chapter: 4 inter-state analysis of economic...

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Chapter: 4

Inter-State Analysis of Economic Disparities

Reducing regional disparities in development has been a major

concern throughout the plan period. These disparities were largely

inherited from the pre-independence period partially because of the

regional diversity in natural endowments and also because of the

differences in land tenure systems, investment patterns and systems of

governance in different parts of the country which were basically

designed to serve the interest of colonial government and a large

number of princely states (Rao, 2010). Reform of land tenures and

development of infrastructure in the backward regions received a high

priority in the post-independence period. Programmes for the

development of drought prone areas, hill and tribal areas were also

launched from time to time. Federal financial transfers through the

successive Finance Commissions and Planning Commission have

distinctly favoured the less developed states over a period of time.

However, fiscal transfers in a democratic polity have its own limitations

and thus, inter-state disparities in the levels of development persisted

and even increased in some extent. There has been a marked increase

in inter-state disparities in the post-reform period.

Regional Disparities in Economic Growth:

The nexus in between and inequality has been debated

extensively by the scholars in terms of theory as well as empirical

investigators. For example, starting with the classical economists,

Ricardo‟s two sector model which mainly concentrated on growth and

distribution within agriculture and industry addressed the shares of rent

and profits and growth process eventually approaching the steady state

of zero growth due to diminishing returns in agriculture (Boyer, 1996).

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Karl Marx also believed that capitalist development would inherently

result in uneven distribution of wealth and capitalist have an incentive

for pushing wages to the subsistence level (Martin and Sunley-1998,

Dunford and Smith-2000). The neo-classical growth models for closed

economies [Solow (1956, 1957, 1970), Cass (1965), and Koopmans

(1965)] state that per capita growth rate tends to be inversely related to

the starting level of output/income per head and if economies are similar

in respect of preferences and technologies, then poor economies grow

faster than rich ones. The neo-classical, however, were more optimistic

about market forces and postulated that regional inequality is a passing

phase and that market forces would ensure that the returns to all factors

of production would approach their marginal products (Smith, 1975).

Neo-Keynesians such as Kalechi (1954), Steindl (1952), Kaldor (1955-

56, 60) and Pasinetti (1962) have explained the inter-relationship

between income distribution and economic growth. By and large, Neo-

Keynesian growth models have concluded that reduction in

concentration raises the real wage and provides a redistribution of

income which leads to higher capacity utilization and higher rate of

economic growth.

The link between inequality and average well-being for two sector

economy is known as Kuznets hypothesis (1955, 1963) which maintains

that given a two-sector economy with not too distinct degrees of

sectoral mean incomes, a perennial shift of population from one sector

to another will initially raise aggregate inequality and it will decrease at

later stage. This formulation has been labeled as the “Inverted U” (I-U)

hypothesis or Kuznets cycle (Branlke, 1983). Regional concentration/

diversification has also been examined through „convergence

hypothesis‟ which has primarily emerged due to seminal theoretical

contributions on endogenous growth models by Romer (1986, 1987,

1990, 1992, 1993) and Lucas (1988). The hypothesis asserts that

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differences in contemporaneous per capita income between any pair of

regions will be transitory so long as the two regions contain identical

technologies, preferences and population growth (Bernard and Durlauf,

1966). The bulk of the new theoretical literature on growth and

inequality has focused on models which generate divergence across

nations. The theoretical as well as empirical presentation by Barro,

Robert J. (1990, 1991, 1999), Borro, Robert J. and Jong-Wha Lee

(1994), Barro, Robert J., N. Gregory Mankiw, and Xavier Sala-i-Martin

(1991, 1992a, 1992b, 1992c, 1997, 2007), Baumol (1986), Cashin

(1995), Cashin and Sahay (1996), Delong (1988), Dowrick and Nguyen

(1989), Easterlin (1960a, 1960b), Quah (1993, 1995, 1996a, 1996b) etc.

deal with process of convergence/divergence at national as well as

international level (Gaur, 2010).

In India, inter-state/region inequality has been one of the major

concerns before policy makers and planners. There had been a huge

gap between active and vibrant region and the hinterland during the

pre-independence period in terms of availability of facilities and this

manifested itself in the form of unequal levels of development both in

terms of economic and human. After independence, reduction in inter-

state/region disparities has been emphasized during the successive five

year plans. Apart from that, the issue has been examined, in depth, by

the scholars like Chattopadhyaya, R.N. and M.N. Pal (1972), Rao, S.K.

(1973), Nair, K.R.G. (1973, 1982), Sampat, R.K. (1977), Mohapatra,

A.C. (1978), Mathur, Ashok (1983, 1987, 1992), Datt and Ravallion

(1993, 1998, 2002), Dreeze and Sen (1995), Dreeze and Srinivasan

(1996), Marie-AngeVeganzones (1998), Rao, M. Govinda, RicShand

and K.P. Kalirajan (1999), Ramiah (2002), Ahluwalia, M. (2002),

Ravindra H. Dholakia (2003), Majumdar, R. (2004), Shatakshee

Dhongde (2006), Dev, S.M. and Ravi, C. (2007), N.J. Kurian (2007),

GauravNayyar (2008), Yanrui Wu (2008), ChakrabortyAchin (2009). For

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example, according to Dreze and Sen (1995), enormous variations in

regional experiences and achievements coupled with the even sharper

contrasts in some fields of social development have resulted in

remarkable internal diversities in India. Furthermore, the long-term

progress in raising rural living standards has been diverse across Indian

states (Datt and Ravallion, 1998). Such disparities are responsible for

various states having different capacities for poverty reduction (Datt and

Ravallion, 2002). Similarly, Rajarshi Majumdar (2004) in his paper

entitled, “Human Development in India : Regional Pattern and Policy

Issues” has observed that states like Kerala, Maharashtra and

Himanchal Pradesh put up consistently good performance regarding

social and human development indicators, however, Kerala has not

been able to convert its social development into economic progress. On

the other hand, Gujarat, in spite of its having low Human Development

(HD) ranks, have consistently good ranking in per capita Net State

Domestic Product (PCNSDP).

The National Human Development Report-2001 for India reveals

considerable differences in human development among Indian states

during 1981-2001. The report notes that in the early eighties, states like

Bihar, U.P., M.P., Rajasthan and Orissa had HDI close to just half that

of Kerala‟s. The inter-state differences in human poverty are quite

striking and report notes that while there have been improvements in

the human development index and human poverty index during the

1980s, the inter-state disparities and the relative position of the states

has practically remained the same. Facts show that inter-state disparity

as measured in terms of standard deviation in human development

index stood 0.083 for 1981 which further increased and stood at 0.100

in 1991 [Tenth Five Year Plan (2002-2007), Vol. III]. The World Bank

(2006) in its report entitled, “India-Inclusive Growth and Service

delivery: Building on India‟s Success” has observed sharp differentiation

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across states since the early 1990s reflects acceleration of growth in

some states but deceleration in others. The report further adds that

more worryingly, growth failed to pick up in states such as Bihar, Orissa

and Uttar Pradesh that were initially poor to start with, with the result

that the gap in performance between India‟s rich and poor states

widened dramatically during the 1990s. An approach to the 11th

Five

Year Plan (Planning Commission, Government of India, 2006) has also

acknowledged regional backwardness as an issue of concern. The

differences across states have long been a cause of concern and

therefore, we cannot let large parts of the country be trapped in a prison

of discontent, injustice and frustration that will only breed extremism.

The World Bank (2008) in its recent release “The Growth Report

Strategies for Sustained Growth and Inclusive Development” has

mentioned that disparity in income distribution in India has risen during

1993-2005.

Causes for Regional Disparities:

It is actually difficult to find out the main cause of regional

disparities. It exist in all developed and under developed countries of

the world. Regional disparities are of two types, one is natural

endowment and other is man-made due to the negligence and

preference. On the other hand, regional disparities may be inter-

regional or intra-regional may be total or sectoral. As mentioned earlier

that regional disparities were largely inherited from the pre-

independence period. Investment in physical and human capital,

technical change and institutions, including those of governance are the

three key variables usually invoked for understanding the growth

performance. The decline in public investment on irrigation, power and

social sectors has been cause of concern. Within the states, the per

capita plan outlays of the poorer states have always been much lower

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than those of the better of states. These disparities have widened in the

post-reform period. Central assistance for the state plans (including

assistance for externally aided projects), which is a major component of

state plan resources, has been progressive in that the per capita

assistance for the poorer states has been higher than for the richer

states. The poorer states have been handicapped basically by their own

weaker resource positions. The per capita own plan resources of the

poorer states, including market borrowing, constituted around 40 per

cent of own per capita plan resources of some of the better of states.

The important factor responsible for the deterioration in the financial

position of the poorer states is the decline in the tax GDP ratio of the

Centre in the post-reform period and the consequent decline in the

transfers to the states through devolution as recommended by the

Finance Commissions. The decline in per capita transfers to the poorer

states was even greater because the formula for devolution by the

Finance Commission is quite progressive. The debt – GDP ratios of

poorer states are higher. Because of their lower credit worthiness, they

have not been able to access borrowings from the market to the same

extent as the richer states. The inability of the less developed states to

access sufficient resources for the development of infrastructure

through higher plan outlays has thus emerged as a critical constraint in

redressing regional imbalances in development. Private investment has

been flowing basically to the higher income states where per capita plan

outlays have been higher and where, therefore, infrastructure is well

developed. The developed states are characterized by progressive land

tenures whereas most of the less developed states were under the

exploitative tenures. Similarly, the developed states have good

governance which resulted in effective utilization of resources and

delivery of public services with improved infrastructure development.

