social classes. This is despite the fact that over the past decade, there has been a significant improvement in overall literacy rate from 44 per cent to 64 per cent in Madhya Pradesh and from 39 per cent to 61 per cent in Rajasthan.

While regional imbalances and socio-economic disparities have persisted in India over the last half a century of planned economic development, it should be a matter of particular concern to policy-makers that the same have tended to widen at an alarming rate, post-reform.

With the role of the public sector diminishing, the virtual dismantling of industrial licensing and removal of locational constraints, private investments have been mostly flowing to states and regions with relatively better infrastructure and other facilities. The same is the case with the inflows of foreign direct investment.

A CII-sponsored study by the National Council for Applied Economic Research (NCAER) released in 2000 shows how the northern states have slipped badly in respect of economic growth during the decade of the 1990s compared to their counterparts elsewhere. The study warns that the relentlessly widening economic and social disparities among states are threatening to weaken the national fabric.

According to the study, the western region comprising primarily Maharashtra, Goa and Gujarat was able to step up its annual economic growth rate from 5.7 per cent in the 1980s to 6.6 per cent in the 1990s. A similar trend is seen for the southern region. In contrast, the annual economic growth of the northern region fell from 5.6 per cent in the 1980s to 4.5 per cent in the 1990s.

The annual growth rate of state domestic product increased sharply for Gujarat and Maharashtra during the 1990s to 8.6 per cent and 7.1 per cent from 3.1 per cent and 3.6 per cent respectively in 1980s. For Tamil Nadu, it rose to 4.9 per cent from 3.9 per cent, Kerala 4.5 per cent from 2.2 per cent, Karnataka 3.5 per cent from 3.3 per cent, and West Bengal 5 per cent from 2.4 per cent.

On the other hand, the annual growth rate of state domestic product declined in the 1990s to 2.8 per cent from 3.3 per cent for Punjab, 2.7 per cent from 3.9 per cent for Haryana, 1.2 per cent from 2.6 per cent for Uttar Pradesh, 3.5 per cent from 4 per cent for Rajasthan, and from 4 per cent to 3.1 per cent for Delhi over the decade of the 1980s.

Census 2001 revealed disturbing disparities in the demographic indicators such as population growth rates, literacy levels and sex ratio. For instance, Bihar, with a dismal record of human development indicators, recorded a much higher rate of population growth at 28.3 per cent during the decade of the 1990s against 23.3 per cent during the previous decade.

Similarly, Uttar Pradesh, the most populous state in the country, recorded a higher population growth of 28.3 per cent against 23.38 per cent during 1981-91. Rajasthan also recorded a high rate of population growth at 28.33 per cent during 1990s (28.44 per cent).

Some of the other States in the north and east also recorded much higher population growth rates. But these are much smaller states both in terms of area and population and hence their overall impact is not so significant.

Against this, Kerala recorded the lowest decadal population growth of 9.42 per cent, followed by Tamil Nadu (11.9 per cent), Andhra Pradesh (13.86 per cent), Goa (14.89 per cent), and Karnataka (17.25 per cent).

As for literacy, Kerala continued its lead with 90.92 per cent, followed by Mizoram (88.49 per cent), Lakshadweep (87.52 per cent), and Goa (82.32 per cent). Maharashtra also recorded a fairly high literacy rate of 77.27 per cent.

In contrast, Bihar recorded the lowest literacy rate of 47.53 per cent; the female literacy level in the State was much lower at 33.57 per cent. Incidentally, Bihar also happens to be the only state in the country to have a literacy level below 50 per cent.

Other States that figure at the bottom level of literacy are Jharkhand (54.13 per cent), J&K (54.46 per cent), Arunachal Pradesh (54.74 per cent), UP (57.36 per cent), Orissa (63.61 per cent), Meghalaya (61.31 per cent), and Andhra Pradesh (61.11 per cent).

In general, the southern States, which have been outperforming the northern and eastern regions in respect of economic growth and per capita income, have also shown a better record in respect of population control, literacy and sex ratio.

