Regional Disparity in India

‘Unity in diversity’ is a fundamental characteristic of India. The growth pattern of Indian Economy has reflected in various dimensions of social, economic, political, geographical, religious, cultural and linguistic diversities.

Reasons for Disparity

Natural Resources

• Most important reason for regional disparity is that India’s different regions are endowed with different natural and human-based resources. Some states such as West Bengal, Jharkhand, Odisha, Chhattisgarh etc. are endowed with better mineral resources while others such as Punjab and Haryana have better irrigation facilities.

Manmade / Historical Reasons

• The manmade reasons for regional disparity lie in the neglect of some regions and preference of other regions in terms of investments and infrastructure facilities. Apart from uneven distribution of geographical advantages, historical factors that go back to mughal era and became prominent in British Era, have also contributed to regional inequities.

Government Polices / Planning/ Economic Liberalization etc.

• To a great extent, the faulty planning process has been responsible for that. The striking regional disparities, inherited from colonial rule of over two centuries, have increased in the post-independence era because of faulty unified and centralized planning, political structure and social traditions.
• However, while income growth performance has diverged, there is a pleasant evidence of some convergence in Human Development indicators across the states.
• The government’s development policies adopted during successive plan periods have stressed the need to develop backward regions of the country. In promoting regional balanced development, public sector enterprises were located in backward areas of the country during the early phase of economic planning. However, despite of the pro-backward areas policies and programmes, considerable economic and social inequalities exist among different States of India, as reflected in differences in per capita State Domestic Product.
• However, the income differentials between more developed and relatively poorer states show a widening trend which is a matter of serious concern.
• Inter-state disparities in growth of GSDP have increased post economic reforms period. In general the richer states have grown faster than the poorer states, leaving the backward states struggling even for basic amenities such as universal primary education, primary health care, housing, rural roads, drinking water and electricity. Moreover, the regional disparities in per capita GSDP growth are even greater because the poorer states in general have experienced a faster growth in population.

Disparity in other parameters

Apart from the disparities in GSDP and Incomes, there are wide variations between the states even on other parameters such as health (IMR, MMR, expectancy of life at birth, access to safe drinking water, etc.), education (Adult literacy, Gross enrolment ratio at elementary, intermediate and higher education level) and infrastructure indicators.

Intra-state disparity

Various economic and social indicators confirm the higher level of inter-state disparities in India. Almost the same picture emerges among the different districts and regions within the states. Even in highly developed states such as Maharashtra, Gujarat, Tamil Nadu, Punjab and Haryana, there are districts and regions whose indicators are comparable to those of the poorest districts in most backward states. Maharastra is one of the most developed states in India but maximum numbers of farmers have committed suicides over there. This proves to the hypothesis that the benefits of the economic growth have not percolated downward.

Important Notes

• Rate of divergence has increased since the initiation of economic reforms as the value of gini coefficient has increased, intermittently.
• There are wide variations on account of social and demographic indicators such as poverty ratio, IMR, literacy rate, which plays an important role in the development of standard of living.
• While the GSDPs have been on the rise for all the states since 1991-92, there has been inequality in terms of development expenditure on education, infrastructure, health, urbanization, irrigation etc. The overall effectiveness of public investment and growth prospects of poor states could be improved by higher investment in social and economic infrastructure.
• Many of the states such as West Bengal have seriously deteriorated fiscal health. Some other states have been able to sustain fiscal health in quite satisfactory condition.
• Economic reforms led growth process increased concentration of economic activities in and around the centers already developed. High inequalities in infra-structural facilities, easy availability of skilled labour and raw material along with the investment friendly policies of state governments gave impetus to entrepreneurs to select developed regions for the expansion of their activities.
• The successive Finance Commissions with their recommendations on devolution of tax revenue between Union of India and States have tried to benefit the backward states, sometimes even on biased parameters, yet we have not been able to fill the gap between the states.

Role of Finance Commission in addressing Regional Disparity

The framers of the constitution were aware that our country has an in-built imbalance between the expenditure responsibilities and the revenue sources of the State governments. So, it was ensured that a comprehensive scheme of devolution of Central Tax revenues through the mechanism of Finance Commissions is put in place.

The sharing of Personal Income Tax and Excise duties collected by the Centre with the States is periodically reviewed by the Finance Commission appointed every five years as per mandate of Constitution via Article 280.

The Commission also decides the principles and the formula by which the allocable funds are to be distributed among the States.

An important aspect of the devolution of Central tax revenues under Finance Commission dispensation is that it has an in-built bias in favour of fiscally weak States. Population and per capita income of the State get high weight-age in the distribution formula. A State with larger population and lower per capita income gets a higher share in the Central tax revenues.

The gap between revenue receipts (other than the Central tax revenues) and revenue expenditure is another parameter, which decides the level of a State’s share.  As a result the Central tax share constitutes a major revenue source for the backward States.  While it constitutes about one-third of the total tax revenues of all the States taken together; it accounts for more than 50 per cent of the total tax revenues of less developed States like Bihar and Odisha; but its share is less than 15 per cent of the total tax revenues of more developed States like Gujarat, Haryana, Maharashtra and Punjab.