However, in the backward states, the central transfers and external

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resources in terms of development projects could not yield the desired

results due to malpractices and prevailing high level of corruption.

Policy Measures for Addressing Regional Inequalities:

As the 11th Plan commenced, a wide spread perception all over

the country emerged that disparities among states and regions have

been steadily increasing in the past few years and the gains of rapid

growth witnessed have not been reached all parts of the country and all

sections of people in an equitable manner. The 11th Plan made

provisions for budgetary support for the new centrally sponsored

schemes and additional central assistance. The centrally sponsored

schemes included Backward Region Grant Fund, Hill Area

Development Programme, Border Area Development Programme, and

Special Initiative of Earmarking of 10% Funds for North-East Region,

Non-lapsable Central Pool of Resources and Setting up of Ministry of

Development of North-Eastern Region, North-Eastern Development

Council etc. The 11th and 12th Central Finance Commissions also

adopted progressive formulas for devolution of resources to the states.

The central assistance in terms of development projects and financing

of state plans has also increased for the poorer states. The government

also highlighted the imperative need for reforming tax system and

effective debt management. Central government also initiated mega

projects in mission mode for infrastructure development, improving

governance and public services however, the advantages of such

projects was again availed by the developed states. This shows that

government transfers and development initiatives have not been

successful in reducing in regional inequalities.

Economic Reforms and Regional Disparities:

The different regions of a nation are often endowed with different

natural resources and usually have different historical, sociological and

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political backgrounds. The assumption, in traditional economic theory,

of free and costless mobility of factors of production – labour, capital

and entrepreneurship – across the regions of any particular nation

hence seldom holds true in actual practice. As a result mainly of all this,

it is very seldom that the different regions of a nation are all at the same

level of economic development at any point of time. For less developed

national economies, the existence of backward regions can cause

considerable concern. Further as a nation develops economically, the

different regions of the nation may or may not share the benefits of this

economic development equally. It is hence a matter of great interest to

examine the manner in which inter-regional differences in the levels of

economic development undergo change during the process of national

economic development. If these have a natural tendency to decline in

the process of national economic development, and the time taken for

this decline is not the proverbial Keynesian long-run in which all of us

may be dead, there is no need to devise and rigorously implement

deliberate policy measures to mitigate these. But on the contrary, if

there is an automatic and built-in tendency on economic grounds for

these to increase with national economic development, policy measures

to prevent such increases are definitely called for (Nair, 2004).

Considerable economic, and, since 1990s, econometric research

has gone on to unravel the pattern of regional economic change in the

process of national economic development. Myrdal (1956) and

Hirschman (1961) have identified in detail the forces that operate to

bring about these relative regional changes. While Myrdal (1956) refers

to the forces of convergence and of divergence as spread and

backwash effects, Hirschman (1961) describes these broadly as

trickling-down and polarization effects respectively. Scanning regional

economic literature, one comes across at least three different

hypotheses in this regard and these differ on the emphasis given to the

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relative importance over time of the forces of convergence and of

divergence. One of these is the self-perpetuation hypothesis

propounded by Hughes (1961) and found empirically valid by Booth

(1964) for the USA. According to this view, the forces of divergence

dominate over those of convergence and as a result, inter-regional

differences in the levels of economic development keep on widening

over time. A diametrically opposite view is the convergence hypothesis

propounded and found empirically valid by Hanna (1959) and

substantiated these days also with the Solovian logic that the rate of

economic growth is inversely related to the level of per capita income

and hence given identical technologies, preferences and rates of

population growth, cotemporaneous differences in per capita incomes

between any two regions will be transitory.

Considerable evidence to support the hypothesis empirically has

been provided by Hanna (1959), Perloff et. al. (1960) and Sala-i-Martin

(1996). The third hypothesis, which in a sense is a happy combination

of these two diametrically opposite views is the concentration cycle

hypothesis propounded by Williamson (1965). The proponents of this

view, point out that inter-regional economic differentials diverge initially

to converge later on and thus trace out the famous Kuznets inverted U-

shaped curve over time in the process of national economic

development. Considerable empirical evidence in support of such a

view emerged as a result of a detailed international study of regional

development experiences by Williamson (1965). A new and valid point

being stressed in this regard by many including Nair (1982) is that the

pattern of regional change depends upon the indicator of development

being considered, with different indicators showing different patterns of

regional change.

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Growing Inter-State Inequalities:

Disparities of various kinds have been viewed as the price paid by

man for development gains. Problem of regional disparities in the levels

of economic development is almost universal. Its extent may differ in

different economies, but its existence can hardly be challenged

seriously in any nation of respectable size. While most experts generally

agree that inherent tendencies for increasing regional disparities exist in

the early stages of national economic development, sharp differences of

opinions and judgments, exist on the prediction of ultimate convergence

as the nation reaches matured stages of development and on the basic

determinants of regional growth different (Khare, 2011).

The early relevant work in regional growth was mainly restricted

to export base analysis or the inward looking theories developed mainly

by urban planners (Tiebout and North, Hillhorst, Clark-Fisher); Ohlin‟s

work on inter-regional trade (1933); study of urban-regional

relationships by Christaller (1933) and Losch (1943). However, none of

these directly dealt with the process of regional growth until the late

1950s, when Mydral (1957) and Kaldor (1970) felt that the basic forces

at work were disequalibrating in nature. Although Mydral (1957)

recognized that the spread effects usually become stronger as a nation

develops, he believed that the backwash effects were on an average

more powerful than the spread effects. Hirschman (1959) also felt that

the polarization effects were stronger than the trickling-down effects in

the earlier stages of development of a nation. Kaldor‟s Model (1970)

formalized by Richardson (1973) predicted divergence. But the

reformulation of the same model by Richardson (1978) later showed

that it was equally consistent with convergence.

Table 4.1 demonstrates the state relatives of per capita NSDP at

constant – 1993-94 prices for the post-reform period. The table shows

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that there are different tendencies towards regional divergence in the

post-reform period. 6 of the 9 states experienced negative changes.

The large negative changes were reported in Assam and negative

changes were also observed in the states of Bihar and Uttar Pradesh.

The significant changes were reported in the state of Gujarat, Tamil

Nadu and Karnataka. All this is reflected in the fact that the co-relation

co-efficient between the state relative in the initial year and its

percentage change during the post-reform period is positive and has a

value of 0.35 which is higher than the 1 in the pre-reform period.

Table: 4.1

State Relatives of Per Capita NSDP

State State Relatives in

1991-92 to 1993-94

1997-98 to 1999-2000

% change

Bihar 51.20 41.93 -18.11

Orissa 62.23 53.65 -13.78

Uttar Pradesh 69.30 56.78 -18.07

Assam 74.84 59.55 -20.42

Madhya Pradesh 81.33 75.85 -6.74

Rajasthan 85.01 89.03 4.73

West Bengal 86.34 90.58 4.92

Andhra Pradesh 94.01 91.50 -2.67

Kerala 97.19 98.50 1.34

Karnataka 100.14 105.88 5.73

Himachal Pradesh 101.52 103.29 1.74

Tamil Nadu 111.64 120.87 8.27

Gujarat 123.63 134.78 9.02

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Haryana 146.21 133.95 -8.38

Maharashtra 147.12 146.20 -0.63

Punjab 164.06 146.78 -10.54

Source: Calculated from Economic and Political Weekly Research Foundation.

Per capita income was reported significantly high in high income

states though these states account for only 1/4th of the population.

Similarly, per capita income was recorded low in low income states

which comprise 44.8 per cent population of the country. The share of

productivity was also recorded high in high income states followed by

north-east and special category states while it was found low in low

income states. The growth of productivity during 1983 to 2003 was also

recorded significantly high in high income states and low in north-east

and special category states (Table 4.2).

Table: 4.2

Per-capita Incomes and Productivity Levels by States

Regions Population 2001

(million)

Share of Population in India (%)

Income per Capita

(Rs. 1993~94 price),

average of 2000/01-

02/03

Productivity Levels, 1983-

2003 Normalized by Average India

Productivity Growth 1983-

2003 Normalized by Average India

LIS 464.1 44.8 7398.9 55.1 64.3

NESCS 37.7 3.6 7986.6 128.5 57.6

MIS 249.9 24.1 12157.4 78.2 122.6

HIS 258.4 24.9 17256.0 130.7 149.6

India 1036.6 100.0 11376.2 100 100

Source: World Bank States Data Base and NSS Surveys

Disparities among States have been steadily increasing

particularly since the initiation of economic reforms in the country. The

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Eleventh Five-Year Plan document expressed concern over the

widening income differentials between more developed and relatively

poorer States. In the post-reform period, private investment had gone

mostly to southern and western States because of proximity to ports,

better infrastructure and perceptions regarding better governance.