An equally disturbing facet of growing socio-economic disparities is the growing rural-urban divide that is brought out by the National Sample Survey Organisation's (NSSO) household consumer expenditure surveys for recent years. According to the data complied by the NSSO, the average monthly per capita expenditure (MPCE) by rural households during 2000-01 (July-June) was Rs 494.90, which was just a little over 54 per cent of the corresponding figure of Rs 914.57 for a typical person in urban India.

What is striking about the MPCE data is that the gap between the average per capita expenditure for urban and rural areas has widened by over 8 percentage points between 1987-88 and 2000-01. Considering that 1987-88 was a drought year, when rural incomes would have anyway been depressed, the increase in disparity levels between the two periods appears all the more worrisome.

The urban-rural gap is much more pronounced for non-food vis-à-vis food items. An average urban resident's monthly expenditure on food items during 1987-88 at Rs 139.73 was higher than the corresponding non-food spending of Rs 110.18.

But in 2000-01, the position had reversed, with average non-food expenditure (Rs 514.01) exceeding that of food expenditure (Rs 400.57). No such progress or diversification of the commodity basket has been observed for rural India.

The other major pointer to the sizeable difference in living standards is the fact that about 93 per cent of the rural population during 2000-01 had a MPCE of less than Rs 915, the average figure for urban India. Thus, the so-called rural rich enjoying consumption standards comparable to the average urban Indian constituted hardly five per cent of the rural population.

The increase in rural poverty during the 1990s is not surprising considering the gross neglect of agriculture during this period. Because of the big drop in the annual growth rate of public investment in agriculture during the decade as also the substantial decline in the growth of banks' lending to the sector, the agricultural growth rate witnessed a substantial deceleration over this period.

However, while the share of agriculture in our country's GDP has witnessed a substantial decline, the proportion of population dependent on this sector in the total population has not shown any significant drop. Not surprisingly, the people dependent on agriculture are getting increasingly impoverished.

It is thus evident that reduction of rural poverty is closely linked with agricultural growth. The moderate pick-up in the growth of the economy during the decade of the 1990s was largely driven by manufacturing and services sectors, the activities that are concentrated in urban areas.

The challenges before the country in the context of the widening socio-economic disparities between states and regions as also the growing rural-urban divide were aptly summed up by the World Bank Chief Economist, Mr Nicholas H. Stern at a meeting in Bangalore in May this year. He stated that a central concern in the Tenth Plan is the growing disparities in growth performance and social outcomes across states.

More than half of India's poor live in just four states. Over two-thirds of poor live in rural areas and depend largely on agriculture. The highest incidence of poverty is found among people of scheduled castes and scheduled tribes, who face major social barriers that exclude them from opportunity.

With the concentration of poor people in these areas, there is a concentration of problems poor people face: Lower access to, and lower quality of public services, lack of leverage to gain fair treatment from public institutions, and greater vulnerability to corruption and abuse.

Mr Stern concluded: "Accelerating national growth, reducing poverty, and achieving national social targets will not be possible without strengthening the performance of, and access to, services in these lagging states, sectors and communities."

It is evident that if this trend of widening regional disparities and growing rural-urban divide is not arrested and reversed soon, it will not only continue to pull down the overall growth rate of the economy, but will lead to serious social strife in the country. It is, therefore, time the policy-makers viewed the situation with a new sense of urgency and initiated measures to contain the damage.

There is a need for the Planning Commission, Centre and the States to jointly formulate strategies and play a pro-active role in developing infrastructure facilities in the less developed regions and in utilisation of resources more efficiently.

As the World Bank Report observes, for growth to improve in lagging states, implementation of reforms is essential to reduce fiscal imbalances and improve the composition of public expenditure and investment climate. Of particular importance for poverty reduction and increasing rural incomes are policies aimed at increasing agricultural productivity and rural employment.

Taking a leaf out of the recent Asian experience, suitable modifications are needed in the development strategies of laggard states.

The major thrust will have to be on the development of human capital through education, health and nutrition apart from increased flow of funds to agriculture and rural infrastructure. To ensure this, the role of state intervention would be crucial in the medium term. Subsequently, the market will start playing its role.

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