EAC-PM Report about state-wise economic performance

Source: The post EAC-PM report reveal about state-wise economic performance has been created, based on the article “A picture of a growing economic divide in India” published in “The Hindu” on 30th October 2024

UPSC Syllabus Topic: GS paper3 -Economic- growth, development and employment; Inclusive growth and issues arising from it.

Context: The article discusses economic disparities among Indian states. It highlights that richer states attract more investment, leading to growing inequalities. To address this, it suggests improving governance and focusing on the unorganised sector in poorer states to boost their growth and federal unity.

For detailed information on Economic divide among India’s States read Article 1, Article 2

What does the EAC-PM Report reveal about state-wise economic performance?

1. The Economic Advisory Council to the Prime Minister (EAC-PM) released a report on the economic performance of Indian states from 1960-61 to 2023-24.

2. It compares each state’s share in the national income and their per capita income against the all-India average. The report highlights significant disparities among states, with Maharashtra as the top contributor to the national economy. However, Maharashtra also has regions like Vidarbha, which face severe poverty and farmer distress, showing inequality within states.
3. The report notes that western and southern states consistently outperform eastern states, and most northern states perform poorly, except for Haryana and Delhi.
4. This widening gap leads to a federal divide, with wealthier states like Kerala questioning resource allocation by the central government. Similar protests occurred in 2000 against the Eleventh Finance Commission’s decisions.

What role does investment play in state development?

1. Investment drives economic output.

2. Richer states generally attract more investment due to higher returns, stronger infrastructure, and better governance.
3. Private investment, comprising 75% of total investment, favors well-developed areas like Mumbai, Delhi, and Bengaluru, where market potential is high. In contrast, poorer states see less investment due to weaker infrastructure and governance, further widening regional inequalities.
4. Coastal areas, including Odisha in the east, benefit from easier export access and lower import costs, attracting investment.
5. Urban centers such as Delhi and Bengaluru are preferred due to larger markets and better facilities.
6. Additionally, rich states have more efficient governance and educational facilities, attracting companies seeking productive labor.

How has liberalisation affected investment trends?

1. Post-1991 liberalisation reduced public sector investment in backward regions and increased private sector dominance, directing more funds to already developed states.

2. Consequently, savings from poorer states have moved to wealthier regions offering higher returns, worsening the credit-deposit ratio gap between rich and poor states.
3. Poorer states have larger unorganised sectors with low productivity and income. NEP policies favor the organised sector, and projects like freight corridors and highways extend this sector’s reach, benefiting richer states at the expense of poorer ones.

Why do some states face unique economic challenges?

1. West Bengal and Kerala have strong labor movements, which discourage private investment.
2. Border states receive less public investment due to strategic and security concerns, while opposition-led states allege the central government favors “Double Engine” (same-party) states, impacting investment flows.
3. In poorer states, weak governance, high black-market activity, and policy failures discourage investment, limiting growth potential.
4. Cronyism in investment decisions benefits select companies, raising overall investment risk, especially in less developed states.

How can India address these economic disparities?

1. To strengthen federalism and reduce inequalities, states need to improve governance and invest in social services.
2. The central government should focus on the unorganised sector to boost demand in poorer states, encouraging private investment.
3. Reducing regional disparities would support balanced growth across India.

Question for practice:

Examine how investment patterns contribute to economic disparities among Indian states and the potential solutions to address these inequalities.