Table 4.3 presents the trends in inter-State differentials in comparable

estimates of per capita Gross State Domestic Product (GSDP) over the

years.

Table: 4.3

Inter-State Disparities in Per Capita GSDP

Year State With the Lowest Per

Capita GSDP

State With the Highest Per

Capita GSDP

Ratio of Minimum to

Maximum Per Capita GSDP

1993-94 Bihar Punjab 30.53

1996-97 Bihar Maharashtra 27.59







2005-06 Bihar Haryana 20.75

2006-07 Bihar Haryana 19.27

Source: Planning Commission, Eleventh Five-Year Plan.

In 1993-94, the per capita GSDP of Bihar, the lowest Income

State was 30.53 per cent of the highest Income State of Punjab. By

2006-07, the per capita income of Bihar slipped to 19.27 per cent of the

highest Income State of Haryana. In the above Table, the per capita

income Goa, the highest Income State in the country has not been

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taken into account as it is an outlier. In 2006-07, the per capita income

of Goa was double that of Haryana, the next highest income State. If

Goa is included, the ratio between the per capita incomes of the highest

and the lowest State will be 10:1 in the year 2006-07, the latest year for

which the comparable estimates of per capita GSDP are available.

The Tenth Plan was the first Plan that specified targets for the

growth rate for each State, in consultation with the State Governments.

Through the Eighth and Ninth Plan periods, the rate of growth in the

better-off states (that is, States with per capita income above the

national average) had been generally higher than those of the States

with a lower than average per capita income. This had led to gradually

increasing differences in per capita income among the States. The

Tenth Five Year Plan targeted a growth rate of 8 percent per annum for

the country as a whole; however, the Gross State Domestic Product

(GSDP) growth rate targets for different States adopted by the Tenth

Plan were both higher and lower than this average. The latest available

figures show the following growth rates as having been achieved by

various States during the Tenth Plan period as compared to the targets.

For obtaining a longer term perspective, growth rates achieved in the

Eighth and Ninth Plans are also given in Table 4.4.

Table: 4.4

Growth Rates in State Domestic Product in Different States

S.No. State/UT Eight Plan Ninth Plan Tenth Plan

Target Actual

Non Special Category States

1 Andhra Pradesh 5.4 4.6 6.8 6.7

2 Bihar 2.2 4.0 6.2 4.7

3 Goa 8.9 5.5 9.2 7.8

4 Gujarat 12.4 4.0 10.2 10.6

5 Haryana 5.2 4.1 7.9 7.6

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6 Karnataka 6.2 7.2 10.1 7.0

7 Kerala 6.5 5.7 6.5 7.2

8 Madhya Pradesh 6.3 4.0 7.0 4.3

9 Maharashtra 8.9 4.7 7.4 7.9

10 Orissa 2.1 5.1 6.2 9.1

11 Punjab 4.7 4.4 6.4 4.5

12 Rajasthan 7.5 3.5 8.3 5.0

13 Tamil Nadu 7.0 6.3 8.0 6.6

14 Uttar Pradesh 4.9 4.0 7.6 4.6

15 West Bengal 6.3 6.9 8.8 6.1

16 Chhattisgarh NA NA 6.1 9.2

17 Jharkhand NA NA 6.9 11.1

Special Category States

1 Arunachal Pradesh 5.1 4.4 8.0 5.8

2 Assam 2.8 2.1 6.2 6.1

3 Himachal Pradesh 6.5 5.9 8.9 7.3

4 Jammu & Kashmir 5.0 5.2 6.3 5.2

5 Manipur 4.6 6.4 6.5 11.6

6 Meghalaya 3.8 6.2 6.3 5.6

7 Mizoram NA NA 5.3 5.9

8 Nagaland 8.9 2.6 5.6 8.3

9 Sikkim 5.3 8.3 7.9 7.7

10 Tripura 6.6 7.4 7.3 8.7

11 Uttarakhand NA NA 6.8 8.8

Source: CSO, 2007.

Growth rate is the principal yardstick of economic performance

and development of states (Haseen, 2011). Table 4.5 presents growth

rates of Gross State Domestic Product and Per Capita Gross State

Domestic Product at current prices. It is clear from the table that some

states have achieved higher Gross State Domestic Product growth

rates while others trail behind the all India growth rate. In the 1960, the

highest growth rates were recorded by Punjab, Haryana and Himachal

Pradesh. Bihar was slowest growing state with less than 1 per cent

growth rate. During 1970s, there was a slight change in growth pattern.

Along with Punjab, Haryana and the state of Maharashtra, Gujarat,

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Karnataka and Tamil Nadu started registering high rate of growth. The

national average of economic growth increased from 3.6 per cent of the

previous decades to 5.6 per cent in 1980s. Andhra Pradesh, Assam,

Kerala and Madhya Pradesh have been less than the national average

during the 1980s. All the major states achieved over 5 per cent growth

during 1980s. Tamil Nadu, Karnataka, Haryana and Rajasthan

developed rapidly during the 1980s. However, during the 1990s,

Gujarat, Karnataka and Maharashtra witnessed growth rate of over 7

per cent per annum. West Bengal and Rajasthan also performed well

and achieved more than 7 per cent growth rates while the performance

of poor states like Bihar, Orissa, Assam and Uttar Pradesh could not

achieved the remarkable growth.

Table: 4.5

Growth Rate of GSDP and Per Capita GSDP at Current Prices

(Per cent)

States Gross States Domestic Product Gross States Domestic Product Per Capita

1980-81 to 1990-91

1993-94 to 1998-99

1990-200 to 2005-06

1980-81 to 1990-91

1993-94 to 1998-99

Karnataka 5.4 8.2 12.9 3.3 6.4

Gujarat 5.1 8.0 16.2 3.0 6.2

Tamil Nadu 5.4 6.8 11.0 3.9 5.8

Maharashtra 6.0 7.1 12.5 3.6 5.4

Rajasthan 5.9 7.7 8.3 3.8 5.3

West Bengal 4.8 6.8 12.4 2.6 5.0

Goa 5.5 8.3 15.9 3.9 4.5

Kerala 3.2 5.5 12.2 1.7 4.2

Himachal Pradesh 5.0 6.7 13.3 3.1 3.9

Haryana 6.2 5.8 17.9 3.9 3.6

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Andhra Pradesh 4.3 4.9 13.7 2.1 3.5

Punjab 5.4 5.0 10.4 3.5 3.0

Orissa 5.0 4.3 13.8 3.1 2.9

Bihar 4.7 4.2 9.7 2.5 2.6

Madhya Pradesh 4.0 4.4 7.5 2.1 2.3

Uttar Pradesh 4.9 4.5 9.9 2.5 2.3

Assam 3.6 2.7 10.8 1.4 1.0

All India 5.9 6.8 13.9 3.3 4.8

Source: Central Statistical Organization, Government of India.

Agriculture being the backbone of Indian economy, concerned

efforts has been made for its improvement in the post-independence

period. The Green Revolution has solved the food problem of the

country but has created the regional imbalances in agricultural

development (Saran & Goel, 2011). Agricultural development is a

complex process and has multidimensional structure depending upon

its resources in general and infrastructural facilities in particular. As for

the levels of agricultural productivity are concerned, the states like

Punjab, Haryana, West Bengal, Kerala, Andhra Pradesh, Uttar Pradesh,

Himachal Pradesh, Tamil Nadu and Jammu & Kashmir are placed

above the national average while the states like Gujarat, Karnataka,

Orissa, Bihar, Madhya Pradesh, Rajasthan and Maharashtra are below

the national average. There is an uneven growth in agricultural

productivity in the states. The performance in agricultural growth has

been reported significant in some of the states like Punjab and Haryana

while West Bengal, Himachal Pradesh, Andhra Pradesh, Uttar Pradesh

and Kerala performed above the national level. Madhya Pradesh,

Maharashtra and Rajasthan continued to remain the least developed

states so far as food grain production is concerned.

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The Eleventh Plan has continued the Tenth Plan initiative of

working out GSDP growth targets for States. Consistent with the

country‟s overall GDP growth target of 9 percent per annum for the

Eleventh Plan, the following growth targets for each State, broken up

into targets for each sector, have been worked out (Table 4.6). For the

agricultural sector, the State-wise projection has been made on the

basis of a rigorous panel data regression model. The growth target for

Industry and Services sector has been made by linearly projecting the

past contribution of each State to the overall growth performance of

these sectors at the national level.

