Trends in Inter-State Inequalities of Income in India

Abstract

An attempt is made in this paper to examine the tendency towards convergence of income levels among the states of India over the period 1961-93. We fmd convergence ofper capita income levels only during the first sub-period, that is, 1961-71. For the remaining two sub-periods, 1972-82 and 1983-93 we find evidence for per capita income levels to be diverging, although not significantly. We suggest that convergence during the period 1961-71 is primarily due to the impressive growth in the agricultural sector as a result of the green revolution. The slowing down of the industrial growth during the 1970s and the emergence of a city based pattern of industrial development which was concentrated only in a few regions seems to be the reason for the divergence seen during this sub-period. While there was a considerable step-up in India's GDP growth over the 1980s, however, the poor states were not able to catch up with their rich counterparts and the income levels continued to show divergence as in the earlier period. India's development strategy up until 1991 characterized by planning and state-led industrialization failed to reduce regional disparities in any meaningful manner. Four decades of planned economic development could not provide the necessary growth impetus for the poor and lagging states. With the launching of economic reforms in 1991 it may be reasonable to expect some states to surge ahead rapidly and that states, such as Kamataka, Kerala, Tamil Nadu and West Bengal may gain more from reforms in the initial stages rather than Uttar Pradesh, Madhya Pradesh or Bihar. Nirupam Bajpai is a Research Associate at the Harvard Institute for International Development. He received his Ph.D. in economics from the University ofLucknow in 1988. Jeffrey D. Sachs is the Director of the Harvard Institute for International Development and the Galen L. Stone Professor ofInternational Trade at Harvard University. Sachs serves as an economic advisor to several governments in Latin America, Eastern Europe, the former Soviet Union, and Asia. He has also been a consultant to the IMF, the World Bank, the GEeD, and the UNDP. Trends in Inter-State Inequalities of Income in India