Current Economic Divide Between Indian States

Source: The post current economic divide between Indian states has been created, based on the article “Why inequality between South and West India, and North and East could grow – and the dangers that carries” published in “Indian Express” on 12th August 2024

UPSC Syllabus Topic: GS Paper 3 – Indian Economy – Growth, and development

Context: The article discusses the growing income gap between richer southern and western states and poorer northern, central, and eastern states in India. It questions whether economic convergence is possible, given structural challenges and the current advantages of wealthier regions.

For detailed information on Economic divide among India’s States read this article here

What is the Current Economic Divide Between Indian States?

1. In 2023-24, Andhra Pradesh’s average income was about four times higher than Bihar’s.
2. By the end of the decade, this gap could rise to four-and-a-half times if growth trends continue.
3. The five southern states (Andhra Pradesh, Karnataka, Kerala, Tamil Nadu, and Telangana) account for 37% of all factories in India and a significant share of exports.
4. These states also contribute 33% of formal sector employment.
5. Uttar Pradesh and Bihar, despite lower wages, fail to attract companies due to a lack of infrastructure and workforce.
6. Noida and Ghaziabad, near Delhi, account for 46% of all formal jobs in Uttar Pradesh due to proximity to infrastructure.

Why Are Southern and Western States Growing Faster?

1. Southern and western states benefit from historical policies and market forces, fostering sectors like IT and manufacturing.
2. Key exporting districts and global capability centers are mostly in cities like Bengaluru, Hyderabad, Chennai, Mumbai, and Pune.
3. Apple’s manufacturing ecosystem, including Foxconn, is largely based in these regions.
4. Of the five semiconductor projects approved by the Centre, four are in Gujarat.
5. Infrastructure, skilled workforce, and financial networks allow these regions to maintain higher growth rates than northern and eastern states.

What Challenges Do Northern and Eastern States Face?

1. Lower Wages: Despite lower wages, they aren’t attractive enough for companies to relocate.
2. Lack of Industrial Base: These regions lack agglomeration effects seen in southern and western states, which have a manufacturing and services base.
3. Skilled Workforce Shortage: Northern and eastern states have a shortage of skilled workers, limiting economic growth.
4. Few Economic Hubs: Cities like Noida and Ghaziabad, which account for 46% of formal jobs in UP, benefit due to proximity to Delhi, but this is an exception.
5. Weaker Infrastructure: Unlike southern regions, infrastructure is less developed, hindering growth.

What Are the Potential Long-Term Effects?

1. The continued economic disparity might lead to increased migration from poorer to richer states, placing strain on infrastructure in wealthier areas.
2. This could result in increased local demands for job reservations.
3. Governments might resort to populist fiscal measures rather than addressing structural economic challenges.

Can Structural Transformation Happen?

Though addressing structural challenges in poorer regions is difficult, long-term government interventions, especially when the same party governs at both the Centre and state levels, could help reduce these inequalities. However, this will require sustained efforts over time.

Question for practice:

Examine the factors contributing to the faster economic growth of southern and western states in India compared to northern and eastern states.