Table: 4.6

State-wise Growth Target for the Eleventh Five Year Plan

(Annual Average in %)

State/ UTs State-wise Growth Target

Agriculture Industry Services GSDP Growth

Non Special Category States

Andhra Pradesh 4.0 12.0 10.4 9.5

Bihar 7.0 8.0 8.0 7.6

Chhattisgarh 1.7 12.0 8.0 8.6

Goa 7.7 15.7 9.0 12.1

Gujarat 5.5 14.0 10.5 11.2

Haryana 5.3 14.0 12.0 11.0

Jharkhand 6.3 12.0 8.0 9.8

Karnataka 5.4 12.5 12.0 11.2

Kerala 0.3 9.0 11.0 9.5

Madhya Pradesh 4.4 8.0 7.0 6.7

Maharashtra 4.4 8.0 10.2 9.1

Orissa 3.0 12.0 9.6 8.8

125

Punjab 2.4 8.0 7.4 5.9

Rajasthan 3.5 8.0 8.9 7.4

Tamil Nadu 4.7 8.0 9.4 8.5

Uttar Pradesh 3.0 8.0 7.1 6.1

West Bengal 4.0 11.0 11.0 9.7


Arunachal Pradesh 2.8 8.0 7.2 6.4

Assam 2.0 8.0 8.0 6.5

Himachal Pradesh 3.0 14.5 7.5 9.5

Jammu & Kashmir 4.3 9.8 6.4 6.4

Manipur 1.2 8.0 7.0 5.9

Meghalaya 4.7 8.0 7.9 7.3

Mizoram 1.6 8.0 8.0 7.1

Nagaland 8.4 8.0 10.0 9.3

Sikkim 3.3 8.0 7.2 6.7

Tripura 1.4 8.0 8.0 6.9

Uttarakhand 3.0 12.0 11.0 9.9

Source: Planning Commission

The Eleventh Five Year Plan has attempted in a similar manner to

break down the monitorable targets at the national level into State-level

targets. These targets will help to focus attention on the extent to which

progress has been achieved in the relatively backward States and

districts. Table 4.7 presents summary indicators of disparity in per

capita income across States in India. This does not consider the intra-

State distribution of income. The ratio of minimum to maximum per

capita GSDP increased for three years from 21.56 percent in 2001-02 to

22.71 percent in 2003-04 and then decreased in 2004-05 to 20.11

percent. The weighted coefficient of variation also shows an increase

over the years. The Gini Coefficient indicated in column (6) of the Table

126

reflects the income inequality across the States, which increases from

0.2078 in 2001-02 to 0.2409 in 2004-05. In other words, the income

inequality across States is worsening.

Table: 4.7

Disparity in Per Capita GSDP

Year State with lowest per

capita GSDP

State with highest* per capita GSDP

Ratio of Minimum to Maximum per capita

GSDP

Coefficient of variation

Gini Coefficient $

(in %) Weighted

1993-94 Bihar Punjab 30.527 34.549 0.1917

1996-97 Bihar Maharashtra 27.586 36.781 0.2071


2001-02 Bihar Punjab 21.556 35.610 0.2078

2002-03 Bihar Punjab 21.608 36.686 0.2771

2003-04 Bihar Punjab 22.705 36.230 0.2290


Source: TFC Report for the Year 1993-94, 1996-97 and 1999-2000.

However, we also need to reckon with the fact that the slower

growing States cannot catch up with the faster growing States within a

short time period of five years. What this Plan seeks to do is to target

the slower growing States and the backward areas within these States,

for higher levels of public investment that will enable the backlog in

physical and social infrastructure to be addressed. This would, in turn,

provide a platform for much more rapid growth in the Twelfth Plan

period.

While differences in GSDP growth rates, and absolute levels of

per capita GSDP, are summary economic indicators of disparities, there

are wide variations between the States even on other health, education

and infrastructure indicators. In the current scenario where high growth

127

rates have led to a spiral of commercial and service sector activity in the

already developed regions, the backward areas continue to lack even

basic amenities such as education, health, housing, rural roads,

drinking water and electricity. Livelihood options are also limited as

agriculture does not give adequate returns and industry is virtually

absent, leading to limited trade and services. People seeking

employment in low skill, low paying jobs is a common manifestation of

these constraints in many rural areas. Compounding these problems is

the lack of manpower to man essential services such as educational

institutions and health centers. A large part of the disparities are

probably due to historical reasons, differences in initial conditions and

natural resource endowments. However, there is no clear pattern that

seems to be applicable to all cases.

While the above is the situation as between States, very much the

same picture is seen among the different districts and regions within

States. Even in highly developed States, there are regions and districts

whose indicators are comparable to those of the poorest districts in the

most backward States. While some level of intra- State and inter-State

disparity is bound to exist even in the best possible situation, the effort

of the planning process must be to enable backward regions to

substantially overcome the disadvantages they labour under and to

provide at least a certain minimum standard of services for their

citizens.

The share of non-farm sector employment among the adult

population (15-60 years) as per NSS Rounds is shown in Table 4.8. The

share of non-farm sector employment in rural India was reported 22.3

per cent in 1983 which increased to 31.5 per cent in 2004. In the state

of Kerala, there has been sectoral shift of non-farm sector employment

as in 2004 non-farm sector employment constituted 77.4 per cent while

it was only 55.8 per cent in 1983. Similarly, the states who have

128

recorded significant growth in the share of non-farm sector employment

were reported to be Chhattisgarh, Jharkhand, West Bengal, Uttar

Pradesh, Tamil Nadu, Rajasthan, Punjab, Haryana, Maharashtra,

Karnataka, Himachal Pradesh, Gujarat and Bihar.

Table: 4.8

Share of Non-farm Sector Employment

State 1983 1987 1993 1999 2004

All India 22.3 25.2 25.2 27.3 31.5

Andhra Pradesh

23.1 25.4 24.0 24.1 30.3

Assam 26.7 32.2 33.8 41.6 34.7

Bihar 17.6 17.2 15.3 18.5 24.9

Gujarat 18.0 29.9 24.9 25.0 26.5

Haryana 28.3 28.4 39.2 40.7 47.4

HP 15.8 22.9 26.6 36.8 38.0

Karnataka 19.6 22.0 22.2 23.1 21.4

Kerala 55.8 60.0 66.3 71.5 77.4

MP 13.5 15.3 12.7 16.1 19.5

Maharashtra 16.8 19.6 19.8 20.6 22.3

Orissa 24.4 29.2 22.9 24.0 36.6

Punjab 26.3 32.9 33.9 38.5 48.5

Rajasthan 16.9 29.4 25.6 27.9 32.0

Tamil Nadu 29.1 32.2 32.5 35.8 37.6

Uttar Pradesh 21.0 20.0 23.0 27.8 33.4

West Bengal 32.4 33.3 39.4 38.2 41.2

Jharkhand 23.6 27.0 23.5 30.2 34.8

Chattisgarh 8.4 10.6 10.4 11.7 15.4

Uttarakhand 21.9 18.8 18.0 24.3 26.9

Source: Peter Lanjouw & R. Margai, 2008.

129

Industrial growth performance during 1980s and 1990s is shown

in Table 4.9. The rate of industrial growth in the state of Uttar Pradesh

was reported 7.7 per cent during 1980s which came down to just 3.6

per cent during 1990s. However, in the states like Gujarat and

Maharashtra, there has been significant increase in the percentage

points in industrial growth during the two periods. Similarly, the growth

in services sector and agriculture sector has slowed down in the state of

Uttar Pradesh while in other states, it has shown increasing trends.

Importantly, the share of industry in GSDP was reported 17 per cent in

1980s which has slightly increased to 19 per cent in 1990s in the state

of Uttar Pradesh.

Table: 4.9

Industrial Growth Performance during 1980s &1990s

(Percentage)

State Agriculture Industry Services GSDP

1980 1990 1980 1990 1980 1990 1980 1990

Gujarat -1 4 7.80 12 7.70 8.60 5.11 9.60

Karnataka 2.80 3.80 6.60 6.20 7.40 7.0 5.30 5.30

Maharashtra 3.10 3.50 5.90 8.20 6.90 9.10 6.0 8.0

Haryana 3.80 2.20 9.70 5.60 7.80 6.70 6.40 5.00

Punjab 5.00 2.90 7.0 8.0 5.30 5.20 5.30 4.70

Uttar Pradesh 2.5 2.1 7.7 3.6 6.4 4.2 4.8 3.2

All India 3.1 3.4 6.9 6.6 6.4 7.5 5.4 6.1

Share in GSDP

Gujarat 30 21 32 38 38 41 100 100

Karnataka 39 33 21 23 40 44 100 100

Maharashtra 23 18 34 33 43 49 100 100

Haryana 48 42 21 23 31 35 100 100

Punjab 49 46 19 22 32 32 100 100

Uttar Pradesh 46 40 17 19 36 41 100 100

All India 36 30 25 27 39 43 100 100

Source: Uttar Pradesh Development Report, 2007.

Index of Infrastructural Development during 1980s and 1990s is

shown in Table 4.10. There has been significant change in the index of

130

infrastructure development in post-reform period as compared pre-

reform period. Substantial increases took place in less developed states

like Madhya Pradesh, Orissa and Rajasthan. Andhra Pradesh,

Karnataka and Gujarat reported nominal change in the index

infrastructure development however; negative growth rate was reported

in the states of West Bengal, Haryana, Kerala, Punjab, Bihar and Uttar

Pradesh.

Table: 4.10

State Relatives in the Index of Infrastructural Development, in early and late 1990s

State State Relatives for

Early 1990's Late 1990's % Change

Madhya Pradesh 65.9 75.8 15.0

Rajasthan 70.5 75.9 7.7

Orissa 74.5 81.0 8.8


Assam 81.9 77.7 -5.2

Bihar 92.0 81.3 -11.6

Andhra Pradesh 99.2 103.3 4.1

Karnataka 101.2 104.9 3.6

Uttar Pradesh 111.8 101.2 -9.5

Maharashtra 121.7 112.8 -7.3

Gujarat 123.0 124.3 1.1

West Bengal 131.7 111.3 -15.5

Tamil Nadu 149.9 149.1 -0.5

Haryana 158.9 137.5 -13.4

Kerala 205.4 178.7 -13.0

Punjab 219.2 187.6 -14.4

Source: Tenth & Eleventh Finance Commission Reports.

