Pattern of Development Spending and Its Impact on Human Development Index and Gross State Domestic Product in Low-income States in India

Abstract

The paper empirically examines the pattern and impact of development spending (DS) on human development index (HDI) and gross state domestic product (GSDP) in the low-income states (LIS), for the period of 1993–94 to 2014–15 for seven LIS states. Further analysing the sectoral impact of DS, panel unit root test and co-integration test were performed to analyse stationarity and panel long-run association among DS, GSDP and HDI. The paper finds that the share of DS in recent years for LIS is higher than the major states (MS), implying emphasis on social sector development. It also highlights the lagging behind a few LIS such as Uttar Pradesh, Jharkhand and Rajasthan. The paper sheds light on the long-run co-integrating relationship among DS, HDI and GSDP. It finds that the DS has a significant and positive influence on GSDP but not on HDI in the long run. Sector-specific analysis suggests a long-run equilibrium relationship between DS and all three sectors of economy. Though the coefficient of DS did not emerge to be significant for the HDI indicator, sector-specific analysis suggests that increased health spending is associated with better health outcomes. Prioritising on education, health and skill development, and other DS will help in economic advancement. Proper implementation of schemes may bring change in HDI outcomes.