Growth and Regional Divergence in Industry and Services

Abstract

This chapter analyses the processes of growth in output and the dynamics of its composition and regional distribution across 15 major states in India during 1970/1971–2008/2009. The upward trend in the growth rate of net domestic product (NDP) has been associated with an upward trend in the shares of industry and services and declining trend in the share of agriculture in NDP. The acceleration in the growth of NDP during the post-reform period was led significantly by the impressive growth in services. The sectors with higher growth rate have recorded lower instability in it. Per capita income from industry and services has grown differentially across the states, and the regional disparity in per capita income has increased over time in both the sectors. While the interstate disparities in per capita income have been persisting in industry, these are aggravated in services during the post-reform period. Structural changes in the economy have been associated with rising disparities in per capita income across states. While the regional disparities in physical, social and financial infrastructures have been responsible for the regional variations in per capita income from industry, the same in social and financial infrastructures have been primarily responsible for the regional disparities in per capita income from services. The results suggest that investment in physical, social and financial infrastructures could significantly improve the long-run growth performance of the states and reduce regional imbalances by accelerating growth in industry and services.