131

State-wise number of registered factories in India is shown in

Table 4.11. Most of the registered factories are found located in Andhra

Pradesh, Kerala, Maharashtra, Punjab, Rajasthan and Pondicherry.

During 2000, a large number of industries were registered in Andhra

Pradesh, Maharashtra, Kerala, Rajasthan and Punjab.

Table: 4.11

State-wise Number of Registered Factories in India

Sta

te/U

Ts

On

Reg

iste

r a

t th

e

Be

gin

nin

g o

f th

e y

ear

Ne

wly

Re

gis

t-e

red

Du

rin

g

the y

ea

r

Re

mo

ve

d f

rom

th

e

Re

gis

ter

Du

rin

g t

he y

ea

r

On

Reg

iste

r a

t th

e e

nd

of

the y

ea

r

Wo

rkin

g o

n a

ny d

ay

du

rin

g t

he y

ear

Su

bm

itti

ng

Re

turn

s

Pe

rce

nta

ge

s R

esp

on

se

Andhra Pradesh

33212 2795 1347 34660 28924 13123 45.37

Assam 2308 99 1 2406 1574 432 27.45

Delhi 7038 222 41 7219 6641 1340 20.18

Kerala 18514 734 694 18554 18554 5792 31.22

Madhya Pradesh

11220 297 3644 7873 7869 952 12.1

Maharashtra 33701 1898 921 34678 29637 17286 58.33

Meghalaya 66 5 -- 71 71 59 83.1

Orissa 2513 149 48 2614 1900 866 45.58

Punjab 13731 298 113 13916 13596 2176 16

Rajasthan 8853 549 216 9186 9186 2254 24.54

Tripura 1331 34 16 1349 1349 196 14.53

Chandigarh 534 -- 5 529 529 217 41.02

Pondicherry 1627 189 42 1774 1774 424 23.9

Total 134648 7269 7088 134829 121604 45117 37.1

Source: Statistics of Factories, Ministry of Labour, Government of India.

132

State-wise unorganized manufacturing enterprises are shown in

Table 4.12 Most of unorganized manufacturing enterprises were

reported in Uttar Pradesh (17.34 per cent) followed by West Bengal

(13.16 per cent), Orissa (9.58 per cent), Bihar (9.25 per cent) and

Andhra Pradesh (8.57 per cent). Again, most of unorganized

manufacturing enterprises were found located in rural areas of these

states.

Table: 4.12

State-wise Unorganized Manufacturing Enterprises in India

States/UTs Number of Enterprises % Share

Rural Urban All

Uttar Pradesh 1835877 678884 2514761 17.34

West Bengal 1531183 377801 1908984 13.16

Orissa 1321784 68023 1389807 9.58

Bihar 1149347 192688 1342035 9.25

Andhra Pradesh 964579 277865 1242444 8.57

Tamil Nadu 643419 513284 1156703 7.98

Maharashtra 437030 427650 864680 5.96

Karnataka 604631 234677 839308 5.79

Madhya Pradesh 451549 200134 651683 4.49

Gujarat 238373 389677 628050 4.33

Rajasthan 303628 162416 466044 3.21

Assam 274842 32257 307099 2.12

Kerala 235320 59257 294577 2.03

Punjab 120447 129391 249838 1.72

Delhi 33198 143513 176711 1.22

Haryana 77113 64404 141517 0.98

Himachal Pradesh 87192 11242 98434 0.68

Other States & Union Territories

187572 43864 231436 1.59

India 10497084 4007027 14504111 100

Source: Economic Review 2001--02, Govt. of West Bengal.

133

Human development index during 1991 and 2001 of major states

is shown in Table 4.13. There has been significant negative change in

human development index in the states of Andhra Pradesh, Assam,

Gujarat, Kerala, Punjab, Tamil Nadu, Haryana and Karnataka. The

states of Rajasthan, Uttar Pradesh, Bihar, Orissa and West Bengal

reported negative change however; it was slightly low as compared to

other major states.

Table: 4.13

State Relatives in Human Development Index

State State Relative for

1991 2001 % Change

Bihar 80.84 77.75 -3.82

Uttar Pradesh 82.41 82.20 -0.26


Orissa 90.55 85.59 -5.48

Rajasthan 91.08 89.83 -1.37

Assam 91.34 81.78 -10.47

Andhra Pradesh 98.95 88.14 -10.93

West Bengal 106.04 100.00 -5.69

Karnataka 108.14 101.27 -6.35

Gujarat 113.12 101.48 -10.29

Haryana 116.27 107.84 -7.25

Maharashtra 118.64 110.81 -6.60

Tamil Nadu 122.31 112.50 -8.02

Punjab 124.67 113.77 -8.74

Kerala 155.12 135.17 -12.86

Source: Human Development Report 2001, Planning Commission.

134

As per report of India Human Development, 2011, there has been

overall improvement in human development index; however, the value

of human development index varies depending upon the geographical

areas and states. Human development index during 2007-08 was

recorded high in Kerala, Delhi, Goa, Gujarat, Haryana, Maharashtra,

Punjab, Tamil Nadu, West Bengal, Himachal Pradesh, Jammu &

Kashmir and Uttarakhand while it was recorded low in Chhattisgarh,

Bihar, Jharkhand, Madhya Pradesh, Orissa, Rajasthan and Uttar

Pradesh (Table 4.14).

Table: 4.14

Human Development Index and Its Components by States

Non-Special Category

States

Health Index 2008

Income Index 2007-08

Education Index 2007-08

HDI 2007-08

Andhra Pradesh

0.580 0.287 0.553 0.473

Assam 0.407 0.288 0.636 0.444

Bihar 0.563 0.127 0.409 0.367

Chhattisgarh 0.417 0.133 0.526 0.358

Delhi 0.763 0.678 0.809 0.750

Goa 0.650 0.443 0.758 0.617

Gujarat 0.633 0.371 0.577 0.527

Haryana 0.627 0.408 0.622 0.552

Jharkhand 0.500 0.142 0.485 0.376

Karnataka 0.627 0.326 0.605 0.519

Kerala 0.817 0.629 0.924 0.790

Madhya Pradesh

0.430 0.173 0.522 0.375

Maharashtra 0.650 0.351 0.715 0.572

Orissa 0.450 0.139 0.499 0.362

Punjab 0.667 0.495 0.654 0.605

Rajasthan 0.587 0.253 0.462 0.434

Tamil Nadu 0.637 0.355 0.719 0.570

135

Uttar Pradesh 0.473 0.175 0.492 0.380

West Bengal 0.650 0.252 0.575 0.492


Himachal Pradesh

0.717 0.491 0.747 0.652

Jammu & Kashmir

0.530 0.459 0.597 0.529

NE (Excluding Assam)

0.663 0.386 0.670 0.573

Uttarakhand 0.530 0.302 0.638 0.490

All India 0.563 0.271 0.568 0.467

Source: Authors’ Computation.

Per capita private consumer expenditure in the post-reform period

is shown in Table 4.15. There has been remarkable growth in the per

capita private consumer expenditure in the states of Karnataka, Tamil

Nadu, Himachal Pradesh, Kerala and Gujarat however, there has been

negative change in the states of Bihar, Orissa, Assam, Madhya

Pradesh, Uttar Pradesh, Andhra Pradesh, West Bengal, Rajasthan and

Punjab.

Table: 4.15

State Relative Per Capita Private Consumer Expenditure in the Post-reform Period

State State Relative for

1993-94 1999-2000 % change

Bihar 72.15 70.59 -2.16

Orissa 74.94 70.00 -6.59

Assam 85.45 80.11 -6.25


Uttar Pradesh 90.69 87.48 -3.54

Karnataka 97.04 108.09 11.39

Andhra Pradesh 98.20 93.16 -5.14

136

West Bengal 101.58 96.73 -4.77

Tamil Nadu 104.91 115.29 9.89

Rajasthan 105.61 103.42 -2.08

Gujarat 108.74 114.77 5.54

Maharashtra 113.21 118.01 4.24


Haryana 124.22 129.94 4.60

Kerala 127.70 138.20 8.23

Punjab 139.13 134.03 -3.67

Source: Human Development Report 2001, Planning Commission.

Monthly per capita consumption expenditure has significantly

increased over the period of 1983 to 2004-05. Per capita monthly

consumer expenditure was recorded Rs. 125.13 in 1983 while it is

increased to Rs. 328.18 during 1993-94 and further increased to Rs.

700.33 in 2004-05. Per capita consumer expenditure also shows

significant regional variations over the period. Per capita consumer

expenditure during 2004-05 was recorded high in Nagaland, Goa, Delhi,

Kerala, Himachal Pradesh, Gujarat, Haryana, Punjab and Jammu &

Kashmir while it was recorded low in Bihar, Chhattisgarh, Jharkhand,

Orissa and Karnataka (Table 4.16).

