Current Indian Economy
To start with, Please go through the below figure to get an idea about the size of Indian economy
Country wise GDP Source:World bank database
Excerpts from
" Understanding Regional Economic Growth in India" authored by Jeffrey D. Sachs, Nirupam Bajpai and Ananthi Ramiah is a good starting point for our discussion. They states in their study " India accounts for a meager 2.4 percent of the world surface area yet it sustains a whooping 16.7
percent of the world population, a little over 1 billion people residing in 29 states and 6 union territories. The variation across these states and territories is enormous in regard to physical geography, culture, and economic conditions. Some states have achieved rapid economic growth in recent years, while others have languished."
"A number of studies covering different time periods have examined whether per capita income levels have been converging or diverging in India. Most of the papers, like ours, find a tendency towards divergence rather than convergence.
Nair1 (1971) analyzed the inter-state differences between 1950-60 and found that there was no noticeable reduction in the income differentials. In other words, the first decade of Indian planning does not seem to have witnessed any tendency towards convergence of income levels. Similarly, Chaudhury (1974) in a paper studying state income inequalities between 1950-70 concluded that the degree of state income inequality had remained unchanged. Majumdar and Kapoor (1980) suggest that over the period 1962-76, there has been a steady increase in the inter-state inequalities of income in India.Gupta (1973) studying the role of the public sector in reducing the regional income disparity in the Five Year Plans suggests that the public sector investment activities over the period 1950-66 have contributed to reducing the spatial income disparity in the country. The public sector net investment constituted nearly 70 per cent of the total net investment over the Fourth plan period. Hence, the public sector influence in reducing regional income disparities was notable. Similarly, Sarkar2 (1994) studying the pre-reform period finds a strong link between regional imbalances and Plan outlays. He finds that per capita Plan outlays were strongly linked with per capita consumption of electricity, per capita expenditure on health, percentage of villages' electrified and effective literacy rates.
Dholakia (1994) analyzing 20 Indian states over the period 1960-90 finds marked tendencies of convergence of long-term State Domestic Product (SDP) growth rates3. This appears to be due to the inclusion of the five special category Indian states4 and Delhi along with the 14 major Indian states. Cashin and Sahay (1996) also reach similar conclusions as Dholakia, finding absolute convergence in a study of 20
states over the period 1961-91. Rao, Shand, and Kalirajan (1999), by contrast, suggest that per capita SDP in the Indian states have tended to diverge rather than converge. Per capita SDP growth is positively related to their initial levels. States with better infrastructure and human resources have had an edge over the others in attracting investment in the post-reform era. Dasgupta et. al. (2000) also report a distinct tendency for the Indian states to have diverged during the period 1960-95 as far as per capita SDP is concerned.5 Kurian (2000) finds widening regional disparities among the Indian states and a clear dichotomy between what he calls the forward and backward states. The former having higher levels of per capita income, better infrastructure, higher per capita resource flows and private investment and better social and demographic indicators. Ahluwalia (2001) analyzing the economic performance of the Indian states during the post-reform period suggests that not all the richest states got richer relative to poorer states. He cites Punjab and Haryana as two key examples. While these were the two richest states in 1990-91, their growth rates of per capita SDP in the 1990s were not only lower than in the 1980s, but also in both cases actually fell below the national average. He also points out that not all the poorer states lagged behind. While suggesting that two poor states, Rajasthan and Madhya Pradesh had performed well, Alhuwalia does not offer an explanation for their better performance, however.
The conclusions of these studies differ according to which group of states is examined. When focusing on the most populous states, there seems to be little evidence of convergence, while there may be some convergence of the small Northeastern states with the rest of the country. Our findings, which also
focus on the 14 most populous states and leave aside the question of the Northeast, similarly find evidence of overall divergence rather than convergence.
