Has COVID-19 Distorted the State-Wise Convergence in India? An Empirical Analysis

Abstract

The study attempted to analyze the economic performance of Indian States with quarterly data from April 2018 to December 2021 by selecting high-frequency indicators. The majority of the States appeared to have reached their respective prepandemic levels, as indicated by trends in electricity generation, labor-force participation rate (LFPR), bank credit, and tax revenues, by the end of December 2021. However, in terms of indicators such as vehicle registrations and consumer sentiments, most States had not reached their pre-pandemic levels. We found that Sigma (unconditional) convergence among States was not evident for most of the indicators except bank credit, while beta (conditional) convergence slowed down in the aftermath of the coronavirus disease 2019 (COVID-19) pandemic based on indicators such as tax revenue, exports, and capital expenditure. In terms of bank credit, there was an indication of the convergence process coming to a standstill in the aftermath of COVID-19-induced disruptions.