Table: 4.16

Monthly Per Capita Consumption Expenditure

(In Rs.)

Non-Special Category States 1983 1993-94 2004-05

Andhra Pradesh 126.27 322.28 704.49

Assam 117.87 280.42 613.67

Bihar 99.53 236.78 446.38

Chhattisgarh -- -- 545.15

137

Delhi 228.64 777.01 1047.54

Goa 187.2 501.4 1406.02

Gujarat 133.59 356.87 872.47

Haryana 157.03 407.67 970.59

Jharkhand -- -- 568.72

Karnataka 132.81 318.47 627.36

Kerala 152.13 419.08 1111.06

Madhya Pradesh 111.61 289.83 558.89

Maharashtra 138.57 371.54 724.16

Orissa 104.06 245.94 460.68

Punjab 174.26 456.59 921.91

Rajasthan 134.5 346.6 724.27

Tamil Nadu 129.43 344.31 659.23

Uttar Pradesh 110.45 297.62 726.02

West Bengal 122.03 333.36 712.19


Arunachal Pradesh -- 343.75 798.76


Jammu & Kashmir 134.02 406.84 821.62

Manipur 133.25 305.59 663.5

Meghalaya -- 390.00 795.57

Mizoram 142.73 472.59 862.78

Nagaland -- 454.48 1259.59

Sikkim -- 321.12 787.2

Tripura -- 367.43 734.79

Uttarakhand -- -- 706.07

All India 125.13 328.18 700.33

Source: NSS 38th, 50th and 61st Rounds.

Selected indicators of human development for major states are

shown in Table 4.17. The life expectancy was reported high in the

138

states of Kerala, Haryana, Karnataka, Maharashtra, Punjab, Tamil

Nadu, West Bengal, Andhra Pradesh and Gujarat however, it was

reported low in the states of Uttar Pradesh, Assam, Madhya Pradesh,

Orissa and Bihar. Similarly, infant mortality rate was reported high in the

states of Madhya Pradesh, Orissa, Uttar Pradesh, Assam and

Rajasthan. The birth rate was reported high in the states of Uttar

Pradesh, Rajasthan, Madhya Pradesh, Bihar and Haryana.

Table: 4.17

Selected Indicators of Human Development for Major States

Major States Life Expectancy at Birth (2002-2006)

Infant Mortality Rate (Per 1000 live Births(

(2008)

Birth Rate (Per

1000) (2008)

Death Rate (Per

1000) (2008) Male Female Total Male Female Total

Andhra Pradesh

62.9 65.5 64.4 51 54 52 18.4 7.5

Assam 58.6 59.3 58.9 62 65 64 23.9 8.6

Bihar 62.2 60.4 61.6 53 58 56 28.9 7.3

Gujarat 62.9 65.2 64.1 49 51 50 22.6 6.9

Haryana 65.9 66.3 66.2 51 57 54 23.0 6.9

Karnataka 63.6 67.1 65.3 44 46 45 19.8 7.4

Kerala 71.4 76.3 74 10 13 12 14.6 6.6

Madhya Pradesh

58.1 57.8 58 68 72 70 28.0 8.6

Maharashtra 66.0 68.4 67.2 33 33 33 17.9 6.6

Orissa 59.5 59.6 59.6 68 70 69 21.4 9

Punjab 68.4 70.4 69.4 39 43 41 17.3 7.2

Rajasthan 61.5 62.3 62 60 65 63 27.5 6.8

Tamil Nadu 65.0 67.4 66.2 30 33 31 16.0 7.4

Uttar Pradesh 60.3 59.5 60 64 70 67 29.1 8.4

West Bengal 64.1 65.8 64.9 34 37 35 17.5 6.2

India 62.6 64.2 63.5 52 55 53 22.8 7.4

Source: Sample Registration System, Office of the Registrar General, India, Ministry of Home Affairs.

More than 1/4th population of the country lives below the poverty

line. Thus, more than 300 million persons were reported living below

139

poverty line in India. Poverty is found concentrated in the backward

states like Bihar, Jharkhand, Madhya Pradesh, Chhattisgarh,

Rajasthan, Uttar Pradesh, Uttarakhand and Orissa. There has been

higher level of poverty in rural India as compared to urban areas.

However, there has been significant declined in the number of poor and

poverty level in the rural areas over the period of time. About 81 million

persons in urban areas were reported living below poverty line during

2004-2005. Importantly, Uttar Pradesh, Maharashtra, Madhya Pradesh,

Andhra Pradesh and Bihar account for larger share in urban poor. The

percentage of urban poor was recorded highest in Orissa (44.3 per

cent), Madhya Pradesh (42.1 per cent), Uttar Pradesh (30.6 per cent),

Bihar (34.6 per cent) and Maharashtra (32.2 per cent). Indian poverty is

predominant in the rural areas where more than three quarters of all

poor people reside, though there is wide variation in poverty across

different states. Moreover, progress in reducing poverty is also very

uneven across different states of the country. The state-wise numbers

of urban poor are shown in Table 4.18. Largest numbers of urban poor

were reported in Maharashtra followed by Uttar Pradesh, Madhya

Pradesh, Tamil Nadu, Karnataka, Andhra Pradesh and Rajasthan.

Table: 4.18

Population below Poverty Line by States (2004-2005)

States/UT Rural Urban Combined

No. of persons (Lakh)

% of Persons


% of Persons


% of Persons

Andhra Pradesh 64.70 11.2 61.40 28.0 126.10 15.8

Arunachal Pradesh 1.94 22.3 0.09 3.3 2.03 17.6

Assam 54.50 22.3 1.28 3.3 55.77 19.7

Bihar 336.72 42.1 32.42 34.6 369.15 41.4

Chhattisgarhi 71.50 40.8 19.47 41.2 90.96 40.9

Delhi 0.63 6.9 22.30 15.2 22.93 14.7

140

Goa 0.36 5.4 1.64 21.3 2.01 13.8

Gujarat 63.49 19.1 27.19 13.0 90.69 16.8

Haryana 21.49 13.6 10.60 15.1 32.10 14.0

Himachal Pradesh 6.14 10.7 0.22 3.4 6.36 10.0

Jammu & Kashmir 3.66 4.6 2.19 7.9 5.85 5.4

Jharkhand 103.19 46.3 13.20 20.2 116.39 40.3

Karnataka 75.05 20.8 63.83 32.6 138.89 25.0

Kerala 32.43 13.2 17.17 20.2 49.60 15.0

Madhya Pradesh 175.65 36.9 74.03 42.1 249.68 38.3

Maharashtra 171.13 29.6 146.25 32.2 317.38 30.7

Manipur 3.76 22.3 0.20 3.3 3.95 17.3

Meghalaya 4.36 22.3 0.16 3.3 4.52 18.5

Mizoram 1.02 22.3 0.16 3.3 1.18 12.6

Nagaland 3.87 22.3 0.12 3.3 3.99 19.0

Orissa 151.75 46.8 26.74 44.3 178.49 46.4

Punjab 15.12 9.1 6.50 7.1 21.63 8.4

Rajasthan 87.38 18.7 47.51 32.9 134.89 22.1

Sikkim 1.12 22.3 0.02 3.3 1.14 20.1

Tamil Nadu 76.50 22.8 69.13 22.2 145.62 22.5

Tripura 6.18 22.3 0.20 3.3 6.38 18.9

Uttar Pradesh 473.00 33.4 117.03 30.6 590.03 32.8

Uttarakhand 27.11 40.8 8.85 36.5 35.96 39.6

West Bengal 173.22 28.6 35.14 14.8 208.36 24.7

A & N Islands 0.60 22.9 0.32 22.2 0.92 22.6

Chandigarh 0.08 7.1 0.67 7.1 0.74 7.1

D & Nagar Haveli 0.68 39.8 0.15 19.1 0.84 33.2

Daman & Diu 0.07 5.4 0.14 21.2 0.21 10.5

Lakshadweep 0.06 13.3 0.06 20.2 0.11 16.0

Pondicherry 0.78 22.9 1.59 22.2 2.37 22.4

All India 2209.24 28.3 807.96 25.7 3017.20 27.5

Source: Planning Commission, Govt. of India, 2007

Incidence of poverty during 1983, 1993-94 and 2004-05 in India is

shown in Table 4.19. Though, the incidence of poverty has drastically

141

declined from 44.5 per cent in 1983 to 36 per cent during 1993-94 and

further to 27.5 per cent during 2004-05. However, there are certain

states where poverty is still concentrating. The states where incidence

of poverty during 2004-05 was recorded high include Orissa, Bihar,

Jharkhand, Madhya Pradesh, Uttarakhand and Chhattisgarh. The

significant declined of poverty during the period of 1983 to 2004-05 was

recorded significantly high in Assam, Delhi, Andhra Pradesh, Gujarat,

Kerala, Punjab, Tamil Nadu, West Bengal, Jammu & Kashmir and

North-Eastern states.

