Regional imbalance – Focus on equitable growth

News: One of the biggest challenges for policymakers is to enable the post-pandemic economy to attain higher sustainable growth in the medium term. The task of attaining higher sustainable growth has become more challenging because of global headwinds and India’s own weaknesses such as higher public debt.

What are the positive situations of the Indian economy?

-India’s corporate and bank balance sheets have improved and can support growth.

-Large foreign exchange reserves are helping India in dealing with external pressure.

What is the status of regional imbalance in the Indian economy?

The recently released Annual Survey of Industries highlighted the regional imbalance in the distribution of industries. This has implications for job creation and quality of life in general. For example, about 16% of all factories considered in the survey were in Tamil Nadu, and states such as Madhya Pradesh, Jharkhand, and Bihar had under 2% share.

The reasons for such regional imbalance are 1) Locational advantages such as coastal states importing raw materials and exporting the final product, 2) Better administration in the state.

In the absence of corrective action, the gap is likely to grow over time with the concentration of productive assets. This will lead to increased social tensions.

How can India reduce the regional imbalances in the Indian economy?

India needs to contend with the formidable issues of uneven distribution of growth and sustained regional imbalances. Successive finance commissions have tried to reduce the regional imbalance.

a) Promote manufacturing: Only the manufacturing sector can provide large-scale employment and pull people out of the agriculture sector, b) Ensure free movement of labour: This will allow large states to export surplus labour to states which have more factories and offer employment opportunities. Further, the state government’s has to avoid local labour reservation laws, c) Focus on exports: India has to take advantage of its surplus labour to become a manufacturing hub and increase exports.

Source: This post is based on the article “Regional imbalance – Focus on equitable growth” published in Business Standard on 15th June 22.