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.