Table: 4.19

Incidence of Poverty in India

(In Per cent)

Non-Special Category States

1983 1993-94 2004-05

Andhra Pradesh 28.9 22.2 15.8

Assam 40.5 40.9 19.7

Bihar 62.2 55.0 41.4

Chhattisgarh -- -- 40.9

Delhi 26.2 14.7 14.7

Goa 18.9 14.9 13.8

Gujarat 32.8 24.2 16.8

Haryana 21.4 25.1 14.0

Jharkhand -- -- 40.3

Karnataka 38.2 33.2 25.0

Kerala 40.4 25.4 15.0

Madhya Pradesh 49.8 42.5 38.3

Maharashtra 43.4 36.9 30.7

Orissa 65.3 48.6 46.4

Punjab 16.2 11.8 4.4

142

Rajasthan 34.5 27.4 22.1

Tamil Nadu 51.7 35.0 22.5

Uttar Pradesh 47.1 40.9 32.8

West Bengal 54.9 35.7 24.7


Arunachal Pradesh 40.9 39.4 17.6


Jammu & Kashmir 24.2 25.2 5.4

Manipur 37.0 33.8 17.3

Meghalaya 38.8 37.9 18.5

Mizoram 36.0 25.7 12.6

Nagaland 39.3 37.9 19.0

Sikkim 39.7 41.4 20.1

Tripura 40.0 39.0 18.9

Uttarakhand -- -- 39.6

All India 44.5 36.0 27.5

Source: Planning Commission, Government of India.

The 11th Plan has visualized the inclusive growth with spatial

development of India. The plan outlines a comprehensive programme

for development infrastructure especially in rural areas and in the

remote and backward regions of country consistent with the

requirements of inclusive growth at 9 per cent per annum. The plan has

also made budgetary provisions for infrastructure development of

backward regions through Backward Regions Grant Fund, especial plan

for Bihar and Action Plan for the undivided KBK (Kalahandi – Bolangir –

Koraput districts of Orissa) which have only been protected at the 10th

Plan level. In view of the steep declined in public investment, Planning

Commission suggested that states should focus on providing the

necessary policy framework and supporting environment to attract

143

private sector investment (Planning Commission, 2008). Most of the

flagship programmes address the backwardness in terms of the

particular sector. The overwhelming shares of the relatively backward

States clearly show that the flagship programmes are a major

instrument to direct funds to areas which lack infrastructure.

The development of backward regions has been a major concern

of planners in India. However, prior to the Tenth Plan, the issue of

development of backward areas was approached as primarily one of

development of States through the formula for distribution of Central

Assistance which was weighted in favour of less developed States and

through Special Area Programmes such as Hill Area Development

Programme, Border Area Development Programme, Drought Prone

Area Programme, Tribal Sub-Plan and so on. The emphasis was on

backwardness in terms of economic performance, though the impact of

historical and social factors in economic matters was also recognized. It

was also observed that special development schemes should not be

mere palliatives but the potential for growth present in most backward

areas needs to be tapped if these schemes are to have an impact. It

has been decided to provide Rs. 5820 crore per annum during the

Eleventh Five Year Plan for the two components, that is, the Districts

Component and the Special Plans for Bihar and the Kalahandi-Bolangir-

Koraput (KBK) districts of Orissa. The total provision for BRGF during

the Eleventh Plan would be Rs. 29100 crore. Presently, 250 districts

from 27 states share covered under the scheme.

There is imperative need to reduce inter-state and intra-state

disparities in development. Major initiatives from the Planning

Commission are called for bridging the infrastructural gaps by mobilizing

massive public and private investments for the less developed areas;

restructuring the institutions for the management of infrastructure and

initiating reforms in governance. However, our experience with regard to

144

development planning in India shows that regional planning has failed to

ensure adequate development of backward regions within the

geographical regions and also within the larger states. In view of the

regional disparity, massive investment dose has been provided by

Planning Commission and also through fiscal transfers to the states.

Inter–State Analysis of FDI Inflows:

There are several factors which influence FDI flows in India. The

important factors are related to investment climate, economic

infrastructure and politico–legal environment. These factors have

influenced FDI attraction in several states of the country. There has

been comparatively more foreign investment in the states like Gujarat,

Maharashtra, Karnataka, Andhra Pradesh, Tamil Nadu and nominal

investment has been reported in the states where the problems related

to regular supply of electricity, communication and connectivity,

security, and investment climate are prevailing.

During 1991 to 2002, Uttar Pradesh attracted the FDI inflows in

the tune of Rs. 47,964 million which constitutes 1.69 per cent of total

FDI inflows in India. Out of total FDI approvals, Uttar Pradesh attracted

only 713 FDI approvals during the period which accounted for 4.85 per

cent. State–wise FDI investment is shown in Table 4.20.

Table: 4.20

State-wise Foreign Direct Investment

State Amount (Rs. Million) (Aug.1991 –

September 2002)

No. of Approvals (August 1991–

September 2002)

Percent of Total FDI Approved

Amount Number

Maharashtra 490797 3570 17.35 24.32

Delhi 338740 1674 11.96 11.40

Tamil Nadu 235443 1962 8.32 13.36

Karnataka 225632 1746 7.97 11.89

Gujarat 184623 1010 6.52 6.88

Andhra Pradesh 131049 901 4.63 6.13

145

Madhya Pradesh 92347 219 3.26 1.49

West Bengal 89068 561 3.14 3.84

Orissa 82292 136 2.91 0.92

Uttar Pradesh 47964 713 1.69 4.85

Haryana 35198 739 1.24 5.03

Rajasthan 30052 310 1.06 2.11

Punjab 19684 174 0.69 1.18

Kerala 15290 236 0.54 1.60

Pondicherry 12423 105 0.43 0.71

Himachal Pradesh 11739 93 0.41 0.63

Goa 9707 163 0.34 1.11

Bihar 7397 48 0.26 0.32

Chhattisgarh 6328 44 0.22 0.29

Chandigarh 1653 - 0.05 -

Jharkhand 1438 - 0.05 -

Uttaranchal 1257 - 0.04 -

Dadar Nagar Haveli 1240 - 0.04 -

Others 756392 273 26.74 1.86

Total 2827753 14677 100.00 100.00

Source: Ministry of Commerce & Industry, Government of India, Delhi, 2003

Maharashtra (17.35 per cent), Delhi (11.96 per cent), Tamil Nadu

(8.32 per cent), Karnataka (7.97 per cent) and Gujarat (6.52 per cent)

are the major states where more than half the FDI was invested. Uttar

Pradesh has almost negligible share in total FDI investment in India.

There is marked variance in the amount of FDI investment in various

states. Foreign investment in the state of Uttar Pradesh has been

reviewed over the period in view of the fact that the state is one of the

largest populated states, industrially backward and has favourable

government policy towards foreign direct investment, and a number of

NRIs living in various corners of the globe which may invest in the state.

Moreover, the researcher is also NRI of the state, therefore, it is felt that

foreign direct investment in the state of Uttar Pradesh is justified and is

called for. The liberalization of foreign direct investment policy and the

steady growth of the Indian economy contributed to a large increase in

FDI inflows during the Tenth Plan as seen in Table 4.21. There has

146

been phenomenal growth in FDI inflows during the Tenth Plan. During

2006-07, total FDI inflows reported to be $19531 million in India. As a

result of various rationalization measures, the FDI policy has become

progressively more liberal, transparent and investor friendly. A liberal

and transparent FDI policy has been put in place for industry, services

and infrastructure sectors under which FDI upto 100 per cent is

permitted in more sectors on the automatic route.

Table: 4.21

Foreign Investment Flows during Tenth Plan Period

(Value: US$ million)

Financial Year

(April-March)

Equity Reinvested earnings

Other capital

Total FDI

Inflows

%age growth

over previous FIPB Route/

RBI's Automatic

Equity capital of unincorporated

bodies

2002-03 2574 190 1833 438 5035 () 18

2003-04 2197 32 1460 633 4322 () 14

2004-05 3250 528 1904 369 6051 (+) 40

2005-05 5540 280 1676 226 7722 (+) 28

2006-07 15585 480 2936 530 19531 (+) 153

Source: DGCI&S.

Industrial investment during 1991 to 2007 was reported highest in

high income states (52.01 per cent) while only 17.47 per cent industrial

investment was reported in low income states. Interestingly, investment

per unit was recorded low in high income states and high in medium

income states. Employment per unit was also reported significantly high

in low income states as compared to high income states. Capital labour

ratio was found high in middle income states and low in low income

states. Thus, there are a few states where industrial investment in terms

of foreign direct investment is found concentrated due to conducive

investment climate and policy regime (Table 4.22).

