UPSC MAINS GS-3; ECONOMIC GROWTH AND DEVELOPMENT;GROWING ECONOMIC DIVIDE IN INDIA

 MEANING/ PHENOMENON / INTRODUCTION 

this editorial inspired articles analyse about regional disparities and solution.

Syllabus covered and used in:-

1. GS -2; polity- federal structural and issues
2. GS-1; regionlism , effects of LPG reforms
3. gs-3 economy
4. geography optional - economic gepgraphy ; paper- A& B
5. Economic optional 
6. essay
7. CSAT- english comprehension 

THEORIES/DATA/REPORTS and ITS FINDINGS 

1. In September 2024, the Economic Advisory Council to the Prime Minister (EAC-PM) released a paper titled, ‘Relative Economic Performance of Indian States: 1960-61 to 2023-24’. 
2. It presents the share of each State in the country’s income and the per capita income compared to the all-India average. 
3.  The data tell us the importance of each State in the country’s economy and the average welfare of the citizens of each State relative to the all-India level. 

1. The average, hides the inequality. :- MAHARASHTRA ;A CASE STUDY

1.         Maharashtra, which is the highest contributor to the nation’s economy, has a per capita income of about 150% of the national average. 
2.          But, it consists of Mumbai, which is rich, and Vidharba, which is known for farmers’ suicides due to poverty. 
3.          Mumbai’s rich contribute the largest amount of direct taxes and the city’s municipality is the richest in the country. 
4.          But it has huge slums with uncivilised living conditions. 

1.  Regional differentials
1.        The report points to the consistently better performance of the western and southern regions of India and 
2.         weak performance of the eastern States. 
3. The northern States have done poorly with the exception of Haryana and Delhi. 
2. Overall, the picture is of a growing divide in the country, which is not good for a federal and diverse nation such as India.

HOW?

1.  The report lists liberalisation (1991) as a marker of when the southern States began to perform better.
2. It also points to the coastal areas doing better, which includes Odisha in the east. 
3. But, could it be that the poorer performance of some States is linked to the better performance of some others? 

1.  Investment is the most important determinant of output. 

1. The higher the level of investment, the larger the size of the economy.
2.  So, for a more complete analysis, the level and the rate of investment in each State needs to be studied.
3.  The better-off States typically have a higher rate of investment than the poorer States, and, therefore, perform better.
4.  Investment comes from the (1) public and the (2)private sectors.
5. The first is based on policy decisions while the second is determined by profitability considerations. 
6. Government may invest in a backward area to develop it even if no profit accrues in the short run. 
7. The private sector will not do so unless the government gives it concessions such as tax breaks and electricity at concessional rates. 
8.  On its own, private investment goes to developed areas where a large market ensures profits. 
9. So, urban conglomerates such as Mumbai, Delhi, Chennai, Bengaluru and Hyderabad are preferred investment destinations. 
10.  Haryana which is contiguous with Delhi (with the highest per capita income) has also benefited. 
11.  Kolkata is not preferred for other reasons. [there party in power opposes capitalistic investment and had conflict with central government. also lack of  economic opportunities combined rampant corruption, maladministration  have limited/restricted/ aspirations of middle class , poor people ]
12.  Coastal regions are preferred since they enable cheaper access to external markets through exports. Also, cheap imported inputs may be available. 
13.  Infrastructure availability and quality of governance in a State are important determinants of profits. 
14. Richer States are better in both and attract more investments. 
15. Better governance is also linked to better quality of education and health. This leads to the availability of more productive labour. 
16. But this is not critical since there is huge migration from the poorer to the richer States.
17. Private investment is 75% of the total investment. 
18. After the launch of the New Economic Policies (NEP) in 1991, the public sector’s role as the leading sector shifted to the markets. 
19. Therefore, more investment has been going to the richer States where profits are higher.
20.  Further, the financial sector which guides investments became more important after 1991. 
21.  The considerable household savings increasingly got diverted from the poorer States to the richer ones which offered higher profits. 
22. This is reflected in the low credit-deposit ratio of the poorer States when compared to the richer States. This diversion of investment leads to growing disparity. 
23.  Finally, the poorer States have a larger share of the unorganised sector working at low productivity and low incomes.
1.  Under the NEP, policy has favoured the organised sector. 
2. This has been aided by the construction of freight corridors and highways which enables this sector to penetrate into the hinterland. 
3. So, the organised sector has grown at the expense of the unorganised sector and fuelled the faster growth of the richer States. 
4.  In brief, the NEP has played a major role in the growing divide across States since ‘liberalization’, as the EAC-PM paper points out. 
5.  West Bengal and Kerala are special cases. Both  States have had strong Left movements and labour militancy. So, the private sector has invested little in these States. The border States of India have received less public investment for strategic reasons. It is also because many of them suffered from insurgency which scared the private sector. 
6.  Opposition-ruled States have accused the Centre of playing politics with public investment.
7.  The often faunted slogan of ‘Double Engine ki Sarkar’ captures this idea. 
8. Further, growing cronyism in India impacts investment decisions since political signals are important.
9.  This spoils the investment climate by lowering the risk for the cronies while raising it for others. The result is a decline in the overall investment rate which impacts the poorer States more. 
10.  The black economy is also proportionately more in the poorer States. This vitiates the investment climate due to policy failure and weak governance and reduces the investment they receive
11. . Therefore, it reduces their growth potential

DISADVANTAGES

•  This growing gap is leading to the questioning of federalism. 
• Representatives of the richer States recently held a conclave in Kerala and argued that they are not receiving their fair share of resources from the Centre. 
• They say that they contribute much more to the national kitty than what the Centre gives back to them.
•  In the year 2000 also there was a ‘Conclave of the successful’ to protest the devolution by the Eleventh Finance Commission. 
• So, slowly, the spirit of federalism is weakening.

The persisting differentials in the economic performance of different States are threatening federalism- rising regionalism- hatred for poor , migrants in host state .

  

WAY FORWARD/SOLUTION/SUGGESTION

1. policies needs to reverse the trend of  differentials in the economic performance of different States . 
2. Private investment in the poorer States cannot be raised by fiat in the market-driven economy. It requires a change in the Centre’s strategy of favouring the organised sector at the expense of the unorganised sector. 
3.  Both the Centre and the States need to act together to reverse trend of private investments and improve the infrastructure   
4. The States need to improve governance and reduce the levels of corruption in their jurisdiction. 
5.  Public expenditures on social sectors need to be raised substantially. 
6.  focus shifts to the unorganised sector, the incomes of the marginalised would rise and that would boost demand and production in the poorer States. 
1. As demand rises in these States, it would attract more private investment. 
2.  The organised sector, which is constrained by shortage of demand, would also benefit. 
7. More concessions from the government 
8. These policy changes will help in declining disparities between states.  
9. This would be development from below which would strengthen federalism and help preserve the nation’s unity

CONCLUSION

1. These policy changes will help in declining disparities between states.  
2. This would be development from below which would strengthen federalism and help preserve the nation’s unity

FURTHER READING 

sustainable baniya analysis

HOMEWORK TIME

1. read or revise growth and development under GS-3 ; economy;

LETS BRAINSTORM AND PRACTICE ANSWER WRITING 

1.  why coastal region/state do  better than hinterland states or regions ?

Feel free share your doubts or comments, WINUPSC is happly here  😇💝