During 1980-90 growth patterns were divergent. As just one example, the state with the highest GSDP per capita level in 1980 was Punjab at Rs. 3020 per month and the state with the lowest GSDP per capita level was Bihar at 1062 per month. In terms of growth rates from 1980/81 to 1990/91, Punjab grew at 3.78 percent per annum and Bihar at 2.94 percent per annum.<!-- Begin of As Table 4 shows, this made Punjab the 6th fastest growing state and Bihar the 10th. More generally, the richest states also had the highest growth rates, as shown in the table. The only notable exception is Rajasthan, which had the second lowest initial GSDP per capita level, but was the fastest growing state during the 1980s. Apart from Rajasthan, all states have generally grown in a manner that perpetuates divergent trends during the pre-reform period. Do states exhibit convergent trends during the post-reform period? The fastest growing state is Maharashtra, but it also has one of the highest GSDP levels of the 14 states. Overall there is a significant positive relationship between initial income in 1990 and growth during the 1990s, indicating divergence. The manufacturing sector is a much more consistent engine of growth, and it is likely to play a growing role after 1991 with the opening of the economy. As China’s experience demonstrates, trade liberalization in a low-wage, surplus-labor environment permits a rapid expansion of export-oriented industry, which can absorb large numbers of workers to provide goods for the world market. India’s insertion into the world economy has been much less dramatic, and successful, than China’s, but it has been real nonetheless. The share of exports of goods and services in GNP was stable at 7 percent in 1980 and 1990, and after reforms rose to 11 percent in 1999 (WDR, 1997 and 2000/1, Table 13). In China the comparable share rose from 6 percent in 1980 to 18 percent in 1990 and 22 percent in 1999. There are many differences in this experience between China and India. China’s reforms were bolder in promoting both FDI and manufacturing exports (Bajpai and Sachs, 2000), and China benefited from the vast inflows of FDI from overseas Chinese investors, especially in Hong Kong, Taiwan,China, and Southeast Asia." "The tourist sector can also be a source of export-led growth, but in a country the size of India, it is likely to play a secondary role except in some local niches. Tourist potential is, of course, very much geographically determined, as it depends on the physical environment (e.g. beachfront), the presence of historical sites, and easy access to transport nodes, especially international airports. Rajasthan has been the major state with the most significant growth and scale of the tourist industry, based on the popularity of tourist visits to Jaipur and Udaipur and the proximity to Delhi.'
"High-tech services, such as information-and-communications-based industry (e.g. software production), or financial services, are almost always reliant on a network of universities and an urban labor market. These sectors are much less dependent on coastal access, however, since much of their business can be transacted over telephone and Internet connections. A high quality of life of the location, as an
attraction for highly mobile skilled workers, probably looms larger in these sectors than in other sectors of the economy. The most important state for service-sector activities is surely Maharashtra, as it combines the country’s financial center with an important IT-based industry. Other key states include Tamil Nadu,
Karnataka, Delhi, and to a lesser extent Andhra Pradesh."
"There are major differences across states in the area of policy reform. A few of the Indian States have been more reform-oriented, such as Maharashtra, Tamil Nadu, Gujarat, Karnataka and Andhra Pradesh, but states, such as Haryana, Kerala, Orissa, Madhya Pradesh, Punjab, Rajasthan and West Bengal have wide ranging unfinished reform agendas to deal with. Of course, Bihar and Uttar Pradesh are even
further behind. Data on real annual average growth rates of per capita gross state domestic product bear testimony to the fact that four out of the five states that are more reform-oriented (with the exception of Andhra Pradesh) are also the fastest growing states in India in the post-reform period (Bajpai and Sachs,
1999). Interestingly enough, amongst the Southern states, both in Karnataka and Tamil Nadu, per capita incomes began to surge and exceed the national average since 1991-92. On the other hand, amongst the relatively poor reformers, Bihar, Madhya Pradesh, and Uttar Pradesh, and to a certain extent Orissa, have lagged far behind the all-India average, as also in the growth of SDP per capita of other states."
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