147

Table: 4.22

Industrial Investment Flows in India During 1991-2007

Sh

are

Of

Inv

es

tmen

t (%

)

Inv

es

tme

nt

Pe

r U

nit

(M

illi

on

Ru

pe

es

Pe

r U

nit

)

Em

plo

ym

en

t P

er

Un

it (

No

)

Ca

pit

al

La

bo

r R

ati

o (

Milli

on

Or

Te

n L

ak

h R

up

ee

s P

er

Em

plo

yee

)

Inv

es

tme

nt

Pe

r U

nit

(R

ela

tive

To

All

In

dia

Av

era

ge

10

0)

Em

plo

ym

en

t P

er

Un

it (

Re

lati

ve

To

All

In

dia

Av

era

ge

)

Ca

pit

al

La

bo

r R

ati

o (

Re

lati

ve

To

All

In

dia

Av

era

ge

(10

0))

Chhattisgarh 0.46 190.72 128.67 1.48 65.7 60.0 109.5

Orissa 4.42 1425.33 312.14 4.57 491.1 145.6 337.4

Uttar Pradesh

7.95 271.45 280.54 0.97 93.5 130.8 71.5

Jharkhand 0.29 210.41 123.31 1.71 72.5 57.5 126.1

Madhya Pradesh

2.58 220.23 210.03 1.05 75.9 97.9 77.5

Rajasthan 1.33 167.83 158.50 1.06 57.8 73.9 78.2

Bihar 1.19 431.71 402.08 1.07 148.8 187.5 79.3

Low Income

States (LIS)

17.47 311.05 247.37 1.26 107.2 115.4 92.9

Himachal Pradesh

0.40 145.11 184.96 0.78 50.0 86.3 58.0

Assam 1.98 1915.49 364.56 5.25 660.0 170.0 388.2

Meghalaya 0.01 29.02 42.89 0.68 10.0 20.0 50.0

NESCS 1.99 533.57 211.15 2.53 183.8 98.5 186.7

Andhra Pradesh

11.24 283.66 178.08 1.59 97.7 83.0 117.7

Karnataka 8.41 393.68 286.73 1.37 135.6 133.7 101.4

West Bengal 3.38 408.74 203.72 2.01 140.8 95.0 148.2

Kerala 2.33 397.78 204.35 1.95 137.1 95.3 143.8

MIS 25.36 337.62 213.85 1.58 116.3 99.7 116.7

Gujarat 17.36 466.51 162.22 2.88 160.7 75.6 212.5

Maharashtra 15.18 319.25 226.72 1.41 110.0 105.7 104.0

Tamil Nadu 10.43 156.84 176.56 0.89 54.0 82.3 65.6

Punjab 5.35 267.71 312.42 0.86 92.2 145.7 63.3

Haryana 3.55 180.76 265.61 0.68 62.3 123.9 50.3

Goa 0.14 45.15 92.93 0.49 15.6 43.3 35.9

HIS 52.01 268.11 207.78 1.29 92.4 96.9 95.3

Union Territories

1.55 146.56 152.26 0.96 50.5 71.0 71.1

All India 100.00 290.23 214.44 1.35 100.0 100.0 100.0

Source: BIA, EPW, July 28, 2007

148

Industrial investment is still concentrated in a few districts where

investment climate is more conducive. A comparison of top industrial

districts and their investment shares in pre-and post-reform period is

shown in Table 4.23. However, in the post-reform period, the share of

investment in top 10 districts as well as top 25 districts has slightly

saturated.

Table: 4.23

Top Industrial Districts and Their Investment Shares All Industry

Pre-Reform Post-Reform

1 Greater Bombay MAH 8.23 Bharuch GUJ 4.29

2 Vadodara GUJ 3.9 Surat GUJ 4.28

3 Lucknow UP 3.71 Jamnagar GUJ 3.55

4 Vishakhapatnam AP 2.93 Chengaianna TN 3.45

5 Barddhaman WB 2.74 Raigarh MAH 2.82

6 Madras TN 2.48 Greater Bombay MAH 2.75

7 Pune MAH 2.34 DakshinKannad KAR 2.57

8 Hyderabad AP 2.31 Vishakhapatnam AP 2.06

9 PurbiSinghbhum BIH 2.26 South Arcot TN 2

10 Patiala PUN 1.81 Ratnagiri MAH 1.8

Top 10 Total 32.71 Top 10 Total 29.58

11 Raigarh MAH 1.8 Ghaziabad UP 1.75

12 Bangalore KAR 1.79 Bhatinda PUN 1.68

13 Jabalpur MP 1.67 Pune MAH 1.61

14 Surat GUJ 1.66 Thane MAH 1.61

15 Chengaianna TN 1.52 Barddhaman WB 1.52

16 Sundargarh ORI 1.5 Bellary KAR 1.39

17 N. 24 Parganas WB 1.5 Ganjam ORI 1.36

18 Dhanbad BIH 1.44 Medinipur WB 1.35

19 Sonbhadra UP 1.38 Vadodara GUJ 1.34

20 Dhenkanal ORI 1.36 Sagar MP 1.15

21 Thane MAH 1.33 Cuttack ORI 1.11

22 Bharuch GUJ 1.2 Dibrugarh ASS 1.04

23 Jaipur RAJ 1.17 PurbiSinghbhum BIH 1.04

24 Durg MP 1.02 Raipur MP 1.03

25 Ahmadabad GUJ 0.9 Koraput ORI 0.98

Top 25 Total 53.95 Top 25 Total 49.53

Source: Chakravorty (2003)

149

Foreign investment comprising foreign direct investment and

portfolio investment on net basis was 14.8 billion dollar in 2006-07 and

45.0 billion dollar in 2007-08. As a proportion of total capital flows, net

foreign investment stood at 41.6 per cent in 2007-08. However, its

share declined to 26.4 per cent during 2008-09 on account of foreign

investment outflows as a result of global financial crisis. As per

UNCTAD report, 2008, India achieved a growth of 85.1 per cent in FDI

inflows which was the highest at the global level. The total flows

increased from $25.1 billion in 2007 to $46.1 billion in 2008. This is

despite 14.5 per cent decline in global FDI inflows. India also ranked 9th

in the global FDI inflows during 2008 (Table 4.24).

Table: 4.24

Comparative Status of Foreign Direct Investment (US$ Billions)

Rank in 2008 Countries 2007 2008 Growth Rate (%)

1 USA 232.8 320.9 37.8

2 France 158.0 126.1 -20.2

3 UK 196.4 96.8 -50.7

4 Belgium 70.0 94.2 34.6

5 China 83.5 92.4 10.6

6 Russia 52.5 70.3 34.0

7 Spain 68.8 65.5 -4.8

8 Hong Kong China

59.9 63.0 5.2

9 India 25.1 46.5 85.1

10 Brazil 34.6 45.1 30.3

11 Sweden 22.1 40.4 83.1

World 1940.9 1658.5 -14.5

Source: World Investment Report, 2008.

150

Sector-wise FDI inflows are shown in Table 4.25. The sectoral

shares of FDI inflows have fluctuated significantly in the recent years.

Apart from financial and non-financial services, telecommunications,

housing and real estate, and construction have emerged as the most

significant recipients. The shares of petroleum and natural gas and

power sector have been on the increase while that of metallurgical

industries came down sharply. The services sector has emerged with

the lion's share in FDI inflows (40 per cent) while manufacturing sector

constituted 35 per cent share in FDI inflows. Infrastructure sector

constitute about 18 per cent share in FDI inflows.

Table: 4.25

Sectors Attracting Highest FDI Flows

(Rs. Crore)

Sector 2007-08 2008-09 Change (per cent) in 2008-09

Services 26589.3 28410.7 6.9

Housing & real estate 8749.3 12621.2 44.3

Telecommunications 5102.6 11726.9 129.8

Construction 6989.3 8791.9 25.8

Computer Software & Hardware 5623.3 7328.5 30.3

Automobiles 2697.0 5211.7 93.2

Power 3877.5 4381.8 13.0

Metallurgical industries 4686.0 4156.7 -11.3

Information & Broadcasting 1290.3 3492.4 170.7

Chemicals (except fertilizers) 917.6 3427.1 273.5

Grand Total all FDI equity flows 98664 122919 24.6

Source: Department of Industrial Policy and Promotion.

In spite of the fact that India is a strategic location with access to

a vast domestic and South Asian market, its share in world‟s total flow

of direct investment to developing countries is a meager 1.5 per cent.

151

This calls for further liberalization of norms for investment by present

and prospective foreign entrepreneurs. Attracting foreign capital

requires an investor–friendly environment. It underlines the need for

efficient and adequate infrastructural facilities, availability of skilled and

semi–skilled labour force, business–friendly public administration and

moderate rate of taxation. A disquieting trend has been noticed in

recent years that a sizeable amount of FDI is used for acquiring Indian

companies rather than creating new productive assets. This has

involved only a change of ownership of the existing assets without

adding to the productive capacity of the economy. This tendency needs

to be discouraged. FDI becomes meaningful only when new capacities

are created in the economy or the existing capacities are made more

efficient and competitive. Though economic reforms welcoming foreign

capital were introduced in the 1990s, it does not seem so far to be really

evident in our overall attitude. There is a lingering perception abroad

that foreign investors are still looked at with some suspicion. The made

in India level is not being conceived by the world as synonymous with

quality. The biggest barrier for India is at the first, screening stage itself

in the action cycle. Often India loses out at the screening stage itself.

This is primarily because we do not get across effectively to the

decision making board room levels of corporate entities where a final

decision is taken. Our promotional effort is quite often a general nature

and not corporate specific. India is a multi–cultural society and a large

number of multinational companies do not understand the diversity and

the multiplural nature of the society and the different stake holders in

this country. On the other hand, China is viewed a more business

oriented, its decision–making is faster and has more FDI friendly

policies.

chapter: 4 inter-state analysis of economic...

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