The Hindu Business Line : Growing economy, rising disparities

Despite several programmes in place to bridge the rural-urban gap and correct regional imbalances, Bharat remains India’s poor cousin and inter-State economic disparities remain as divisive as ever.

C. J. Punnathara

In its mission to correct regional imbalances and bridge the rural-urban divide, financial inclusion seems to be one of the guiding principles of state policy. Highlighting the need for equitable growth, the Prime Minister, Dr Manmohan Singh, has often stated that the National Common Minimum Programme aims at economic growth that is socially inclusive and regionally balanced.

Several programmes have been initiated to achieve these goals, and a few have begun to yield results. All indications are that organised bank credit is becoming increasingly accessible, and is being used by the rural people.

The incremental capital output ratio is becoming more positive in certain parts of rural India, which are beginning to flaunt their wealth. However, the rural-urban divide and inter-State economic disparities remain as divisive as ever. Spatially, socially and economically, Bharat remains a distant cousin of India.

So much so that the World Bank voiced its concern that “substantial disparities persist within the country.” In its Country Overview 2006, it pointed out that the reforms process, initiated in the 1990s, was accompanied by visible increase in income inequality — between urban and rural India, between the forward and backward States, as also between skilled and unskilled workers. This all happened even while the country was able to reduce the number of people living in absolute poverty by more than half.

The World Bank highlighted that higher-income States have been able to reduce poverty to the levels of some rich Latin American countries.

But poverty continues to be endemic and pervasive in such States as Assam, Bihar, Chhattisgarh, Jharkhand, Madhya Pradesh, Orissa, Rajasthan and Uttar Pradesh, it said. And as development process becomes more pronounced, the disparities are set to worsen.

The Disparities

Among the dynamic States, Punjab, Haryana, Maharashtra and Gujarat stood out during the 1980s: the first two primarily spurred by rapid agricultural growth that translated into accelerated industrial production, and the latter two for strong industrial performance.

However, with the development paradigm shifting from agriculture to industry, then to services and within it information technology and IT-enabled services, several States have found a shortcut to economic growth.

By 1993-94, Punjab was an economically dynamic State with a per capita net State Domestic Product of Rs 12,710, followed by Maharashtra (Rs 12,183), Haryana (Rs 11,079), Gujarat (Rs 9,796), Tamil Nadu (Rs 8,955), Kerala (Rs 7,983), Himachal Pradesh (Rs 7,870), Karnataka (Rs 7,838) and Andhra Pradesh (Rs 7,416). Bihar, with Rs 3,037, and Orissa, with Rs 4,896, were at the bottom of the heap, reflecting the deeply entrenched inter-State disparities.

Over 10 years later, in 2004-05, the same States were still leading the pack, albeit with a minor change of order. Haryana became the leader, with a per capita net domestic product of Rs 32,712, followed by Maharashtra (Rs 32,170), Punjab (Rs 30,701), Gujarat (Rs 28,355), Himachal Pradesh (Rs 27, 486), Kerala (Rs 27,048), Tamil Nadu (Rs 25,965), Karnataka (Rs 23,945) and Andhra Pradesh (Rs 23,153).

Though there was all-round growth, the plight of the poorer States worsened. Bihar’s per capita income increased to a meagre Rs 5,772. By contrast, Orissa’s per capita surged 177 per cent to Rs 13,601: holding out hope for the greater equity.

Driven by ITES

Several States did not go through the agriculture-industry-services cycle, but directly took the industry-services-IT&ITES path. They have gained substantially in the process, since farm growth was always low, at 4-4.5 per cent.

By contrast, industrial growth often ranged between 10 per cent and 20 per cent, the services sector grew 20-30 per cent, and IT&ITES over 30 per cent. The States that drew direct benefits from the industry-services-IT&ITES route directly were able to reap quick and rich rewards.

Himachal Pradesh recorded the top growth of 249 per cent: a State where recent efforts at rapid industrialisation and pursuit of IT and ITES (Nasscom Report: Himachal Pradesh Millennium IT Vision 2010), seems to have paid rich divid ends.

Kerala recorded 239 per cent growth between 1993-94 and 2004-05. But its case is an exception in the development paradigm because of its huge remittance inflows every year.

Andhra Pradesh recorded 212 per cent, followed by Karnataka (205 per cent), Haryana (195 per cent), Tamil Nadu (190 per cent) and Gujarat (189 per cent); all States with proven track records in increased activity in the services sector, IT, ITES and on the industrial front. By comparison, Bihar recorded a paltry growth rate of 90 per cent.

While the growth dichotomy is stark among the States, it is even more pronounced between rural and urban India. The hinterland is yet to move away from the low-growth cycle of agriculture.

The effort of the Government in setting right the regional imbalances might prove ineffectual, as disparity seems to be an inherent feature of the economic framework.

It might be more prudent for the Government to focus on inclusive and equitable growth rather than pursuing the dreams of bridging regional inequalities.